Financials lead the way in afternoon trade

Financials lead the way in afternoon trade

By Ric Spooner ( Chief Market Analyst CMC Markets)

Will weaker base metals and the Italian election dictate market caution?

Profit reports will dominate trading in a significant number of stocks today. However, macro traders will be looking for early signs of whether today will be yet another in which investors push the market higher in the relentless pursuit of banks and other high yielding stocks or whether the market will become cautious ahead of the Italian election.

The Italian election does have the potential to alter the balance of long term risks for investors. The short term impact of a "bad" outcome for the market may be limited as it is not likely to materially impact the near term risk of a Euro crisis. However, many remain concerned about the longer term risks in Europe. A return to reasonable growth levels in Italy is a precondition for a Euro recovery.

Markets would like to see a stable coalition government involving former Prime Minister Mario Monti. Victory by Mr Berlusconi would be a "risk off" event while victory by Mr Bernadi in his own right or in a very unstable coalition may also unsettle markets.

Resource investors are also be cautious today following last night’s fall in copper and aluminium prices. Traders are concerned about increased inventory levels in China as trading resumes after the New Year.
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