Financial markets looking jaded ahead of EU Summit

15.09 AEST, Monday 25 June 2012

Financial markets looking jaded ahead of EU Summit

By Tim Waterer (Senior Trader, CMC Markets)

Financial markets are taking on a jaded appearance as we approach what is expected to be another non-event of an EU Summit. With low expectations of something meaningful coming from the EU leaders, the tendency of traders is to play it safe and give higher yielding assets a wider berth for the time being. Particularly with last week’s raft of poor PMI data from around the globe still fresh in the mind.

Commodity prices are still feeling the effects of the woeful manufacturing data. Traders have serious reservations about how strong the demand picture will be in the second half of the year unless we see a turnaround in the key economic indicators sooner rather than later. Until such time, particularly in the oil market, it is all one way traffic in terms of supply comfortably outstripping demand.

The Australian Dollar’s stay above parity is again looking tenuous given the negativity brewing over the global growth outlook. One factor perhaps keeping the AUD supported is the expectation that should the situation abroad deteriorate further, the FOMC still has QE3 in its arsenal, and this prospect is placing a cap on upside moves in the US Dollar on safe haven flows.

Faced with a slumping ASX200 index, the AUD actually held up quite well today as it mainly traded in the 1.0020-1.0050 band. While sentiment was poor on the Australian market today, across the rest of Asia things were not quite so grim and this seemed to stem the selling pressure on the AUD.

It was a tale of woe on the ASX200 to start the week, with traders clearly less than enthused ahead of the EU summit later in the week. Based on trading activity today, it seems the market is expecting the EU summit to lay yet another egg instead of delivering anything worthwhile in the way of a coordinated response to the debt crisis.

The blue chip mining stocks had a hard time attracting buyers today and the reasons were twofold. One is that resources demand looks tenuous at best following last week’s lacklustre manufacturing data from around the globe, and secondly we are on the doorstep of the mining tax due to be introduced next week. So it is no surprise that our mining bell-weather stocks had a tough outing today.
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