Markets to open higher but investors still cautious

09.59 AEST, Monday 18 June 2012

Markets to open higher but investors still cautious
By Ric Spooner (Chief Market Analyst, CMC Markets)

The Australian market will open higher this morning following the Greek election but investors are likely to remain cautious.

Australian investors will be relieved by this morning’s news of a probable New Democracy led coalition government in Greece. Although the Australian market will open higher this morning, investors are likely to remain relatively cautious at this stage. Election of a pro bailout party is likely to be seen as merely one tick in a relatively long check list of European hurdles yet to be negotiated.

The consensus view amongst investors is that the negative pressure from short term fiscal austerity measures in Europe’s high debtor nations needs to be relieved. Greek citizens have effectively voted to provide more time for this to be achieved via negotiation with the Euro troika. Next week’s Euro Leaders’ summit now looms as the next important point on the investors check list. Relief rallies in international risk markets may be relatively subdued until there is a sense of what measures, if any, will be decided at this meeting.

The recent strength of the Australian Dollar may also temper the enthusiasm of domestic share investors.

The FOMC meeting and China’s flash PMI figure will be closely watched by investors on Thursday. Monetary policy is not likely to be as effective as it was earlier in the Euro crisis. However, any moves by the Fed such as an extension of their operation twist program would be supportive for equity markets, increasing the opportunity cost and long run risk of alternative fixed interest investments.

Near term resistance levels for the S&P/ASX 200 index are at around 4120/4130 which represents the top of the recent trading range and above that the 200 day moving average at around 4200. Investors may require further concrete action by the European Leaders’ Summit or central banks to push the index past this near term resistance.

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