Market tries to make ground but Greece still a problem

15.19 AEST, Thursday 17 May 2012

Market tries to make ground but Greece still thorn in the side
By Ben Taylor (Sales Trader, CMC Markets)

Investors remain shell shocked following yesterday’s capitulation. Our market tried hard to make ground for itself this morning on better than expected Japanese GDP numbers however the heightened threat of Greece is still a thorn in the side of traders.

The Japanese economy expanded by 1% in the first quarter of 2012, the result was welcomed by the market and we saw the Australian market show early gains on the better than expected news of our second largest trading partner.

The better than expected Japanese GDP result was later over-looked by the Australian market as investors still burnt from yesterday rotated out of their outperforming defensive positions for risk assets. The re-balancing of portfolios saw banks and property stocks sold for an increased exposure back into the mining sector.

Political concerns for Greece and confirmation that the indebted nation will be going back to the polls has our markets on the back foot today. The increased level of uncertainly is driving investors into US dollars at the expense of risk currencies.

In 2008 and 2010 the rally in the USD was halted by quantitative easing which saw gold and other metals bought up to all-time highs. While the Fed seems to be ready to apply further stimulus if needed, if seems it could be a while before stimulus would be applied as the US economy moderately improves.

There will be a point when value presents itself in this market however I believe there is more downside risk to be played out before it will be time to get greedy.
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