Upward market momentum stalls

15.31 AEST, Monday 24 September 2012

Upward market momentum stalls
By Tim Waterer (Senior Trader, CMC Markets)

Upward momentum in the markets appear to have stalled with the hype regarding the latest central bank stimulus measures not having the same longevity as in days gone by. In the case of Europe, investors seem reluctant to take on board new positions until some clarity is attained over the Spanish bail-out situation, and specifically the question of will they ask for one or won’t they. Reports that Spanish and EU officials are working behind closed doors should be seen as something of a positive development but it seems the markets need more convincing before pushing risk assets higher.

Commodity prices were slammed at the start of Asian trading hours Monday and this seemed to set the tone for broader market performance. The gold price in particular was walloped as it slumped over US$10 to fall below US $1760 per ounce, with the silver and oil prices also coming under selling pressure. Thin market conditions appear to have triggered some stops on the low side which caused the slide.

The Australian Dollar (AUD) followed the commodity price slide by dipping to its session lows before bouncing back one-third of a cent. The AUD could be in for a tough week with the situation in Europe still taking on a very muddied appearance and the upward march in equities appearing to have come to a standstill. Economic data is light on the local front this week and a continuation of the soft data abroad will have traders pricing in a greater likelihood of an RBA rate cut later in the year in reaction to the global outlook.

A fairly inglorious performance from our mining stocks courtesy of declining commodity prices weighed heavily on the broader index to start the week. The ASX200 fell to the south side of the 4400 level with traders clearly struggling for reason to buy with the momentum gained from recent central bank stimulus seeming to have dissipated. How commodity prices react to international economic data for the rest of the week could be instrumental in shaping Australian market direction given the concentration of materials stocks in the local index.

Overall, traders appear to be devoid of reasons to buy higher yielding assets at this stage of proceeding until some evidence is forthcoming that recent stimulus efforts will start to bear fruit.

: http://www.cmcmarkets.com/

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