ASX 200 Outlook Hinges On Fiscal Support As Covid-19 Cases Surge


ASX 200, Covid-19 Lockdown Restrictions, Australian Fiscal Policy – Talking Points:

  • A ‘second wave’ of coronavirus cases in Australia’s second biggest city threatens to hamper the nation’s tentative recovery
  • Uncertainty around the future of current fiscal policy measures could weigh on regional risk assets
  • The ASX 200 struggles to breach key Fibonacci resistance as technical divergence suggests a leg lower may be on the cards.

Melbourne Placed Under Stage 3 Lockdown as Covid-19 Cases Surge

An explosion of coronavirus cases in Melbourne’s inner suburbs has forced the hand of Victorian Premier Daniel Andrews, re-imposing state-wide stage three lockdowns on Australia’s second biggest city, for the next six weeks.

Estimated to cost the local government $1 billion a week, these measures were certainly not taken lightly as Andrews apologized for finding “ourselves in this position” whilst stressing that “getting this virus and dying from it is very onerous too”.

Image of Australian Covid-19 Cases

Source – Covid19Data

With the state accounting for “about a quarter of the national economy” Treasurer Josh Frydenberg believes this recent set-back is a “serious impediment to the nation’s recovery, not just Victoria”.

However, the Treasurer remains tight-lipped despite coming under increasing pressure to reveal what the fiscal landscape will look like after September, vaguely stating that “another phase of support will go the people who need it”.

Having announced over “$260 billion in economic support”, accounting for roughly “13% of GDP”, supplementary measures may not be as robust as expected, with the governments looking to implement “temporary, targeted, scalable and proportionate” measures to tackle the “challenges that we face”.

To that end, regional sentiment may remain pinned to local coronavirus concerns ahead of the July 23 economic address, with Prime Minister Scott Morrison expected to quench investor’s appetite for further fiscal stimulus.

Inability to do so could fuel risk aversion, ultimately stifling the recent rally seen in the ASX 200.

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ASX 200 Daily Chart – 61.8% Fibonacci Continues to Diffuse Bullish Potential

Image of ASX 200 Price Daily Chart

ASX 200 daily chart created using TradingView

The ASX 200 continues to struggle at pivotal 61.8% Fibonacci resistance (6,124) as fading fundamentals hamper the Australian benchmark index’s recovery from the March low (4,387).

A sustained correction lower looks to be on the cards as the RSI fails to follow price higher, suggesting exhaustion in the most recent rally from the 50% Fibonacci (5,792).

A daily close below the psychologically imposing 6,000 may trigger further selling, with a breach of support at the 50-day moving average (5,767) potentially carving a path back to the April high (5,589).

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— Written by Daniel Moss

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