Markets position for summit failure

09.36 AEST, Tuesday 26 June 2012

Markets position for summit failure

By Ric Spooner (Chief Market Analyst, CMC Markets)

The drop in share markets over the past two days reflects a growing consensus that this week’s Euro leaders’ summit is unlikely to achieve any meaningful change in the medium term risk of a Euro crisis.

Business and consumer confidence around the world seems set to remain low with a focus on wealth preservation after the summit. In the absence of any major initiatives towards sharing credit risk within Europe, the logical response of households and businesses around the world will be to position for the real possibility of a Euro inspired international financial crisis.

Continuing low confidence will weigh on economic growth and corporate revenues. It will also require relatively high risk premiums and low PE values. The selloff in share markets is reflecting this.

Over the past couple of days share markets have been sold while commodity prices have remained relatively steady. This reflects the fact that commodities did not have the corrective rally that share markets had recently.

The S&P/ASX 200 index is likely to test the early June lows of 3985 over the next couple of days. From a technical perspective, a clear break below this level creates the possibility that the market is embarking on the next swing down in an ongoing downtrend.
ends

© Scoop Media