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Markets are buying the message the ECB are selling

15.33 AEST, Friday 7 September 2012

Markets are buying the message the ECB are selling
By Tim Waterer (Senior Trader, CMC Markets)

Looking at the reaction of Risk assets the market is clearly buying the pro-active message that the ECB is selling. With Draghi coming up trumps in the minds of traders, the pressure valve was released on higher yielding assets on hopes that bond buying from the central bank will avert further crisis’ from unfolding in the region.

The Australian Dollar made a move to 1.03 after improving global sentiment offset a run of weak domestic data in recent days. The Trade Balance undershot the forecasts, however this was just a minor blip for the AUD today as traders were generally in the mood for taking on board risk currencies in light of a market-appeasing ECB announcement last night. Still of great concern to the AUD’s short term prospects is the suppressed Iron Ore price and this is creating a shackle on the currency and causing it to underperform its peers.

Friday’s Non-Farm Payrolls in the US will set the tone for financial markets with the result likely to dictate if the ECB-inspired rally has further to run. Expectations are growing that we could see a number nudging 200k of jobs growth following on from the ADP figure. However the real test of market nerves would come if we saw a result of below 100k, as this could spark a ‘bad news is good news’ outlook in relation to QE3.

The Australian sharemarket was quite enthused in the early going following the positive events abroad, however gains were tempered in the afternoon with traders adopting a ‘proceed with caution’ approach in the lead up to the US employment report tonight. So whilst there was renewed optimism particularly from the recently battered mining stocks, the overall advance of the market was a rather ‘stripped down’ version of the rally witnessed on international bourses. Nonetheless, the blue chip mining stocks made the best of the conditions today. The likes of BHP and RIO surged on hopes that the ECB bond buying plan will provide a ‘shot in the arm’ to commodities demand over coming quarters by instilling a sense of confidence to markets.


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