IG Markets Afternoon Report

Good afternoon,

Across Asia, regional markets are all higher, bouncing back pretty strongly from yesterday’s falls after US markets only posted modest declines in response to the US debt crisis overnight. The Hang Seng is the top performer, up 0.9% while elsewhere, the Nikkei 225, Shanghai Composite and Kospi are all up between 0.1% and 0.6%.

Locally, the ASX 200 is 1% higher at 4576, just off earlier highs of 4582. After opening the session 0.9% higher, the domestic market drifted for most of the morning as investors remained cautious ahead of President Obama’s speech at 11am. However, since then we’ve seen a pretty decent rally among equities as US dollar denominated commodities moved higher as the greenback came under renewed pressure. Energy, financial and material names are adding the bulk of the points.

We’re basically seeing a rebound from yesterday’s oversold market. The very subdued and calm reaction in US markets overnight has brought a degree of confidence back to the market that a deal in the US will be done. Nearly every opinion I’ve read shares the same view and that all we’re seeing in the US is typical political posturing. The big question will be which side will buckle and compromise on their beliefs to get a deal through?

Judging by the market’s reaction, it clearly isn’t that concerned about a US default. If participants actually thought it would happen, then gold would be significantly higher than where it is, equities would on the floor and the VIX would be well above its long-term historical average of 22 (it’s currently at 19).

Whilst there is the threat of a credit rating downgrade, many are questioning what affect it would actually have given the credibility of these agencies were lost years ago in the GFC mess.

ENDS

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