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Little reason for investors to change macro view

Tuesday 21 August 2012

Little reason for investors to change macro view

By Ric Spooner (Chief Market Analyst, CMC Markets)

Investors have been given little reason to change their macro view on the share market over the past two days. The market is likely to remain broadly firm on yesterday’s levels in early trade.

The forward PE valuation of the S&P/ASX 200 index has been restored in recent weeks and is now not far below the average for the post GFC period. The primary driver of improving valuations has been a moderate pick up in confidence as short term risks in Europe appear to have eased.

However, we have arrived at valuation levels where investors will find it more difficult to buy aggressively without more certainty on proposed European initiatives. This attitude has recently been reflected in the US markets which are now in a holding pattern. Technical resistance at around 4450 looms as an important level for the local S&P/ASX 200 index. The market may baulk at taking the index beyond this level until it gets more detail on European plans. The ECB meeting on 6 September when the Bank may provide further detail on bond buying initiatives could be the first in a number of market trigger points.

The RBA statement released after its August meeting clearly indicated a neutral stance on interest rate policy in the short term. It is unlikely that today’s minutes will change consensus views on monetary policy or influence the market.

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