Asian markets poised on the edge

09.32 AEST, Monday 4 June 2012

Asian markets poised on the edge
By Michael McCarthy (Chief Market Strategist, CMC Markets)

Asian markets are poised on the edge this morning. Following weaker PMI readings in China on Friday, US non-farm payrolls for May came in below the lowest estimates, and saw April numbers lopped by a further 38,000 jobs. Aided by continuing doubts over European banks and governments, markets slashed the prices of shares and risk commodities, and bought US dollars and gold in text book "risk off" trading. Today's selling pressure will test recent support levels across the region, with the Australia 200 index likely to open below the buying zone around 4,030.

No sectors were spared on Friday night. Financial and consumer discretionary stocks fared worst as confidence in credit markets and consumer activity plunged. Materials stocks fell less than the market, despite pressure on all industrial commodities, perhaps reflecting their leading role in selling earlier in the week. While Australian financial groups have very little direct exposure to Europe, concerns that funding costs will continue to rise could see the sector under pressure today.

Action today is likely to determine direction for local markets for weeks to come. A plunge through the support and close below will point to further short term losses. However, the market pattern on all five days last week saw weak openings followed by buying across the day. If the buying support re-emerges today, investors may take the view that the long waited out performance of Asian shares has begun. Overall participation may be slowed ahead of the RBA's interest rate decision tomorrow. Analysts expect no change, but interest rate markets are pricing more than a 25 basis point cut.

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