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IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, regional markets are all lower following the weak overnight leads from the US and as traders display caution ahead of tonight’s crucial speech from Federal Reserve chairman Ben Bernanke. The Shanghai Composite is the biggest decliner, down 0.8% while the Kospi, Nikkei 225 and Hang Seng are all down between 0.1% and 0.2%.

Locally, the ASX 200 is 0.2% lower at 4202, just off earlier lows of 4197.8. Apart from modest gains among utilities and consumer discretionary names, all other sectors are seeing modest declines as traders look to lock in profits for the week ahead of this weekend’s Jackson Hole Symposium. The market is up more than 2% for the week so it’s hardly surprising at all that we’re seeing some profit taking ahead of such a key event. Given the recent volatility, traders are very reluctant to hold positions over events that have the potential to trigger huge volatility.

Ahead of trade today, we had been calling the domestic market significantly lower in line with the offshore leads. However, it wasn’t the case as the ASX 200 opened around the flat line and strengthened for the first hour of trade on the back of rising US futures and as it played ‘catch-up’ from underperformance earlier in the week.

However, from late morning the volume dried up and the market has drifted lower on the back of profit taking / traders sitting on their hands ahead of tonight’s key speech from Ben Bernanke. We don’t think Bernanke is going to say anything too surprising. He’ll probably just wheel out the old ‘we’ll do whatever is necessary to support economic growth’ line and, if the market is lucky outline some of the weapons still left in his armoury should the economy deteriorate further. We’d prefer to be out of the market during tonight’s session but if we had to hold a position heading into the speech, it would be long gold.

Nonetheless, it will be very interesting what the Fed says and more importantly, how global markets react. There will also be plenty of volatility during the European session given the rumours and speculation seen last night over short selling bans.


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