Animal spirits lift shares
After recent selling pressure, the absence of bad news was all it took to unleash animal spirits and drive European and US shares higher overnight. Risks remain elevated, especially in the lack of agreement between Greece and the rest of the world, but investors shrugged them aside in a night of solid buying. However gains were tempered as a stronger USD deflated some enthusiasm.
The stronger USD may see a more ambiguous session for the Asia Pacific region. While increased USD appetite for manufactured goods is a positive for the exporters of Asia, it also weighs on commodity prices, potentially reversing yesterday’s gains in resource shares. Futures prices are pointing to gains of around 0.25% for most regional markets, pale in comparison to the 1-2% gains overnight. One reason for the disparity is that China related shares have already moved substantially higher as investors factored in the latest round of economic stimulus.
Capital expenditure numbers today speak directly to the key issue for the Australian economy. The sluggish transition away from mining investment remains the number one concern for the RBA. Any evidence in today’s read that capex intentions are firming up in other sectors would likely lift local sentiment, and potentially set the index for a re-test of the post GFC highs around 6,000.
For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.
Frequently Asked Questions about this Article…
The recent rise in European and US shares was driven by the absence of bad news, which unleashed 'animal spirits' among investors, leading to a night of solid buying despite elevated risks.
A stronger USD can have mixed effects on the stock market. While it boosts appetite for manufactured goods, benefiting exporters, it can also weigh on commodity prices, potentially reversing gains in resource shares.
One of the main risks affecting global markets is the lack of agreement between Greece and the rest of the world, which investors have currently shrugged off in favor of buying opportunities.
Asia Pacific markets are expected to see modest gains of around 0.25%, which are smaller compared to the 1-2% gains in US shares, partly due to prior substantial increases in China-related shares.
The transition away from mining investment is a concern for the Australian economy because it remains sluggish, and the Reserve Bank of Australia (RBA) is keenly watching for signs of firming capital expenditure intentions in other sectors to boost local sentiment.
If today's capital expenditure numbers show firming intentions in sectors outside of mining, it could lift local sentiment and potentially set the Australian stock index for a re-test of post-GFC highs around 6,000.
China-related shares have already moved substantially higher due to the latest round of economic stimulus, which contributes to the disparity in performance compared to other regional markets.
For further commentary on the current market situation, you can contact Michael McCarthy at CMC Markets by calling 02 8221 2135.
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