Market psyche continues to be dominated by the Europe

15.41 AEST, Wednesday 27 June 2012

Market psyche continues to be dominated by the European debt dilemma

By Tim Waterer (Senior Trader, CMC Markets)

Market psyche continues to be dominated by the European debt dilemma which is acting like an omnipresent constraint on higher yielding assets.

While we have seen a rare showing of green numbers on stock exchanges in the last 24 hours, there has been no significant shift in expectations about the upcoming EU summit.

With Spanish and Italian yields still very much in escalation mode this is causing traders to baulk at buying stocks and commodities for fear of yet another market meltdown like what was witnessed in May.

The AUD is performing better than most ‘risk’ currencies during the current standoffish trading environment. This is mostly due to the fact that domestic economic strength is causing the market to ‘price out’ the likelihood of a rate cut next week. The diminishing expectations of a July rate cut is having an offsetting impact against the negative overall market sentiment. This is what is keeping the AUD relatively well supported despite the doom and gloom global picture.

A rare ‘up’ day on the ASX200 made for pleasant reading after a run of outs on the local index. A solid performance from the media companies courtesy of the Newscorp plans took the focus away from the plight of the mining shares if only for a day. Our market followed the same tentative lead provided by Wall Street, with stocks edging higher but traders not getting too carried away with things, particularly given that an argument could be made that there was no real substance to the move higher today. So while it was a better outing for the market, the ASX200 is still on unstable footing above the psychological 4000 mark leading into the EU Summit.
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