ASX Weekly Market Outlook and the Top Movers Last Week

The week been saw a slight pullback in the All Ords [ASX:XAO], gaining only 21 points for the week with the last two trading days pushing down on increased volume.

Increasing talk about the tariffs placed on Australian goods being sent to China seem to have halted the run-up in the All Ords for the time being.

ASX Outlook - ASX All Ordinaries XAO

Source: Optuma

ASX outlook for the week ahead

This week may be telling for the future direction of the All Ords.

Christmas is only a couple of weeks away and people will be spending up on gifts.

But are they spending to the usual levels this year?

The level of 6,986 points is proving difficult to crack. The price will need to move through this level to be considered bullish still.

If the pullback in price gains momentum, then the level of 6,486 may become the focus.

ASX XAO All Ordinaries Share Price Chart

Source: Optuma

A closer Look at the ASX

Although the overall market pulled back, some shares still gained ground.

BHP Group Ltd [ASX:BHP] moved up 3.18%, while Domino’s Pizza Enterprise Ltd [ASX:DMP] and Fortescue Metals Group Ltd [ASX:FMG] gained 4.21% and 11.35% respectively.

On the downside, Aristocrat Leisure Ltd [ASX:ALL] fell 5.40%, while Chorus Ltd [ASX:CNU] and Appen Ltd [ASX:APX] also declined 4.29% and 14.46% respectively.

Looking into the sectors, Technology was up 3.11%, while Consumer Discretionary also gained 1.46%. Real Estate and Industrials fell 1.08% and 1.50% respectively.

A broader look at the ASX

Chinese tariffs have been all over the news lately. With many people saying Australians should boycott Chinese companies.

China is a country of 1.39 billion people; we are 24.99 million (2018 figures).

Boycotting China does nothing as our impact to their economy would be too small to be felt.

While China looms large now, there may be a much larger issue than tariffs brewing.

The tariffs placed on Australian goods including wine, beef, barley, lobsters, and thermal coal have been largely offset by the price rise in iron ore.

The rise in price combines with a lack of iron ore supply from Brazil, and a falling US dollar is helping iron ore prices in Australia.

This could help as the Morrison government will announce a smaller budget deficit than originally forecast.

But the growth in China is largely fuelled by demand for pandemic-related products.

Medical device exports soared 46% in the first six months of 2020, textile exports — including face masks — jumped 32%, and notebook computer exports grew 9.1% in the same period.

Once the pandemic is over, there will likely be a drop off in the growth of China’s economy.

This may coincide with the rising number of defaults by state firms contracted to local governments in China.

The knock-on effect could very well be on the price of iron ore, at the time of writing sitting at $152.02.

To bring it all home, Australian unemployment is predicted to be as high as 15% in the coming years.

JobKeeper payments cease in March 2021 and a federal budget deficit of $442 billion.

If iron ore prices start to fall back the All Ords and overall Australian economy could be in for a rough ride.

Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.

Regards,

Carl Wittkopp,
For Money Morning


Carl Wittkopp writes for Money Morning and has a diploma in Financial Planning. He specialises in technical analysis.

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