Market readies for next leg higher

15.06 AEST, Thursday 27 September 2012

Market readies for next leg higher
By Ben Taylor (Sales Trader, CMC Markets)

Having experienced the pullback we had to have after the huge round of concerted central bank initiatives, the market now feels like it’s readying itself for the next leg higher.

China’s central bank liquidity injection has given our markets confidence as we wade into the murky waters of Spain’s budget and its banks stress tests.

There is a lot of nervousness built into tonight’s Spanish budget, and video footage of out of control riots are not helping to build confidence.

I think the markets will push Spanish Prime Minister Mariano Rajoy’s hand into asking for a bailout. Confirmation that his office would seek a rescue if borrowing rates stay too high had the market selling Spanish bonds ensuring Rajoy will approach the ECB cap in hand in the not too distant future.

Falling commodity prices on the back of USD strength also looks to be a little overplayed for the moment. Today saw a re-emergence of Aussie dollar and Aussie market strength on the back of the Chinese injecting 180 billion Yuan into the money market.

The world’s central banks are not going to let our way of life go down without a fight. We now have massive back-stops in place. Policy responses are in operation or at the ready to combat any stubborn weakness that presents itself meaning that the usual larger pull back doesn’t look like it’s going to eventuate.

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