Markets shrug off negativity

15.26 AEST, Tuesday 29 May 2012

Markets shrug off negativity

By Ben Taylor (Sales Trader, CMC Markets)

Our market has shrugged off the looming Spanish banking crisis and negative overseas lead to focus on valuation support for the Australian market.

It has been fact versus sensationalism on a grand scale recently and today fact is starting to rear its head. We are seeing wide spread support for equities today as traders take the view our market is oversold.

Some of the mid-tier and small cap miners are currently trading at levels not seen since 2008 despite considerable progress made over the recent years. The discount they are currently presenting provides investors with sufficient reason to continue to bid this market higher.

There seems to be a vast amount of misinformation circling the European situation. The fact that polling is now showing a pro bail out party leading the Greek election outcome is giving rise to Greece's future inside the Eurozone. This development means the European situation is overplayed and the markets are ready to reverse the downward trend.

The markets, however, seem to be somewhat bipolar today, we have seen a rise in Australian bond prices at the same time as a rise in our equity markets. The drive in bond prices along equities is evident of a market confused. The Spanish banking crisis along with blowouts in European periphery bond yields is having the effect of driving down yields on Australian government bonds as investors seek safety.

As more cash piles into the Australian bond space and valuation hold up equities I believe we have seen the lows on the Australian dollar for the short run. The recent Australian dollar weakness has been more about USD strength than Aussie dollar weakness and if next week’s rate cut expectations don't eventuate expect to see the Australian dollar knocking on parity's door.
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