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Anxiety felt in local market following US free-fall

10.41 AEST, Thursday 8 November 2012

Anxiety felt in local market following US free-fall
By Miguel Audencial (Sales Trader, CMC Markets)

Concerns over a “fiscal cliff” sent the US equities markets into free-fall last night, while the downgrade of growth forecasts by the European Commission caused a sell-off of European shares. These anxieties from overseas are likely to reflect in the Australian market today.

Investors are expected to take a safety first mentality in today’s trading where growth stocks are likely to be sold off, while defensive shares should perform better. The energy sector is expected to struggle in today’s session with crude oil trading significantly lower last night.

After the excitement of a close US presidential election, investors focused their attention on the likelihood of a combination of tax hikes and spending cuts if the US Congress is unable to reach a compromise by 1 January. This is likely to result in lower GDP figures and higher unemployment rates. With the Senate dominated by Democrats, and the House of Representatives mostly Republicans, the market speculates that a compromise is unlikely.

Europe did not fail to provide its share of grim news. The European Commission downgraded the growth forecast for the Eurozone. German Industrial Production numbers also disappointed where it reported a 1.8% decline. On top of that, the Greek parliament has not yet concluded its vote on further austerity needed to receive funds to avoid bankruptcy. With all of these taken into account, it was not surprising that the major European equity indices posted significant drops overnight.

The price of crude oil also fell significantly over night after inventories reported an increase on 1.8 million barrels. The future demand prospects of oil also look bleak with the probability of a fiscal cliff grabbing headlines, the downgrade of European growth, and the uncertainty of the Greek vote on austerity measures.

The Australian equities market is expected to struggle in today’s session. The Australian employment figure due later today would need to post a very strong result in order for the market to lessen the concerns it has from overseas headlines.

© Scoop Media

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