Economic data takes a backseat to Europe headlines

09.38 AEST, Thursday 24 May 2012

Economic data takes a backseat to Europe headlines

By Miguel Audencial (Sales Trader, CMC Markets)

The Australian equities market is set for a positive start after an inspiring comeback from its US counterpart overnight. Importers are poised to outperform the market owing to a more competitive Australian dollar.

Higher than expected New Home Sales reported earlier in the trading day failed to give investors a reason to take a risk on equities. However, it was the optimism that European policy makers can provide a solution to the Greek crisis that instigated a sharp turnaround in the equities market. What I find interesting (but not surprising) is that economic data is currently taking a back seat over the headlines that come from Europe. Investors are continually adjusting the risk premium on the Greek crisis based on any news report that comes out. This is likely to continue up until the next election in mid-June and I expect continued volatility because of this.

European markets played catch-up to sell equities after the report that the Greeks are preparing contingency plans for a Eurozone exit. The FTSE was 2.5% lower, the DAX was down 2.3% and the lost French CAC 2.6%. Investors continue to play it safe choosing to put their funds in US and German debt instruments driving the yields even lower.

Commodity prices were generally weaker caused by the strength of the US dollar. Crude oil prices continue to drop as positive headways in Tehran are made. There is still more room for the price of oil to drop in the near future because of three main reasons: the possible supply disruptions from Iran appearing to be unlikely, the current high stockpiles of oil present, and the risk-aversion brought about by the uncertainties in Europe.

Traders will pay close attention to the China Flash Manufacturing PMI figures later today and it will give good indication on the level of growth that we should expect from China. However, similar to what we saw from the US session last night, this data will take a backseat to any development from Europe.
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