IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, regional markets are weaker, with banks and autos sharply lower after Greece’s recent call for a confidence vote and referendum raised doubts about the European solution. However, markets are off their lows on speculation that even if the referendum takes place, Greece will back it. The Nikkei is down 1.8%, the Hang Seng is 1.2% weaker and the Shanghai has declined by 1%.

Australia's S&P/ASX 200 index is down 0.6% at 4207 after hitting a one-week low of 4147.9 after off-shore markets reacted to Greek Prime Minister Mr Papandreou's call for a referendum on the EU bailout. The market has recovered strongly from the lows, with the miners leading. Newcrest Mining is up 2% and Fortescue Metals has climbed 1.3%. Woolworths is flat after an investor briefing. Financials are weakest, with Westpac down 1.7%, underperforming its peers after unsurprising fiscal 2011 results, while industrials and consumer discretionary stocks are lower. OneSteel is down by15% after saying 1H profit could fall 70% on weak iron ore prices and a strong Australian dollar.

The headline risk in this market remains extremely high as evidenced by the overnight price action. After a very weak start to the session, markets have now come off their lows with macro themes remaining the headline theme. We expect some further soothing from European leaders words out of the G-20 summit later on. With Greece having undone a lot of the hard work over the last few sessions, G-20 leaders might look to issue some positive rhetoric to soothe investors’ concerns.

Confusion reigns as to if and when Greece will hold a referendum to endorse last week’s plan with the continuous tape of headlines wreaking havoc on global financial markets . The uncertainty saw falls of more than 5% across major equity indices, a continued surge higher in sovereign debt yields and a requisite retreat from risk assets. This has played out across our cyclical, materials and energy names, with investors seemingly happy to book profits made over the course of October. It is also a big night in the US, with the FOMC meeting set to take place. No policy changes are expected, but investors will be looking for more clarity regarding a potential QE3. Locally, traders will be watching for ANZ Bank’s results due out tomorrow morning, as well as Newscorp’s figures.

ENDS

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