IG Markets Afternoon Thoughts 20/10/11

IG Markets Afternoon Thoughts

Across Asia, regional markets are all softer, giving up yesterday’s gains on the back of a weak US lead. Sentiment has been dampened by reports of a split between France and Germany over the best way to boost the European bailout fund. The news trumped yesterday’s reports that Germany and France will increase the size of the European rescue fund. The resource stocks have been hit hard in Hong Kong, as well as several Macau casino operators. The Hang Seng is leading the region’s fall with a 1.5% drop. Elsewhere, the Nikkei is down 0.9% and the Shanghai is 0.8% lower.

In Australia, the ASX 200 got off to a weak start and has since extended its losses. The index is down 1.5% at 4151 after having hit an eight-day low of 4145. Without a resolution to the current problems surrounding Europe, the Aussie market has given up all of yesterday’s gains. The materials sector is the worst performer, with the big miners weighing on the sector. BHP Billiton, Rio Tinto and Fortescue are down 2%-3%, while Newcrest is down 5.4% on disappointing 1Q production.

The market continues to struggle, keeping the bullish momentum with macro-economic themes dictating trade. Yesterday we highlighted the fact that the market failing to hold on to early gains is not a positive sign for markets. More so, given the current macro-economic picture, we are likely to see investors continue to sit on the sidelines. The headline risk is too high at the moment, as different reports on the state of the European situation continue to emerge. However, some of the more aggressive traders will be taking advantage of the volatility and positioning themselves ahead of this weekend’s European summit.

Continuing uncertainty has seen the Aussie market’s losses accelerate this afternoon, with the market now trading at new lows. Fears over fall in demand for commodities have seen our resource stocks struggle, with the trend likely to continue until a conclusion is reached. Having had respected a downtrend resistance line, which has been in place since April, the Aussie market is likely to continue to struggle. Buyers will probably remain on the sidelines until this downtrend resistance is broken and a concrete solution to the European debt crisis is tabled.

ENDS

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