IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, regional markets are mostly lower after Wall Street paused for breath in overnight trade to register a mixed close. The Nikkei 225 is the region’s worst performer, lower by 0.7%, while the Hang Seng and the Kospi are off by 0.3% and 0.1% respectively. The Shanghai Composite is bucking the trend to be higher by 1.6%.

In Australia, the ASX 200 is currently 0.9% weaker at 4190, but well off its earlier session lows of 4167. With US markets pausing to consolidate recent gains last night, the local market was always going to come under pressure today and that’s exactly what we have seen. Cyclical sectors such as the materials, energy and industrials are all lower between 1% and 2% while the only gains are being witnessed in the defensively postured consumer staples and utilities sectors.

As expected, today the local market has drifted. It’s been driving up hill over the last week, but when the foot comes off the gas it starts to roll backward and that’s a bit of what we’re seeing today. As we know markets don’t go up in a straight line, there will be speed humps and small retracements along the way so we should not be at all surprised or concerned with today’s relatively modest pullback. The same thematics that have pushed markets higher over the last week are still in place. The only difference is investors are sitting on larger pools of profit and are prudently managing their risk by taking some money off the table. So long as the Europeans can stay on track with delivering the markets a “European solution”, and so long as US corporate earnings come in broadly in line with expectations, there is no reason not to believe equities can’t move higher as we head into the end of the year.

With investors now seemingly talking about a ‘change in sentiment’ and newfound optimism that European leaders will finally deliver (on something, on anything), and with so much money still parked on the sidelines looking to find a home before the end of the year, pullbacks such as those we have witnessed today are likely to be fleeting. We have seen this on numerous occasions today. Just when the market looks like showing some real signs of weakness the buyers keep stepping up to the plate and hence we keep gravitating back up to that 4200 level.

ENDS

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