IG Markets: Afternoon Thoughts

Good afternoon

Across Asia, regional markets are all lower on the back of another appalling session on Wall Street that saw the major indices finish at their lowest levels in almost a year. The Kospi, returning from a holiday yesterday, is the worst performer, down by 4.6% while the Nikkei 225 and the Hang Seng are seeing losses of 1.6% and 0.2% respectively. The Shanghai Composite remains closed.

In Australia, the ASX 200 is currently 0.5% lower at 3875, having recovered from earlier session lows of 3840. Heavy early losses have been pared back with the index briefly trading into positive territory thanks to significant reversals among many sectors, particularly the materials sector which is now trading flat. Elsewhere, the energy, financial, and industrial sectors are all lower between 0.5% and 0.8% but have been trending higher over the last few hours. A close in positive territory for the broader market cannot be ruled out.

Unfortunately for investors the start of a new quarter has not heralded a change in sentiment with the market continuing to grapple with Greece’s debt predicament and concerns of a broadening global slowdown. How many times can the market sell off on the themes? Are these concerns not already baked into equity prices? How much further will global markets fall before “value” becomes too compelling to ignore? These are some of the questions we are now asking ourselves.

At the moment there are such divergent views and opinions on all these questions. The lack of any consensus can, in our view, be attributed to the amazingly frustrating inability of policymakers on both sides of the Atlantic to take any decisive action. The Eurozone structure prevents any one nation working towards the best interests of the region as a whole when it might be to the detriment of its own constituents, while over in the US, the political process has ground to an drawn out stalemate as Congressmen and Senators govern for their own re-election prospects rather than for the good of the country. There’s certainly not much allegiance to good old Uncle Sam being shown by US politicians who have sworn to act in the best interests of the people they represent!

Until these issues are resolved the equity markets are merely a sideshow.

Locally, the RBA has today left rates on hold at 4.75% but indicated a willingness to ease monetary policy should inflation pressures continue to ease and economic conditions warrant assistance. It was the RBA’s first real acknowledgement that policy easing could be on the agenda, which saw the AUD weaken to fresh 1-year lows in the 0.9460s.

ENDS

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