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IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, regional markets are all sharply lower following the negative leads from European and US equity markets overnight. The heavy selling is on the back of fears over the state of global economic growth and the ability for European banks to withstand another freezing over of credit markets. The Hang Seng is the worst performer, down 2.3% while the Nikkei 225 and Shanghai Composite are 2.1% and 1.3% weaker respectively.

In Australia, the ASX 200 is currently 2.7% weaker at 4135 having traded down to an intraday low of 4119. Given the bloodbath seen across global equity markets overnight it is not at all surprising to see our market experiencing sharp and broad based losses. The heaviest losses are being witnessed across the energy and consumer discretionary sectors which are both down nearly 4% while the heavyweight materials and financial sectors are seeing declines of nearly 3%.

The fear and panic that rattled investors last week returned overnight as concerns over the stability of European banks escalated and the US Philly Fed Manufacturing Index came in at -30 versus an expected +4, which clearly points towards contraction. The short-covering and bargain buying that has seen stocks recover over the last has been replaced by fear-based emotional selling as traders look to offload any perceived risk assets.

Given the huge levels of uncertainty, a lot of traders are looking to square their books ahead of the weekend. The last thing they want to do is get belted on the open on Monday morning if US markets fall over again this evening. There are an enormous of problems out there and no one really knows where this could all end up, especially the debt issues that a spreading through Europe

Everyone remembers the early stages of the GFC where everyone was saying the subprime situation was contained and not to worry. If you had panicked and sold out in the early part of 2008, then you would have saved yourself a lot of heartache. From experience, these situations always go on for a lot longer than people think they should; given the GFC is still so fresh in people’s minds, the market is going to have to do a lot to win back the confidence of investors, especially the retail sector.


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