Low confidence drags equities lower

09.45 AEST, Thursday 27 September 2012

Low confidence drags equities lower

By Miguel Audencial (Sales Trader, CMC Markets)

The Australian equities market is set to extend its losing streak to four days in a row following dismal leads from its US and European counterparts. Weaker oil and commodity prices will continue to put pressure on the energy and materials sector.

The loss of confidence over the effectiveness of QE3 dragged the US Equities market lower with the DOW losing 44 points overnight. The lower than expected New Home Sales and the lingering anxieties in Europe did not help either.

The market will struggle to post gains after the Philly Fed’s head, Charles Plosser, brought out the elephant in the room. Doubts over the effectiveness of QE3 is in the back of most traders minds and an announcement coming from a senior Fed official is enough to drain the euphoria from a $40 billion open-ended bond buying program out of the market.

European markets sold off heavily last night due to fears about Spain’s fiscal and political situation. The Spanish 2013 budget is due later tonight and the expected austerity measures brought about protests in the streets. Spanish Bond yields are back to the 6% level and talk about a bailout is getting louder. This is all too much like the Greece situation a few months back.

Concerns over QE3 and the continuing political uncertainties in Europe made investors choose the safety of the US dollar. US treasury yields dropped again making it eight sessions straight. The strength of the US dollar also put pressure on gold and other commodity prices.

The price of Crude Oil continued to drop despite a lower than expected Inventory. This is mainly due to the strength of the US dollar and future demand concerns brought about by the continuing issues in Europe.

US Core Durable Goods Orders and US Unemployment claims are due tonight and strong figures are needed to bring the confidence back into the market. More importantly, the Spanish 2013 budget will be out as well and the market will keep a close eye on this to get a better indication of whether Spain will ask for a bailout soon.

http://www.cmcmarkets.com/

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