Macro headwinds breed range-bound share markets

In the face of global macro headwinds, such as elevated inflation and slowing growth, both the ASX200 and AUD/USD will remain range-bound, according to online trading platform Capital.com.

“Ultimately, that’s what we are seeing for the ASX200. Zooming out, the index hasn’t gone anywhere in two years. In the even shorter term, we’ve been range trading even as Wall Street has gone on a tear,” Kyle Rodda, senior market analyst, said.

The range trading is a trading strategy that aims to identify a range at which investor buys and sells over a short period and the range bound market is a market in which price fluctuates between a specific high price and a low price and it is a trading technique that distinguishes stocks trading in channels.

While Rodda expected that the ASX200 would be moving towards range-bound share markets, he said the more important for the direction of markets was where rates would land in the long run.

“The so-called “trough rate” for US rates is moving higher, meaning the market’s perception of where restrictive settings are is moving higher. That’s a headwind to stock markets and a tailwind to the US Dollar,” he said.

“In the even shorter term, we’ve been range trading even as Wall Street has gone on a tear,” he added.

On top of that, the sell-off this week has been synchronised, with Wall Street’s sluggish lead compounding worries about China’s growth to weaken Asian indices.

The ASX200 has underperformed the lot, with materials and energy stocks falling, in a stark reminder that the index can’t sustainably push higher in the absence of good news out of China.

“On the data front, China’s trade figures were slightly better than feared, with both imports and exports in US Dollar terms falling by less than expected. The USD-denominated trade balance fell by more than forecast, however, posing further pressures to a weakening Yuan,” he added.