IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

Across Asia, regional markets are mostly firmer, following on from the positive finish on Wall Street which enjoyed a mild relief rally overnight. The Hang Seng is the region’s best performer, stronger by 1.2%, while the Shanghai Composite and the Nikkei are higher by 0.4% and 0.3% respectively. The Kospi is bucking the trend to be 0.3% weaker.

In Australia, the ASX 200 is currently 0.6% higher at 4035 on relatively broad-based gains. That said, the market is fairly defensively postured, with the likes of the property trust, consumer staples, and telecom sectors seeing the biggest percentage gains. Among the heavyweight sectors, material names are lagging with BHP, Rio Tinto and Fortescue Metals all in the red after another poor night across the metals complex. Energy names are mixed, while all four of the major banks are higher between 0.6% and 1.3%.

While it’s certainly a nice change to see some green on the screen today, there still seems to be an overwhelming sense of caution among investors. Most commentators saw last night’s performance as nothing more than a brief period of respite, predicting a northern hemisphere summer characterised by unconvincing, range-bound trade until the European and US economies find firmer footing and clearer direction. The Australian market will unfortunately follow suit.

What has made today’s gains seem a little ‘fake’ and unconvincing are the market internals. The gains have been on relatively low volumes and led by the defensives. Similarly, in European and US trade last night, equities rallied, the dollar was weaker, but material names and base metals had another night of underperformance. This suggests sentiment, at least in the short term, is still shot. One sure sign of a change in sentiment will be when we have a sustained period of gains, where it is cyclical growth sectors (such as materials and energy) leading the advancers (not defensives), and base metals break out of their recent doldrums. We wait patiently!

www.igmarkets.com.au
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