IG Markets - Afternoon thoughts 2nd March

Across Asia, regional markets are all lower in afternoon trade after geopolitical tensions in the Middle East rattled investor sentiment once again. Oil prices spiked in response, triggering concerns over there impact on the global economic recovery. The Nikkei 225 and Hang Seng are the worst performers, both down 1.7%. Elsewhere, the Korean Kospi and Shanghai Composite are both weaker by 0.6%.

In Australia, the ASX 200 is currently 0.8% weaker at 4788, having traded to a session low of 4779. Losses for the day are broad based with all but the telecoms and healthcare sectors in negative territory. Further Middle-East unrest and some conflicting overnight comments from Bernanke over the state of the US economy is seeing convincing losses across the financial, materials and consumer discretionary sectors. The energy sector is seeing more modest losses with high oil prices offering little help to major producers

Yesterday we said markets were in limbo and awaiting the next developments in the Middle East. Well, that appears to have happened overnight with tensions spreading across the region to the likes of Bahrain and Iran; the latter is certainly the most worrisome for markets.

The resulting price action saw a resumption of the “risk off” trade, with money flowing from riskier assets and currencies into perceived safe havens like gold and silver. Oil prices surged on supply worries. This shattered market confidence further, with traders worried over the impact of surging oil prices on the global economic recovery.

At the end of the day, there’s a lot of uncertainty in the market place; nobody knows how long these geopolitical concerns will last. There’s also the threat of inflation, especially in emerging markets.

Ben Potter
Market Strategist
IG Markets

ENDS

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