Markets buoyed by upbeat sessions overnight

Markets buoyed by upbeat sessions overnight

By Miguel Audencial (Sales Trader, CMC Markets)
7 June 2012

The Australian market is primed to start strongly in today’s open, buoyed by upbeat sessions from overseas markets last night. We are expecting to see an occurrence we have not seen for the past few weeks; investors wearing their risk-on hats.

Optimism that the central banks from the US and Europe will take the necessary actions to stimulate their economies will flow through the mind-set of local Australian investors. This will provide added momentum to the higher than expected GDP number released yesterday. I expect the higher beta stocks, especially shares from the materials sector to outperform today.

The US market soared to more than 2% lifted by statements that the ECB is ready to act on the deteriorating outlook in Europe and that the US Fed may also extend Operation Twist. The release of the Beige book also provided confidence indicating the US Economy is in a better state than what investors priced in. Investors readjusted their pricing overnight which was derived from the disappointing US payrolls figures last Friday. With the Beige book revealing that the US Economy grew to a modest to moderate pace in the past two months, traders were prepared to pay more.

The markets in Europe also gained strongly thanks to statements from the ECB that they are prepared to make the necessary steps to aid the ailing European economy. There was also the assurance that credit would be extended to finance the troubled banks in the region. The FTSE was up 2.36%, the DOW 2.09% higher and the French CAC 2.42% stronger. However, I am not convinced these statements have completely alleviated the fear that investors have in the economic future of the region.

The risk-on mentality displayed overnight also flowed through commodity instruments as prices were stronger across the board. Crude oil traded higher again, however the momentum stopped as inventory figures showed a lower than expected decline. The price of oil has rebounded well from its 1 June lows, however the price increase is just a flow through effect of the risk on mentality from investors. Stockpiles are still at high levels and I can’t see it trading above $90 in the near term unless there is an indication that demand will significantly increase.

Australian employment figures are due later today and if the figures beat forecasts we may see the market rally even further. Even if the figures disappoint, I can still see the Australian market finish in the green thanks to optimism brought about by the strong sessions of the European and US markets.

www.cmcmarkets.com

ENDS

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