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Markets back on track

15.19 AEDT, Wednesday 6 February 2013

Markets back on track

By Tim Waterer (Senior Trader, CMC Markets)

Financial markets have shown many admirable qualities so far in 2013 and now we can add ‘bounce-back capabilities’ to that list. The rebound, while impressive, could perhaps be put down to selective short term memory loss by investors.

The European issues which caused the sharp falls earlier in the week did not suddenly fix themselves. However, better US earnings and PMI numbers had traders itching to make up the ground lost the day prior. This week has shown us that while there will inevitably be bumps in the road the natural tendency of the market is to push higher in this climate, and investors are positioning for further upside moves while global economic data provides cause for optimism.

After Tuesdays turbulence, investors jumped back on the horse as evidenced by the green numbers across benchmark Asian indices today. A better night of data in US and Europe helped offset the Spanish and Italian political worries from earlier in the week with traders instead concentrating on what the fundamentals are indicating.

Financial stocks were among the major drivers behind the ASX200 performance with the big four trading well into positive territory. Bellweather miners BHP and RIO were also well supported. Today can perhaps be described as the ASX200 getting back on track for an attempt at 5000 over the coming weeks.

A day after the RBA hinted at room for further rate cuts, negative Retail Sales results created a predictable downward move in the AUD. The somewhat surprisingly soft December sales data adds strength to a March rate cut, which is why we saw significant value stripped from the AUD immediately upon the release today. If we see a similarly disappointing jobs report on Thursday the AUD could be facing an uphill battle to keep above the 1.03 handle as speculation of interest rate easing intensifies.

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