IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, regional markets are all trading lower as earlier signs of strength faded following comments from Chinese Premier Wen. Wen said that China will look to help Europe through its current crisis but noted that Western nation’s must do more to solve the debt crisis and to protect foreign investors. He also urged the EU to grant China the status of a full market economy before the WTO does in 2016. The Kospi is the worst performer, down 3% while the Nikkei 225, Hang Seng and Shanghai Composite are all weaker between 0.5% and 1.3%.

In Australia, the ASX 200 has faded in line with regional markets. After hitting an early high of 4110, the sellers moved in, pushing it to recent lows of 4023. It’s currently down 1.1%. It seems the comments from Chinese premier Wen did little to help ‘risk appetite’ as traders once again sold into early strength. Even a downwards revision to Q2 inflation numbers from the ABS couldn’t boost sentiment. The energy, financial and material sectors are detracting the bulk of the points while the defensive telecoms sector is the only positive performer.

This afternoon’s downward revision to Q2 inflation from the ABS would normally be seen as a positive for equities. The ABS said Q2 inflation only grew at 0.6% on quarter versus the earlier reported 0.9%. This means the RBA has a lot more breathing room than it initially thought and firmly takes the prospect of rate hikes off the table. In fact, judging by the weakness seen in the AUD/USD it brings rate cuts firmly into the picture. An interest rate cut, in our view would seriously help to sure up local confidence.

Markets had stabilised a little over recent days on the back of reports that China and other BRIC nations would fly in and save the Eurozone from year and years of over spending. Whilst we may see some investments, comments from Chinese Premier Wen today has put an end to some of the optimism.

Risk assets like the EUR/USD, AUD/USD and equities are in clear downtrends. We’ll continue to see little relief rallies along the way but until the broader trend changes, the predominant trade will be to sell rallies, which is what we are seeing at the moment.

ENDS

© Scoop Media