IG Markets - afternoon thoughts 17th October

Across Asia, regional markets are all higher after Wall Street finished last week at 10-week highs. The Hang Seng is the region’s best performer, higher by 2%, while the Nikkei 225 and the Kospi are seeing gains of 1.5% and 1.3% respectively. The Shanghai Composite is seeing a more modest advance of 0.4%.

In Australia, the ASX 200 is currently 1.8% stronger at 4280, just off its session highs of 4287. Strong US retail sales data released on Friday and growing optimism over a “European solution” helped push Wall Street to 10-week highs and that momentum has carried over to the local market. Gains on the day are broad based with all sectors trading higher with the biggest advances once again coming from the materials, financial, industrial and energy sectors.

It’s certainly positive to see the market continuing its recent momentum and edging up to that 4300 level. It has been a dramatic turnaround since the end of September when investors seemed both exhausted and shell shocked about what they had experienced over the previous 2 months. But as they say - “it’s always darkest before the dawn”. It’s also amazing how a bit of unison from European leaders can inspire a market bereft of confidence that anything was ever going to get done to solve the European debt crisis. Should a solution be hatched over the next few weeks we’re sure to be asking why it took European leaders so long to come to party. Could a whole lot of pain have been averted if they’d realised the gravity of the situation a lot sooner? We’ll probably settle for “better late than never”, particularly if equities keep moving higher - the wealth effect is a sure-fire tonic for almost everything!

In the meantime, while the “European solution” gestation period runs its course, there’s plenty of economic data to hopefully sustain the markets’ current momentum. Positive reads on US industrial production and Empire State manufacturing tonight will help further silence those calling for a US recession, but of most interest and importance will be China’s monthly batch of economic data due out tomorrow. That data may in fact show China’s GDP slowing to 9.3% (how terrible given they’ve been trying to orchestrate such a slowdown), but this number, or even something slightly weaker should not be interpreted as some sort of tragic event for China and the global economy. Unfortunately it invariably will be.

Cameron Peacock
Market Analyst
IG Markets

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