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IG Markets Afternoon thoughts 18th August

Across Asia, regional markets are all lower following the negative lead from the NASDAQ as technology names came under pressure following Dell’s disappointing sales outlook which spurred worries over the outlook for Q3 growth. The Kospi is the worst performer, down 2.1% while the Nikkei 225, Shanghai Composite and Hang Seng are all weaker between 0.1% and 0.7%.

In Australia, the ASX 200 is currently 13% weaker at 4247, just above its intraday lows of 4246. After the local market’s relative outperformance yesterday it is not surprising to see it underperforming today given the lack of any definitive leads from Wall Street overnight. Losses for the day are broad based with the healthcare, energy and materials sectors the biggest percentage declines while the heavyweight financial sector is seeing more modest losses. The consumer staples and the utilities sectors are the only sectors in positive territory.

The last few days has seen the market pushing higher on near non-existent domestic volumes, but rather offshore buying rumoured to be from Asia. Given the extent of the rally from the lows, we’re going to need to see a pretty decent catalyst for this to continue as the general feeling across trading desks is that the market is overextended in the short-term and due for a pullback.

Given this theme, it’s not surprising to see profit taking starting to emerge. The big question will be whether or not we see aggressive selling return or it’s just a ‘profit taking’ driven pullback; if it is just the latter, then it will do wonders for confidence and sentiment. On the flipside, an escalation of the fear and panic over the global issues would quickly see traders hitting the sell button.

With global macro issues seemingly taking a back seat at the moment, the focus has returned to corporate earnings which so far, seem to be coming in line with expectations. Looking ahead, there is a raft of economic data due out of the US which includes CPI, Unemployment claims, Existing Home Sales and the Philly Fed Manufacturing Index Any weakness amongst this data could reignite fears over the state of US economic growth.

Ben Potter
Market Strategist
IG Markets


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