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Domestic confidence pushes markets upwards

15.01 AEDT, Tuesday 29 January 2013

Domestic confidence pushes markets upwards

By Ben Taylor (Sales Trader, CMC Markets)

The poor weather has done little to stop today’s domestic confidence pushing our market along in what is proving to be a strong uptrend globally. Locally today we are seeing a lot of defensive buying taking our market higher with large stakes being taken across the finance and healthcare sectors.

Improving equity markets, falling bad debts combined with an improving global outlook in a low interest rate environment has seen our banks clearly sort after. Investors with money on the side lines now seem keen to dip their toe back in the water and the banks are providing the platform to seek exposure.

While it seems like the market is full steam ahead there are a number of non-believers warning that our market is vulnerable to correction as stocks are already pricing in an earnings recovery. Personally I believe the risk on sentiment is too hot at the moment to stop this run, we will need to see a clear change in sentiment before I would sell risk in this current environment.

Our business confidence read today has also given investors reason to extend their long positions. It seems that a lower interest rate environment is starting to improve confidence among the Australian business community, mix this in with the China rebound and we have a sharp rise in confidence.

The improving risk appetite has seen the Australian dollar come under pressure lately as traders move money out of perceived “safety” towards risk. However, the improving confidence in our own market today has seen traders buying the Aussie dollar as the risk of a future interest rate cut decreases.

If our market continues to improve along with the prospects of the macro environment we could see a sharp change of consensus opinion in regards to domestic interest rates. This change may prove to keep rates on hold rather than see the substantial falls which analysts are currently predicting.

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