IG Markets - Afternoon Thoughts

Across Asia, markets are higher after the passing of austerity measures through Greek parliament. Unfortunately, the austerity package has been met with violence in Athens, as riots spread in the capital. The weekend was dominated by developments in Athens as the authorities struggled to maintain support for the austerity programme demanded by the troika. Sentiment swiftly switched from negative to positive as soon as the results of the vote were announced today.

The Aussie market is the best performer in the Asian region, with the ASX 200 up 1% at 4288. There has been a strong recovery in the financials space, with the banks particularly strong. Elsewhere in the region, the Nikkei and Hang Seng have risen around 0.7% each. Given the strength we are seeing in the Asian region, US and European markets are pointing to a fairly strong open.

As expected, the Greek government did what was needed to avert a default and subsequently sent risk assets into a meltdown; the result was a move in EUR/USD to a high of 1.3261, before traders sold into the spike. There is no way to cloud the issue; the belt-tightening measures imposed on Greece are brutal and come at time when the Greek economy needs to grow, so cutting 7% of GDP over the next three years is tough. However, it seems a lesson is to be learnt by the Greeks, who in defiance, have taken to the streets burning and looting, in turn suggesting to the market that whichever new government comes in after Mr Papademos departs is going to have an extremely tough job keeping the implementation plan alive, and his job as well. Mix in a much needed agreement on the PSI (including clarity on the participation rate), a total agreement on the €130 billion (perhaps even €145 billion) bailout and finally approval through the German parliament, and you can see the early hesitation today to push risk assets significantly higher, despite what is arguably a good first step.

Wednesday’s eurozone finance ministers’ meeting will be closely watched, and if we don’t see a firm confirmation of the Greek bailout and clarity on how the ECB will participate, risk will certainly succumb to profit taking, and fresh shorts will be added as the idea of a default will gain momentum.

The fact that ANZ and Westpac have broken rank with the RBA and increased interest rates outside the rate cycle is likely to remain a talking point this week. Many analysts feel this will force the RBA’s hand into a rate cut next month. With a lot of key data set to be released through the week, we are likely to get a clearer indication of what the RBA will do going forward. Thursday’s employment numbers will be the most significant event on our local economic calendar. Consensus is for an unemployment rate of 5.3% and around 10,900 jobs added. With heightening borrowing costs and weak economic readings, should the numbers disappoint, it would be difficult for the RBA to stay put again next month. There is not much on the reporting end tomorrow, with Paladin Energy the standout company set to report. The stock’s results often disappoint.
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BUDGET 2012:
Parliament Debate Live - Video Of Budget 2011
Keith Ng Interactive Graphic: How the Budget Breaks Down
BUDGET 2012 - FULL COVERAGE: Reports / Analysis - Press Kit - Reaction (from everybody) - Previews (from everybody) - Pre-Budget Announcements

Gordon Campbell: On the Budget’s Spreadsheet Victories

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