IMF report takes some steam away from investor confidence

15.30 AEDT, Wednesday 10 October 2012

IMF report takes some steam away from investor confidence

By Tim Waterer (Senior Trader, CMC Markets)

The downgraded IMF growth forecasts served to take steam away from investment confidence in recent trading sessions, with traders again leery over what state financial markets will be in come 2013 and beyond. Glum trading conditions invariably lead to renewed investment flows into the US Dollar which has again been the case, while Greenback-alternates such as Gold take a further step back as good news stories seem to have run dry.

With there being a definite low key vibe ahead of US corporate earnings results, there could well be an ‘under-promise, over-deliver scenario’ play out which injects equity markets with another spell of confidence in coming weeks. After all, the bar on US Corporate Earnings is not exactly set sky-high. Traders are really having a difficult time detecting sources of market positivity right now, so any half decent results could well be latched onto.

The Australian Dollar (AUD) has gone against the grain today by pushing higher through 1.02. Back to back jumps in the price of Iron Ore have supported the AUD, allowing the currency to hold an overnight low of 1.0175 despite the ‘risk-off’ session experienced across most asset classes. Upside on the AUDUSD rate will be likely capped well shy of 1.03 until traders see how Thursdays Australian employment data pans out, with the result likely to influence RBA rate decisions over coming months. The fate of the AUD’s current yield advantage may lie firmly in the hands of the health of the labour market.

The Australian sharemarket did quite a decent job of absorbing the negative lead provided by Wall Street to escape the day with just a modest move lower by the local index. Recent sharp rises in the price of Iron Ore stood the bellwether miners such as RIO and BHP in good stead, and this was able to have an offsetting affect to a degree on the negative sentiment stemming from the IMF downgrades which adversely affected the broader market. Given the 100+ point fall on the Dow Jones last night, for the ASX200 to still be within close proximity to the 4500 level is more than an acceptable result today.
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