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Investors wait for detail on European central bank policy

Investors wait for detail on European initiatives and central bank policy

By Ric Spooner (Chief Market Analyst, CMC Markets)
28 August 2012

Recent market price action indicates that investors are reluctant to buy shares at higher prices until they have the opportunity to get more certainty on the viability of the European stability fund and plans to contain Spain’s bond yields. The size and nature of the next Fed monetary initiative will also have a bearing on equity and commodity markets.

The fact that markets have arrived at a short term watershed was reflected in trading volumes in the US which yesterday had the quietest full day session this year. Today’s outlook for our market may be similar with the index likely to hold firm around yesterday’s values. There is near term support for the S&P/ASX 200 index at around 4330. A close below that level may indicate that defensive selling and profit taking is gathering pace prior to the upcoming European and Fed announcements.

Australian energy investors will be keeping a close watch on the current oil price. These showed signs of weakness last night as it became less likely that US gulf facilities would not be damaged by Hurricane Isaac. Global demand forecasts for oil suggest moderate growth at best. There is adequate supply capacity and the market also faces the possibility of releases from strategic reserves to contain high gasoline prices. Having rallied more than 30% since the low in June, oil may struggle to maintain levels much higher than this if further supply disruptions do not eventuate.


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