IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, regional markets are all lower, seemingly unconvinced by the late surge on US markets which reacted positively to news that EU Finance ministers were examining ways of co-ordinating recapitalisations of financial institutions across Europe. The Kospi is the worst performer, lower by 1.8% while the Nikkei 225 has shed 0.8%. The Shanghai Composite and the Hang Seng are closed for holidays.

In Australia, the ASX 200 is currently 0.8% firmer at 3905, having drifted well off its early morning highs of 3951. While heavyweight sectors including the materials, energy and financials are all up between 0.8% and 1.9% their gains have been significantly pared. Elsewhere, the industrial, consumer staples and property trust sectors are all in negative territory.

This morning we made this comment “……the market should be cognisant that this supposed “Bank Aid Plan” is light on details. Also, recapitalisations require someone to stump up some money. Who’s going to do that? Over the last several months we’ve heard a lot of rhetoric about ‘needing to do more’ but a great reluctance for anyone to reach into their pockets. Until or unless decisive action follows, this may prove just another opportunity to close long positions or establish fresh short positions.”

The fact that the market rallied to 3951 on the open and has drifted lower over the course of the day suggests investors are of this mindset – sceptical that this plan, like so many others before it, will actually lead to any meaningful or sustainable resolution to the European debt crisis. After the rush of blood seen by US investors at the end of the Wall Street session, similar scepticism seems likely to play out tonight with US futures currently suggesting losses of close to 1% on the open of the US session.

As we said yesterday, until these policy makers take decisive action to resolve the many issues plaguing the European and US economies, as opposed to political posturing, equity markets are merely a sideshow.

ENDS

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