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IG Markets Afternoon thoughts – August 12

Across Asia, regional markets are mostly higher following the positive lead from Wall Street where participants were buoyed by news of short selling restrictions in Europe and stronger-than-expected jobless claims numbers. The Hang Seng is the biggest gainer, up 1% while the Kospi and Shanghai Composite are up 0.5% and 0.1% respectively. The Nikkei 225 is seeing some selling pressure, down 0.4%.

In Australia, the ASX 200 is currently 1.4% firmer at 4198, having earlier touched an intraday high of 4216. With European and US markets enjoying significant rebounds overnight the local market always seemed poised to end the week on a positive note – and it has certainly panned out that way. Gains for the day are broad based with the heavyweight materials, energy and industrial sectors all up by more than 1% The financial sector is seeing more modest buying interest to be currently higher by 0.6%.

The topsy turvy ride for financial markets continued overnight as a strong rally in Europe started half way through their session and carried over into US trade. The catalyst seemed to be rumours, which were later confirmed of short selling bans being put in force in France, Spain, Italy and Belgium. This will certainly help to control some of the recent volatility seen, especially the panic selling that’s been driven by rumours like the Soc Gen sell off seen a few nights ago.

It certainly looks like clearer minds are starting to prevail and that market moves are starting to become more rational. Hopefully this trend continues but we must remember how quickly this fear and panic driven selling can re-emerge. There were plenty of false starts during the GFC!

Whilst we may have seen the worst of the selling, the fundamental reasons behind the selloff are still present; until we have greater uncertainty as to how these issues are going to end, nervousness is likely to remain. Tonight’s session will be key in helping to further stabilise sentiment, especially given the retail sales data and consumer sentiment index due for release in the US. Better than expected results here could help allay concerns over the state of US economic growth.

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