Market set for dip as investors play it safe

AUSTRALIAN shares are expected to dip when trading resumes this week, with investors cautious as the market teeters near record highs.

Futures suggest the benchmark S&P/ASX200 index will lose 17 points at open today.

The index finished 27 points higher on Friday, or 0.38 per cent, to hit 7130.2. That was just 2.5 points under the all-time record close of 7132.7 set on January 22.

CommSec chief economist Craig James says today’s expected weaker start is likely due to investors playing it safe.

“Investors do get a little bit cautious, when you’re at these fairly lofty levels,” he said yesterday. “You’re always looking for the environment to confirm whether the valuations are fair or not.”

The US market also closed higher on Friday, albeit modestly. Uncertainties surrounding the coronavirus epidemic and downbeat economic data had put a damper on investor sentiment for much of the day.

Ahead of the holiday weekend – with Presidents’ Day today – the S&P 500 and the Nasdaq closed modestly higher, while the Dow lost ground.

European markets also finished higher, with Mr James attributing the positive results to optimism about the duration of the havoc wrought by the coronavirus, now formally known as COVID-19.

“Certainly investors have taken the view that any economic impact from the coronavirus is probably going to be more short-term in nature and more limited to China than anything else.”

Back at home the earnings results season continues in full swing this week, with BHP, Coles, Wesfarmers, Nearmap, Qantas and Coca-Cola Amatil among the firms reporting.

Investors will also be keeping an eye on labour market data. The Australian Bureau of Statistics will release the wage price index for the fourth quarter of 2019 on Wednesday, with economics expecting it will show wages growth sticking at 0.5 per cent.

Labour force data for January is coming on Thursday, with economists expecting the unemployment rate to creep up slightly from 5.1 per cent to 5.2 per cent.

Weak jobs figures could create speculation about interest rates being cut once again, Mr James said.

The Reserve Bank of Australia will release the minutes from its February monetary policy meeting tomorrow, providing detail on its discussion of downside risks of interest.