26/07/10 - 15:30
Ben Potter, Research Analyst
Afternoon thoughts from the Trading Room – 3.30pm
Across Asia, regional markets are mostly higher on the back of positive US leads and growing optimism that Asia’s economic recovery is gathering momentum. The Nikkei 225 is the region’s best performer, up 0.9% while the Hang Seng and the Kospi are seeing more muted gains of 0.2% and 0.3%respectively. As is so often the case, the Shanghai Composite is doing its own thing, currently lower by 0.5%.
In Australia, the ASX 200 is currently stronger by 0.7% at 4488. While gains for the days are broad based with the heavyweight materials, financial, industrial and energy sectors all up, they are all well off their earlier highs of 4503 and showing signs of losing steam.
While on face value, price action in the US on Friday suggests the market was happy with the stress test results, there definitely seems to be a growing chorus of discontentment about the rigour of these assessments. While the market is showing inevitable relief that nothing sinister is “lurking in the closet”, the measly €3.5b European regulators are claiming the “failed” banks require is a missed opportunity to fortify the banking system.
It seems the initial optimism generated from the stress test results and another healthy session of US corporate earnings is giving way to that cautious mindset that has characterised the last few months. The market’s testing and then retraction from the 4500 level suggests that the wave of money behind this morning’s assault may not yet be strong enough or have the weight of numbers behind it to see us push beyond this level, at least until it is clearer as to whether more monetary policy tightening is on the way.
Too aggressive a line, or a too perceived eagerness by the RBA to hike rates again could see consumer confidence, and by effect, consumer spending, unravel very quickly; the market knows this and is certainly trading that way.
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