IG Markets: Afternoon Thoughts 13/09/2011

Good afternoon,

Across Asia, regional markets are mixed in thin trade after a late rally on Wall Street saw US indices finish in positive territory after being down significantly lower early. With the Hang Seng and Kospi closed for public holidays, the Nikkei 225 is 0.7% firmer while the Shanghai Composite is down 1.4% after being closed yesterday.

In Australia, the ASX 200 is currently 0.7% firmer at 4066, well off its earlier highs of 4094. With overnight US markets rebounding from heavy falls late in the session on speculation the Chinese may be looking at buying Italian bonds, the local market was always going to recoup some of yesterday’s losses. Gains on the session are relatively broad based with the energy, materials, consumer discretionary and financial sectors all seeing gains between 0.6% and 2.3%.

With major markets in South Korea and Hong Kong closed, trading volumes are pretty light as markets recover a small portion of yesterday’s big falls. We’re seeing a bit of a relief rally today but nothing more than that. It’s certainly a positive that the market has stabilised a little but at the end of the day, nothing fundamentally has changed.

The rally was triggered overnight by speculation in the FT that China was in discussions with Italian authorities over the purchasing of Italian bonds. Whilst this is an encouraging development, the reality is that it means nothing. It’s purely a headline that has seen traders buy back short positions It may see some short term relief in Italian credit spreads but as we’ve seen time and time again, credit spreads are likely to rise further in coming months anyway. It doesn’t solve the massive problems in the Eurozone; these problems are structural and will likely take many years to solve.

From a technical perspective, the S&P 500 once again found good buying interest below the 1140 support level last night. The market seems to be struggling to push it through that level, which is an encouraging sign. It certainly looks like the S&P 500 is trying to form a base of some sort, although given all the headlines coming out of Europe one does get the feeling that markets could easily collapse lower.

ENDS

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