IG Markets Afternoon thoughts – Oct 14

Across Asia, regional markets are all lower after Wall Street finished mixed overnight on continuing concerns about the effectiveness of any forthcoming “European solution”. The Hang Seng is the region’s worst performer, lower by 1.3%, while the Nikkei 225 and the Shanghai Composite are seeing losses of 0.7% and 0.6% respectively. The Kospi is seeing a more modest decline of 0.2%.

In Australia, the ASX 200 is currently 1% weaker at 4200, just off its earlier session low of 4196. With US markets closing mixed overnight, and with there still being so many uncertainties over the global outlook, the local market looks to have run out of momentum in the short term. Losses for the day are broad based with cyclical names across the materials and energy sectors seeing a bulk of the selling.

For much of the day the local market has been in an arm wrestle with the 4200 level. Sellers have emerged when it gets too far past this level, just as buyers have stepped in when it looks like falling too far below it. The market at the moment is all about news flow and momentum. The “non-recessionary” data out of the US in recent weeks and the promise of a “European solution” by early November has been good for a 10%-odd rally across most global equity markets this month, but it now seems that momentum may be coming to an end. Global markets could only run so far on that news alone. You get the feeling equities will track sideways over the next few weeks, carefully digesting all that the US earnings season throws up and also waiting to see what the Europeans come up with to recapitalise their banks and shore up the region’s financial and economic stability. The time to talk is over – it’s now time for action. Once we have this information to hand markets will then be able to make up their mind in which direction they head next.

Once again the market seems a little unsure what to make of the Chinese inflation data released this afternoon. CPI was in line with expectation, but still uncomfortably high at 6.1%, though we did see some signs of inflation easing at the producer level which everyone will be hoping flows through to the consumer level in due course.

While not meaning much from a technical perspective, a close above 4200 would certainly be a nice psychological win investors!

www.igmarkets.com.au

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