Markets quiet and sombre

09.45 AEST, Monday 25 June 2012

Markets quiet and sombre
By Ric Spooner (Chief Market Analyst, CMC Markets)

Quiet and sombre look as though they will be appropriate descriptions for the Australian market in the last week of the financial year.

The market is likely to open firm or a bit above Friday’s close after international nerves were steadied when markets failed to continue with Thursday night’s steep sell off.

The European Leaders summit looms as the key event for investors this week. The success of the summit can probably best be measured by whether it achieves a meaningful and lasting decline in Spain’s bond yields. These have fallen over the past week as traders positioned for the possibility that the European bailout fund may be used to purchase bonds. However, this outcome is far from certain. To start the new financial year with real confidence, equity investors will want to see the leaders’ summit produce initiatives making it unlikely that Spain’s 10 year bond yield will move back above 7% in the medium term.

The main economic releases this week include housing sales; durable goods orders and personal income in the US as well as China’s leading index and private sector credit growth in Australia. The risk is to the downside with these statistics. None of these measures are of themselves significant enough to change the consensus outlook that economies are slowing. However, poor results could heighten investor concerns over the growth outlook.

Most technical indicators suggest that the overall trend of the Australian market remains negative. A break above resistance between 4160 and 4200 would be required to turn this around. Near term support is at 4025.

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