IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, regional markets are flying on reports that Europe has agreed to a 50% haircut on Greek debt for the banks. This was supposedly the last hurdle to the European solution. With the final piece of the puzzle in place, it seems European member nations have put together a plan to avoid a default by Greece on its sovereign debt, and to restructure the region’s banking sector. A greatly-leveraged bailout fund and China’s reported involvement has been cheered by investors. A EUR106 billion recapitalisation for the banks has already been agreed to, and the news has seen risk assets fly off their lows. The Hang Seng is leading the region with a 1.4% gain; elsewhere in the region, the Nikkei and the Shanghai are up around 0.5% each.

In Australia, the ASX 200 was shut after a technical glitch this morning. Trading was halted soon after the open, and all trades that went through in the starting minutes before the market shut were put under review. While some traders are wondering if the system crash has something to do with Thursday's expiry of October options contracts, the bulk of the volume generated by the expiry usually goes through the following day. Other traders suspected the problem could be caused by the relocation of the ASX's data facility from Bondi to Gore Hill. Whatever the case was, the glitch highlights the need for an alternative exchange.

After a morning of waiting, the market finally re-opened at 2pm. Many investors would feel they missed out on what could have been big gains after a fairly weak open. A bullish lead from US markets had pointed towards a strong open, with a solution to the European crisis reportedly in sight. We were headed for a very exciting open to the session, as mixed leads began emerging resulting in the futures ticking lower. However we barely got out of the gates at 10am before the glitch occurred. This was a massive anti-climax for traders. In the absence of the Aussie market, there was still plenty on offer for traders as some looked to get onto risk assets in light of a deal being announced. We saw a strong rally in AUD/USD on the back of a deal being announced.

Stocks have flown out of the gates, with the index currently up 2.3% at 4340. Risk assets are quickly being snapped up in what seems to be a buying frenzy. The biggest gainers are currently the resource stocks, with BHP Billiton and Rio Tinto advancing around 3% each. With only an hour of trading left, it is unlikely we will give up today’s gains. The downtrend resistance line, which has been in place since April, seems to have been well and truly broken. A break above the 4300 level is also a significant milestone for the Aussie market. The bulls will be looking for a close above 4300.

ENDS

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