ASX Index 200: Macro backdrop alarming, meets resistance at familiar level

• ASX 200 Index rejected at a critical resistance level with a focus on the downside.
• Economic data from the coronavirus pandemic are taking their toll.

Shares have slumped at the start of trade for a new month in the ASX 200 index. Following a poor ending on Wall Street and terrible data from Europe as well as the US, shares prices have fallen. At the time of writing, the index is trading -3.54% having travelled from a high of 5,522.40 to a low of 5,324.40. 

Global economic doom and gloom from the coronavirus pandemic are taking their toll today, following a series of upbeat sessions into the end of the month. Investors have cheered the action taken by governments and central banks to stimulate the global economy with a view that businesses will soon be heading back to work so long as the curve remains in a southerly trajectory.

For a glance at some analysis from ANZ bank, it notes that "decisive policy action by Australia’s state and territory governments, costing around AUD50bn so far, has been deployed to cushion the economic impact of the pandemic related shutdowns."

Key points

• Such policy action plus the contraction in economic activity will result in larger net debt expectations across the states and territories, with Victoria expected to see its debt rise most, compared to recent forecasts.
• State authorities have issued more than AUD33bn of semi-government bonds over the last two months, and we see this continuing, with outstanding semis expected to be around AUD74bn higher by 30 June 2021, compared to today. Demand is being supported by the Reserve Bank’s bond-buying program.
• Without discretionary policy action, economic conditions across the states and territories would have been worse, so we support the policy action.

Industries broadly down

Meanwhile, as for performances so far today, we have the energy sector in decline over 4% and Santos falling30 cents, or 6.07 per cent, to $4.64. At the same time, we have the industrials, financials, information technology, consumer discretionary and property sectors in decline by more than 3.0 per cent. The big four banks were also lower with NAB the worst of them, losing 85 cents, or 5.01 per cent, to $16.11. The gold miners were hard hit too.

ASX 200 Index

The ASX 200 was testing the 38.2% Fibonacci level (5470) but has failed for a second attempt which brings back focus to the 23.6% Fibo below it as 5060. However, on a break higher will extend towards a 50% mean reversion at 5794 ahead of a 61.8% golden ration at 6127. The bears will be looking for an extension below the COVID-19 lows of 4402.