IG Markets - Afternoon thoughts - Nov 7

Across Asia, regional markets are weaker as Greece moved to name a new leader after Prime Minister George Papandreou agreed to step down. Uncertainty has now gripped markets as many investors opt to wait for a new leader to be named with the frontrunners being Lucas Papademos (a former Vice President of the ECB) and Stavros Dimas (a former EU commissioner who worked at the World Bank). In Japan, the exporters are leading the decline, with many major exporters weaker. The Nikkei is down 0.6%, while the Shanghai is 0.1% weaker. The Hang Seng is the best performer in the region, with a 0.1% gain.

Australian shares opened lower, with Westpac dragging the market down after going ex-dividend. The S&P/ASX 200 index is currently lower by 0.4% at 4265. Australian shares will continue to react to events in Europe, where leaders are still trying to solve the region's debt crisis Westpac is down 4.1%, while investment bank Macquarie Group, which is also ex-dividend, has descended 2.6%. Computershare is up 13.2% after it said it can proceed with its acquisition of the shareowner services business of BNY Mellon. Orica is up 3.9% after it reported full year 2010-11 net profit fell 51%, but net profit from continuing operations before one-time items was up 3.8%. In economic news, job ads have fallen for the fourth month in a row, suggesting that unemployment will rise in the coming months and adding to the case for lower interest rates.

Greece will continue to be a dominant theme across global markets. The idea is to have a transitional government that approves the debt restructuring plan in order to win over the IMF, EU and ECB and secure the sixth tranche of aid of the first bailout. Over the next couple of days, we get to hear more from eurozone leaders as there is a eurogroup meeting, of which we hope to get finer details of the supposed ‘comprehensive solution’ which was presented to the market on October 26. Apart from Greece, Italy is increasingly becoming a problem after Italian debt yields rose to worrying levels (6.38%) and analysts have warned a move above 6.5% could see the Italian debt sell-off snowball out of control. Many continue to doubt that Mr Berlusconi can implement the suggested reform programme.

If the ANZ job ads data from this morning is anything to go by, this week’s (Thursday 11.30am) unemployment rate and employment change numbers may disappoint. Being a forward indicator, the poor reading suggests that we could see a gradual rise in the unemployment rate over coming months. The week ahead also brings us the trade balance figures. The market seems to be at an inflexion point, with investors looking to see solid structures and processes in place to stabilise markets going forward.

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