Weekend developments may temper Friday’s optimism

Monday 14 October 2013

Weekend developments may temper Friday’s optimism

By Ric Spooner (Chief Market Analyst, CMC Markets)

Asian markets will open the week with traders wondering whether the wind back in risk premium seen over the last couple of trading days was a bit premature. The apparent lack of progress on US debt ceiling negotiations over the weekend and a soft set of export numbers from China may temper Friday’s optimism.

The consensus view remains that the impasse over US government debt will ultimately be resolved without forcing a crisis in global debt markets. Despite the lack of concrete news over the weekend, early action in currency markets and gold have not reflected great concern this morning. Even so, the October 17 deadline now looms large and investors may be nervous about pushing prices too high too fast in the absence of a formal resolution.

The weekend announcement that China’s exports declined 0.3% over the year to September may also cool investor sentiment this morning. This figure is relatively difficult to read given the distorting impact of holidays and an earlier pattern of over-invoicing to disguise capital flows. Even so, the overall impression left by trend figures in recent months is of only moderate export growth in the face of subdued consumer demand in the US and Europe. This highlights China’s reliance on infrastructure spending and property to achieve growth targets.

From a technical point of view, the net result of the last two months trading has been a low momentum uptrend, as investors agonise over how much higher to push prices against a background of relatively high price earnings valuations. At this stage it may take a break into clear air above the late September peak of 5314 in the S&P/ASX 200 index to indicate a more positive outlook. The 50-day moving average currently provides near term support for the index around 5173. A trend line across the July and August lows currently intersects around 5100 and may provide a more significant base if US politicians give markets greater reason to be nervous over coming weeks.

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