IG Markets - Afternoon thoughts - 1 July 2010

IG Markets - Afternoon thoughts

In Asia, regional markets are all lower following another night of negative US leads and disappointing Chinese PMI numbers. The PMI came in lower than expected, with a separate report from the statistics bureau showing ugly conditions for the nation’s exporters. The Nikkei 225 is the worst performer, down 2.2%, with exporters coming under pressure. Elsewhere, with the Hang Seng on holiday, the Kospi and Shanghai Composite are 1.1% and 0.1% weaker respectively.

In Australia, the ASX 200 is currently 1.3% weaker at 4246 having traded to a session low of 4217. Unfortunately the beginning of a new financial year has not been enough to rid the market of the current bout of global uncertainty and risk aversion it is experiencing, with seemingly little in the immediate future to turn things around. Losses for the day are broad based with the heavyweight materials, financial, energy and industrial sectors all down heavily.

The market has been clearly hampered today by the weak finish to the US session and the softer-than-expected manufacturing data out of China. While the Chinese data does suggest some slowdown in activity levels, wasn’t this what the market was wanting? The market never ceases to amaze when it comes to China – it’s either growing too quickly or there are concerns it may be stalling.

Either way the market loves to sell-off on Chinese economic data. As China is seen as the beacon of the global economic recovery maybe we’re all a bit overly sensitive when it comes to China’s growth prospects.

Investor sentiment is certainly negative at the moment, as witnessed by the buying of defensive assets. The market is pricing in a double dip recession, both in Europe and the US. There’s no doubt this would have serious consequences for the local market.

The upcoming US earnings season is going to be crucial in determining the path for equities during the second half of 2010. The big question on everyone’s mind is whether or not a positive US earnings season can arrest the recent correction and absorb the negative sentiment.

Ben Potter
Market Strategist
IG Markets

Discover more about CFD trading with IG Markets, the world’s No.1 CFD provider*.

© Scoop Media