Asian markets hit mid-week hurdle

28 May 2012

Asian markets hit mid-week hurdle

By Tim Waterer (Senior Trader, CMC Markets)

The ASX200 hit a mid-week hurdle in the form of escalating Spanish yields and doubt over Chinese stimulus measures, which caused some index gains from earlier in the week to be eroded. With traders uptight about the state of the Spanish financial system, commodity prices gave way to a run higher in the defensive US Dollar, with our Materials and Energy stocks feeling the effects of this today.

The dowsing of Chinese stimulus hopes has resulted in a pullback of markets across the Asian region, with stocks linked to resource-demand being among those feeling the pinch most.

The AUD suffered a further setback thanks to the negative Retail Sales result (which came in at -0.2% versus +0.2% forecast). While the focus in recent weeks has been on the trials and tribulations in Europe, the retail sales number was a reminder that things are not all rosy in our own backyard and that the RBA have plenty to contemplate over coming months. The AUDUSD rate slipped around 40 pips on the data down to 0.9775, however the currency has moved back towards 0.98 in the afternoon session as equity markets have picked up from the lows.

Spanish yield levels will be a pivotal factor in determining which side of $90 US Crude Oil trades at in coming sessions. An easing of yields to more palatable levels will stem the flow of funds into the Greenback and provide some room for oil to move on the upside, however a move in yields closer to 6.5% (on the 10 year Government bonds) will again have traders cagey on the commodity demand outlook. While the market may have momentarily come to terms with Greece, the Spanish banking system continues to keep traders on their toes.

www.cmcmarkets.com

ENDS

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