IG Markets - Afternoon thoughts 10th October

IG Markets - Afternoon thoughts 10th October

Across Asia, regional markets are mixed after US markets closed Friday’s session lower on back of downgrades to Spain and Italy by the ratings agency Fitch. The Nikkei 225 is the region’s best performer, higher by 1% while the Kospi is seeing a more modest advance of 0.3%. Elsewhere, the Hang Seng and the Shanghai Composite are lower by 1.4% and 0.5% respectively.

In Australia, the ASX 200 is currently 0.4% higher at 4180, well off its earlier session highs of 4216. Despite dour leads from the US on Friday, the local market’s momentum from last week remains intact with broad based gains being seen across most leading sectors. The energy, telecoms and financial sectors are seeing the biggest percentage gains of between 0.6% an 1.2% while the materials sector is seeing a more modest advance of 0.4%. The property trust sector is the only sector in negative territory.

It was a rare occasion this year that the ASX 200 outperformed most global equity markets as it did last week. Over the course of August and September the local materials, energy and financial sectors were hammered as investors rushed out of cyclical sectors leveraged to the health of the global economy, and all things financial due to the goings on in Europe. As we know a turning tide can be a powerful force and we may have witnessed the beginning of one last week.

Despite ratings downgrades of Spain and Italy and various UK financial institutions, the positive catalysts for the market appear to be growing. The Europeans would now seem to be singing from the same hymn book and while some form of solution to the crisis is still a ways off, it now at least seems plausible. Also, data out of the US over recent weeks has certainly not been consistent with the recession fears the market has been pricing into equities. If this data pattern continues and the upcoming quarterly earnings season can yield a relatively stable earnings outlook, valuations will be confirmed as cheap and act as a further inducement for sidelined money to be put to work. The ducks may just be lining up for an extended Santa Claus rally into year end.

Cameron Peacock
Market Analyst
IG Markets

ENDS

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