IG Markets: Afternoon Thoughts

Good afternoon,

Across Asia, regional markets are mostly higher following the positive leads from Wall Street and M&A activity, with Google announcing a US$12.5b bid for Motorola Mobility Holdings. This boosted other mobile phone makers as participants looked for the next potential target. The Korean Kospi is the best performer, up 3.8% following yesterday’s falls. Elsewhere, The Hang Seng and Nikkei 225 are 0.4% and 0.2% firmer respectively while the Shanghai Composite is seeing some pressure, down a modest 0.3%.

In Australia, the ASX 200 is currently 05% weaker at 4259, just above its earlier session lows of 4255. Having enjoyed a 13.5% bounce from last week’s intraday lows it seems the local market has now run out of steam. Subsiding levels of fear have enticed some investors back into equities, but the broader market desperately needs some form of positive catalyst to see a sustainable move higher. While the consumer, industrial and healthcare sectors are all broadly positive, it is the financial, materials and energy sectors that are dragging the market lower, with losses in the vicinity of 1%.

The next few days of trade are going to be interesting indeed. We’ve seen a classic relief rally following last week’s tumultuous selloff. What happens from here is the big question? Do markets rollover and the sellers aggressively reassert their control or will there be a lot more buying support to absorb the selling. Only time will tell.

It looks like global markets have run up in anticipation of some sort of miraculous solution from tonight’s meeting between French President Sarkozy and German Chancellor Merkel. However, we think markets might have got a little ahead of themselves and possibly setting themselves up for disappointment. It could be a classic case of ‘buy the rumour, sell the fact’. Everyone seems to be calling for the introduction of euro bonds, however this is a lot easier said than done given the 17 members of the European Union.

From a technical perspective, we’re looking for the market to pullback from the recent rally in a nice orderly fashion and for it to form a higher low. The big key will be how aggressively the sellers look to sell the rally; if we see panic and fear return to the market then things could deteriorate rapidly once again. On the flipside, the longer rational thinking prevails, the quicker money will start to return to equities.

ENDS

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