IG Markets, Afternoon Thoughts

Across Asia, regional markets are all higher as risk aversion eased significantly overnight following the news that EU officials had agreed another bailout for Greece and US corporate and economic data came in stronger-than-expected. The Hang Seng is the top gainer, up 1.7% while elsewhere, the Nikkei 225, Shanghai Composite and Kospi are all up between 0.5% and 1%.

In Australia, the ASX 200 is currently 12% firmer at 4612, right on its highs of the session. Gains for the day are broad based with all sectors trading in positive territory. The financial sector is the day’s best performer with an advance of more than 2%, with the industrial sector also enjoying solid buying support The energy sector is benefitting from crude oil prices recapturing the US$100 while the materials sector is seeing only modest gains despite broadly firmer overnight metals prices.

Well, as we wrote about earlier in the week, a few things went ‘right’ last night. The market has woken up and realised that 80% of the S&P 500 companies that have reported so far have beaten expectations; economic data was mostly stronger-than-expected and we finally have a European sovereign debt solution that has a chance at working.

It really does look like the European Union means business now. Last night’s plan from the EU summit looks to have everything investors could possibly have wanted and more. In short, they have extended the maturities of loans from the European Financial Stability Fund (EFSF) to 15 years from 7; have lowered interest rates for new EFSF loans to 3.5% from 4.5%; involving the private sector; accepting Greek collateral and providing a ‘Marshall Plan’ that is designed to stimulate growth in the Greek economy without the Greece having to borrow more money.

Basically, they’ve given Greece everything they could have ever wanted in terms of assistance and if this doesn’t work, there has to be huge doubts as to whether anything else will work. It looks like they’ve kicked the can a long way down the road this time Hopefully it might fall into a drain somewhere and never be seen again!

So it looks like one of the global macroeconomic issues may be under control for the short term at least. From here, all we need now is a solution on the US debt ceiling debate and markets will be in a very strong position. In fact, we could be getting close to point where markets begin their push higher into the end of year We’ve already seen investors starting to pay attention to the US earnings, which could be a sign of things to come. Here’s hoping.

Ben Potter

Market Strategist

IG Markets

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