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14.08 AEDT, Monday 19 November 2012

Investor Outlook Remains Unchanged

By Ric Spooner (Chief Market Analyst, CMC Markets)

Today’s quiet trading and minor market gain suggests that not much has happened to change investor outlook on two major risks to world growth – resolution of the US fiscal problem or the financial viability of the Greek government. Investors have not been prepared to risk much this morning on the basis of Friday’s statement of general intent by those participating in the fiscal cliff negotiations.

An announcement is expected this week on the next tranche of bailout funds for Greece. While payment will remove the short term risk of Greece leaving the Eurozone, market attention is likely to focus mainly on the likely impact of the conditions for bailout and how soon this whole issue will need to be revisited. Many analysts consider it inevitable that other European nations will need to take a substantial haircut on their Greek bonds before the nation’s finances are in a viable position.

News that property prices rose in 35 of 70 surveyed cities in China last month is encouraging. The possibility of a really hard landing in China’s property market has been a key concern and indications of price stability are making the soft landing scenario more likely which is supportive for resource stocks.

Last week’s declines in the Australian market make it more likely that we have not yet seen the market low. The break below recent support suggests that the market is correcting the whole of the rally since June. Although we have now retraced 38.2% of this rally, it’s more likely that the retracement will be somewhere between 50 and 61.8%. This implies a move in the S&P/ASX 200 index down to between 4284 and 4213.

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