IG Markets - Afternoon thoughts 23 March

In Asia, regional markets are mixed this Wednesday as uncertainty from the Middle East, Northern Africa and Japan weighed on sentiment. After three days of solid gains, the Nikkei 225 is seeing some profit taking, currently down 1.1%. Elsewhere, the Hang Seng is 0.2% lower. On the upside, the Kospi is up a modest 0.2% while the Shanghai Composite is 0.7% firmer.

In Australia, the ASX 200 is currently 0.1% firmer at 4648, having see-sawed in and out of positive territory for much of the day. Having bounced more than 4.5% off its “nuclear-fearing” lows of last week, the market is now treading water and seemingly unsure what to do next. Today’s gainers are being led by the energy sector which is clearly starting to benefit from the elevated oil price, with future LNG producers also catching a bid on predictions Japan will look to gas sources to replace its lost nuclear capacity. Elsewhere, the financial and healthcare sectors are seeing modest gains, while the materials sector is flat to slightly negative.

Following the sharp rally from the lows of last week, it looks like traders have put the ‘cue in the rack’ for the time being. With so much uncertainty coming from many different angles, market participants seem happy to sit back and wait for the dust to settle further.

Nobody knows how the situation in Libya is going to play out. At the moment it is unclear as to who will take over the military operation once the initial phase of knocking out air defence systems is complete. Is the coalition just going to enforce a ‘no-fly’ zone, as it is mandated to do or are they going to push for a new resolution allowing for the insertion of a ground force to overthrow Gaddafi? The market wants some answers to these questions before it makes its next move.

We’ve got the same situation in Japan, where there are a myriad of unanswered questions. One minute the media is reporting high levels of food contamination and the next its saying the situation is under control and that engineers are making slow but steady progress. The market needs some certainty, but unfortunately, that certainty isn’t available at the moment. This is the reason markets have taken a breather.

Ben Potter
Market Strategist
IG Markets

ENDS

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