IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, regional markets are again mostly lower, being dragged down by continuing scepticism that this week’s EU summit will fail to come up with any meaningful measures to shore up the prospects of the EU’s weakest nations. The Nikkei is the region’s worst performer, weaker by 0.5%, while the Shanghai Composite and the Kospi are down 0.5% and 0.2% respectively. The Hang Seng is bucking the trend to be higher by 0.1%.

In Australia, the ASX 200 once again finds itself trading to the downside, courtesy of European concerns and end of financial year tax-loss selling. The local market had been called below 4000, but has just managed to stave off breaching that level, a sign there is some downside resistance there. The index is currently lower by 0.6% at 4005. Losses are again broad based and largely attributable to the industrial, material and energy sectors, while defensively postured healthcare, information technology and utilities are all marginally ahead for the session.

As predicted yesterday, this week is playing out as a depressing grind lower with the multitude of European concerns and tax-loss selling leaves investors cautious and with little reason to buy stocks before the new financial year. Heading into this week’s EU summit, Germany remains opposed to any form of debt mutualisation, with Angela Merkel commenting that such measures at this juncture would be ’wrong and counter-productive‘. The ECB's Weidmann also expressed similar concerns, noting that the current proposals for eurobonds, eurobills, and the pooling of risks would only work if member states are willing to give up some sovereignty, an issue that member states receiving EU bailout funds are reluctant to discuss.

Having dragged on for nearing three years and involving dozens of meeting and summits, it seems investors are now finally tiring of the same old diatribe. It seems the ‘can has been kicked down the road’ long enough. It also seems clear to just about everyone (outside of the European leaders) that philosophical differences and deep-rooted historical tensions will prevent a workable and coordinated response to this crisis, hence the growing feeling of frustration and helplessness. The market needs a circuit breaker, and needs it now. Unfortunately, Europe’s inherently flawed structure makes such an outcome almost impossible.

www.igmarkets.com.au

ENDS

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