How much further has the Grexit derisking rally got to go?

For equity markets, this week has been all about removing the “Grexit” risk premium built into valuations. Markets have been quick to make this adjustment; with the ASX 200 index closing 5.3% above last week’s low.

For equity markets, this week has been all about removing the “Grexit” risk premium built into valuations. Markets have been quick to make this adjustment; with the ASX 200 index closing 5.3% above last week’s low.

Market attention is now likely to focus on how much further this de-risking rally has to play out. Traders will be looking to assess fair value for stocks against a macro background of downside risks to China’s economy and commodity prices and the likelihood that the US will soon begin to lift interest rates. Given this backdrop, the current rally in the ASX 200 seems likely to end well short of high just below 6000 it established in April.

Buyers may also soon start to become cautious ahead of the upcoming profit reporting season in light of the price recovery over the past week. As with yesterday’s production report by Woodside this morning’s release by Santos’s has revealed the impact of falling oil prices with the risk of worse to come given excess supply capacity in international markets.

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