Risk averse investors get more to worry about

hile stock markets have rallied a bit recently, the evidence so far points to investors being in a relatively risk averse frame of mind in 2016. Investors continue to grapple with a number of macro concerns.

While stock markets have rallied a bit recently, the evidence so far  points to investors being in a relatively risk averse frame of mind in 2016. Investors continue to grapple with a number of macro concerns.

Three of the macro risks concerning investors influenced international markets last night. This saw the recent rally in the US S&P 500 falter at key chart resistance, setting a negative tone for to local trading this morning.

Statements by Saudi and Iranian spokesmen appeared to largely remove hopes that the Doha oil production freeze proposal might be developed into something more useful. Short covering in oil had been based on the possibility the Doha talks might represent a change in sentiment by leading low cost producers. Last night’s statements seemed to put paid to this possibility. The Iranian oil minister described the Doha agreement as ridiculous while the Saudi’s made it clear they don’t intend to cut production.

Concerns over the fragility of the Eurozone are another macro risk factor weighing on equity sentiment.  Initial reactions to news Boris Johnson will be advocating for Brexit centred on the Pound. However, markets are now focussing on the implications for Europe as well. The Euro weakened last night on concerns that Brexit or even recent concession to the UK may set a damaging precedent for the EU and the Eurozone.

Reaction to yesterday’s move to fix Yuan lower against the US, illustrates that markets remain potentially sensitive to the risk of a major devaluation in the currency at some stage in the future even if current adjustments are only technical in nature.

Markets will be focussed on release of the quarterly construction data this morning. This comes as the Aussie Dollar is approaching a potential inflection point in the form of its 200 day moving average for the first time since September 2014. Consensus expectations are for a soft report for the December quarter as markets are also beginning to anticipate a plateauing in residential construction this year.

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