Market headed for another weak start

09.43 AEST, Thursday 17 May 2012

Market headed for another weak start

By Miguel Audencial (Sales Trader, CMC Markets)

The Australian market is set for another weak start as investors are still focused over the political and economic uncertainty of Greece.

The materials and energy sectors will once again have a rough day after commodity prices dropped across the board last night. With Australian equities sold heavily during the past week, it would be interesting to see if bargain hunters are brave enough to enter the market during today’s session or if they are waiting for more discounts before they take the risk.

Looking at the sell-off in equities during the past two weeks with a glass-half-full perspective, Greece’s exit from the Eurozone is slowly being priced into the market leading up to the upcoming Greek election. If the result assured Greece’s exit, then the sell-off wouldn’t be as widespread due to the fact that the majority of investors who wanted to sell have already exited their positions. On the other hand, if in the unlikely situation where those elected favoured the austerity measures in place then we could see a sharp rally.

The three major US indices finished in the red again despite higher than expected US Housing Starts and Industrial production figures. The comment of several US Fed policy makers that additional monetary policy could be necessary if economic recovery lost momentum also failed to alleviate the concerns in Europe. Ironically, the statement in the FOMC Meeting Minutes might indicate that the market needs a string of weak economic figures to rally.

Crude Oil was once again sold off heavily overnight due to a combination of continually rising inventories and weakening demand prospects due to economic uncertainties in Europe. Supply is just too high at the moment and it is highly likely that the price of oil will be constantly discounted in the short-term until supplies drop to a more manageable level.

US Unemployment claims figures are due later tonight and it will be very interesting to see how the market reacts. Due to the US Fed’s statement last night, a weaker than expected claims figure might actually stop the US equity market’s losing streak because traders will start to price in the possibility of another round of monetary easing.
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