Selling on international markets sets the scene for another bleak opening on the Australian market.
By Friday’s close, the ASX 200 was down 8.7% from its late August peak. With selling momentum clearly the order of the day, investors are trying to decide if the conditions are right for a major downward move in world stock markets. There have been some changes in recent weeks. The prospect of higher US interest rates has begun to crystalize, the outlook for the European and Chinese economies has softened further, commodity prices are under pressure and geopolitical risks remain elevated.
None of these things however are radically different from two months ago. This leaves investors torn between concern over the warning signs represented by heavy selling momentum and a feeling that world economic conditions have not deteriorated to a level that implies a really major market sell-off.
China’s trade figures will be a key market focus today. Recent months have seen a return to solid export growth which has been a bright spot for China’s economy. Weak imports, however, have pointed towards softening growth in the domestic economy and a run down in commodity stockpiles. Investors will be relieved if the September export figure can continue to show solid growth in the face of slowing growth in Europe.
Friday’s sell-off in the ASX 200 index leaves the downtrend clearly intact. The next significant support levels look to be the lows from last December and February around 5025/5050. Thursday’s high of 5325 is now resistance.
For further comment from Ric Spooner please call 02 8221 2137.