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IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, regional markets are mixed following the modestly positive leads seen overnight, with traders treading cautiously ahead of a big couple of nights in US economic data. The Kospi and Hang Seng are the top performers, rising 0.7% and 0.4%. Elsewhere, the Nikkei 225 is flat while the Shanghai Composite is down 0.7%.

In Australia, the ASX 200 is currently 0.2% firmer at 4275, just off its daily high of 4278, having oscillated around the flat line for most of the session. The best way to describe the market today is “mixed”, with small advances being seen across the telecoms, materials, consumer discretionary and financial sectors. Elsewhere the industrials, healthcare and energy sectors are all trading marginally lower.

The market seems incredibly quiet today; nearly everyone seems to be sitting on their hands awaiting the release of key US economic data releases over the next two days. These are going to be absolutely crucial in helping the Federal Reserve determine whether or not it needs to stimulate the economy further.

The market seems to be stuck between a rock and hard place; a couple of weeks ago stocks were just way too cheap, which was the catalyst for the bargain hunters / long term investors to move in. Now that stocks have recovered from their lows somewhat, they’re not ‘screamingly’ cheap, meaning that participants need a different catalyst to encourage further buying.

The canary in the coal mine for me is gold. Until we start seeing a meaningful pullback where genuine money is leaving the precious metal and heading into equities, we think it’s going to be hard for equities to move convincingly higher. The pullback in gold will indicate an increasing risk appetite, which is unlikely to occur until we get steadfast solutions to the problems in Europe and a much clearer picture as to whether the US is headed for a double dip recession.

Either way, the next few days are going to be interesting, with a pickup in volatility highly likely.


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