September growth gives investors encouragement

09.49 AEDT, Tuesday 16 October 2012

September growth gives investors encouragement

By Ric Spooner (Chief Market Analyst, CMC Markets)

Better than expected US retail sales will be a positive for Australian investors today.

A good response by consumers to the reduced short term risks in Europe and to the wealth effect of rising stock and house prices is a necessary condition for improved growth over the next 12 months. Investors will be encouraged to see good growth in the September retail sales figures backing up a strong August number. This suggests improved consumer confidence following QE3 and the ECB initiatives to reduce the risks posed by high Spanish bond yields. The improved US retail sales figures follow a display of strength by local consumers and business with yesterday’s better than expected motor vehicle sales.

Precious metals markets have been struggling to gain on the rallies leading up to the announcement of QE3 by the US Fed. Gold and silver traders were becoming increasingly nervous that a “buy the rumour, sell the fact situation” was developing. Short term confidence cracked last night with prices breaking below short term technical support, triggering a round of profit taking. From a technical perspective gold may now fall back to the $1650-$1700 zone before attracting significant new buying support.

The S&P/ASX 200 index could test last week’s high at 4512 today. While a move above this level would be a positive for confidence, traders may want to see a clear break above this level and not just a minor breach. The local market is also likely to remain cautious in the lead up to the release of China’s September quarter GDP.

http://www.cmcmarkets.com/

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