Local markets to adjust for yesterday’s overshoot

09.35 AEDT, Tuesday 19 March 2013

Local markets to adjust for yesterday’s overshoot
By Ric Spooner (Chief Market Analyst, CMC Markets)

The relatively muted initial response by European markets to concerns over Cyprus has left the Australian market with some back tracking to do in early trade. The fact that European bonds, the Eurodollar and equity markets recovered from early losses suggests that investors are not overly concerned about the potential for political contagion from the imposition of a deposit tax in Cyprus. Investors and bank depositors appear to accept assurances that this is a one off measure that would not be imposed on citizens of larger debtor nations elsewhere in Europe.

Even so, today’s initial relief rally is likely to be limited. Investor confidence will be tempered by the risk that the Parliament in Cyprus may increase Euro concerns by failing to approve the proposed bank levy. Some risk premium will remain in markets until this legislation is passed.

The release of the RBA minutes today is unlikely to influence market thinking. Last week’s massive employment growth figure has potentially changed the goal posts on interest rates since the Board last met and any extra colour from the minutes will be seen in that light.

: http://www.cmcmarkets.com/

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