Australian market waits for further clarity

10.05 AEDT, Monday 8 October 2012

Australian market waits for further clarity on the medium term outlook

By Ric Spooner (Chief Market Analyst, CMC Markets)

The ASX/S&P 200 index has enjoyed significant PE expansion in recent months. As a result, forward PE values are now slightly above the average of the four years since the GFC. The index has also reached the top end of a zone of technical resistance. This is represented by the market peaks in October 2011 and May 2012 as well as Fibonacci projections at around 4490/4525. Investors are likely to require more evidence of reduced macro risks and improved prospects for economic growth before pushing the index past these levels.

Key focus areas for investors this week may include:
§ Spanish bond yields. Ten year bond yields fell 0.25% to 5.69% last week and broke below chart support levels. A further decline towards 5% would signal growing confidence on the European situation and support “risk on” buying in equity, commodity and currency markets.

§ Australian employment figures due on Thursday. Along with the upcoming CPI release, this will be a key figure for the RBA’s November interest rate decision. Continued weak jobs growth would leave the door open for another rate cut prior to Christmas. Further cuts from current levels are likely to be seen as expansionary for the domestic economy and would support higher valuations in the consumer discretionary and finance sectors.

§ China’s trade statistics for September. Ongoing softness in China’s export sector has been a clear negative for the Australian resource sector. With European economies still weak, a worse than expected export figure would be a concern for both resource stocks and the Aussie Dollar.

§ US reporting season. September quarter profit reports will have a major influence on US share market in coming weeks and will be a key driver of sentiment for international markets.
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