IG Markets Afternoon Thoughts

Good afternoon,
Across Asia, regional markets are mixed despite the very strong leads from the US session. The Shanghai Composite is the worst performer, down 1.9% while the Hang Seng and Kospi are both down more than 0.1%. The Nikkei 225 is flat on the session.

In Australia, the ASX 200 is currently 0.7% weaker at 4767, right on its lows of the session. The day’s losses are somewhat surprising given the positive close to last week’s Wall Street trading that saw the major indices settle at 30-month highs, with China’s reserve rate ratio tightening having little impact on trader sentiment.

Unfortunately, the same cannot be said for here in Australia where the China-correlated materials and energy sectors are being hard hit. Financials, which were expected to benefit from a strong earnings report from JP Morgan, are also coming under heavy selling pressure. The information technology and consumer staples sectors are the only gainers on the session.

The ASX is really paying for its leverage to China today. This, combined with the effects of the flood has many investors concerned about production and earnings disappointments from the heavyweight miners. Any Chinese rate rise or tightening of the Reserve Rate Ratio is a pseudo rate hike for the Australian economy. It’s certainly not an opportune time for it at the moment given all the uncertainties hanging over the market. Clearly China is aggressively trying to reign in its inflation problems.

With no lead from the US tonight due to the Martin Luther King public holiday, we could well see the same concerns weighing on our market tomorrow.

ENDS

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