Dedication to the cause in Europe leads to gains across Asia

15.17 AEST, Monday 30 July 2012

Dedication to the cause in Europe leads to gains across Asia

By Tim Waterer (Senior Trader, CMC Markets)

Comments from European leaders in recent times have shown some semblance of a unified voice, and this refreshing change has been warmly received by traders who have again rediscovered their inclination to buy.

Comments by the ECB President as well as by the leaders of France and Germany have indicated to financial markets that there is indeed dedication to the cause from the major players and that they are not just prepared to go through the motions and hope for the best.

However, for the market exuberance on display in recent days to have any longevity it will require the ECB to be decisive not just with its words but with its actions. Cue the bond buying. The market’s newfound optimism has been largely based on expectations that the ECB will up the ante by purchasing bonds, which makes this Thursday’s press conference not only a key event but also a potential source for a letdown if the ECB deliver nothing new.

The GDP reading from the US did little to reduce expectations that Bernanke will unleash a third batch of quantitative easing sometime during the remainder of 2012. The 1.5% print is evidence that the economy has slowed to nearly ‘stall’ speed however given that this brings us closer to QE3 and given the positive rhetoric from Europe, traders looked beyond the dismal growth number to instead go on a buying spree. Currencies like the AUD tracked the move higher in global equities with the traders in ‘feel good’ mode for the time being.

With European leaders showing some fervour regarding the future of the Eurozone, the ASX200 enjoyed a robust start to the week with the financial stocks being among the prime movers within the index. The big four banks all ‘made hay’ on the better market sentiment, while the blue chip miners such as BHP and RIO also made the best of the conditions with traders in a fairly cheerful mood courtesy of the perceived changing of the tide in Europe.

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