IG Markets Afternoon thoughts 5/7/11

Across Asia, regional markets are mixed following the lack of US leads overnight, with traders seemingly taking a breather after five consecutive days of gains. The Kospi is the top performer, up 0.5%. The Nikkei 225 and Hang Seng are flat while in China, the Shanghai Composite is 0.1% weaker following talks of possible interest rate rises.

In Australia, the ASX 200 is currently 0.1% weaker at 4605, having earlier fallen as low as 4594. With US markets on hiatus for Independence Day the local market has traded with little direction today, opening marginally higher before drifting slightly to oscillate around the 4600 level. Among the advancers, the materials sector is modestly higher after base metals firmed overnight while other major sector indices including the financials, energy and industrial are all to the downside.

After the slightly firmer open following the positive night in Europe, reports in Chinese newspapers suggesting further imminent interest rate hikes took the slight wind out of the markets’ sails. With US markets on holiday, it was struggling for leads anyway and these reports have just given traders a reason to step back or lock in some of last week’s gains.

The big focus today was the RBA interest rate decision, which has just been handed down. Rates were left on hold as expected, with the much anticipated accompanying statement looking decidedly more dovish than last month. They even went as far as saying “growth in 2011 is unlikely to be as strong as forecast”. Unless there is a dramatic pickup in growth and inflationary pressures, it looks like the RBA will be on hold for a number of months, if not the remainder of the year. Unsurprisingly, the AUD/USD has weakened, currently at 1.0681 from 1.07.

It certainly looks like markets have fully priced in an end to the Greek concerns so one would suggest markets should consolidate or pullback a little in the short term. With this seemingly out of the way, the focus will now turn to US employment data which is due on Friday; most analysts aren’t expecting meaningful improvement in the jobs situation this month, so markets may move slightly lower to price in these expectations.

ENDS

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