IG Markets Afternoon thoughts

Across Asia, regional markets have all started the new week in negative territory as concerns over the European crisis deepen following the resignation of ECB board member Jurgen Stark over internal divisions. With the South Korean Kospi and Shanghai Composite closed, volumes are lighter than usual with the Hang Seng down 3.3% and Nikkei 225 1.8% weaker.

In Australia, the ASX 200 is currently 33% weaker at 4057, just off its intraday lows of 4047. After escalating concerns that a Greek default was inevitable caused a precipitous plunge across European and US markets on Friday, it is of little surprise to see our market getting hammered today. Losses on the session are broad based with the heavyweight energy, materials, industrial and financial sectors all down between 3.1% and 4.1%.

At the risk of sounding like a broken record, once again it’s deepening concerns over Europe that are seriously eroding investor confidence and sentiment. The trigger this time was ECB executive board member Jurgen Stark’s resignation on Friday evening and speculation doing the rounds that Greece is close to defaulting and that Germany is devising plans on how to shield German banks should this play out.

At the end of the day, there’s just too much uncertainty. No one seems to have any ideas what is really going on; there’s too many cooks in the kitchen with different political agendas. The market absolutely hates uncertainty and as soon as the Swiss franc was removed as a safe haven last week, the EUR/USD has been absolutely decimated as traders express their bearishness. The selling seen over the last few days is the market trying to tell us that all is not well and there’s a serious risk of this crisis descending into chaos.

No one really has any idea where this whole situation may end up. It’s the threat of contagion that is causing the greatest concern. Everyone remembers the early stages of the GFC where everyone was saying it was contained and there was no chance of it spreading. How wrong they were. Also, at a time when leadership is an absolute must confidence in Eurozone leadership is nearly nonexistent.

Ben Potter
Market Strategist
IG Markets

ENDS

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