Asia-Pacific Markets Overview - 09/29/2011

All good things have to come to an end and unfortunately the S&P 500 could not make it four out of four successive gains. US equities saw selling right up until the close, with the bears easily winning the session. The NASDAQ was the worst performer, losing 2.2% while the S&P fell 2.1% and the Dow Jones Industrial Average shed 1.6%.

It seems investors are questioning initial optimism over whether eurozone leaders will put in place comprehensive measures for crisis resolution. Angela Merkel caused further fears when she addressed the nation, suggesting Greece's budget numbers in September may be different from previous estimates, effectively putting the second bailout into question. The ECB, EU and the IMF (Troika) are expected to return to Greece tonight and hopefully provide a solid answer in the coming days as to whether or not Greece has done enough to qualify for its next tranche of aid; if successful, this could provide relief for risk assets.

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Given the overnight leads, we are calling the ASX 200 to open around 3993, down 1.2%. Using the S&P sectors as a rough guide, it looks like we're set for widespread weakness as all sectors finished firmly in the red. Materials (-4.8%), energy (-2.9%) and financials (-2.9%) were the worst performers, coming under strong selling pressure.

Among materials, base metals on the LME were all down between 0.5% and 4.5% while Rio Tinto and BHP Billiton lost 4.4% and 4.1% in London trade. BHP's ADR is calling the locally listed name down 2.2% to $34.73 at the open. Fortescue, a stock that analysts seem to love is seeing a strong pick up in short selling and is trading at 52 week lows.

Commodities were smashed over night with heavy falls across the board. Two reports from the likes of BOA/ML and Barclays seemed to spook the market as both suggested China could actually see a hard landing, something most analysts have been saying won't happen. BOA/ML's David Cui, rated number one China strategist according to the 2011 Institutional Investor All-China Survey said there was now a good possibility of a hard landing in China and increased risks of sub 7% growth. Whilst this is still not our base case, the fact that it is being mentioned is a worrying sign and could see the AUD under pressure. Interestingly, the Shanghai Composite is now down 22% from its year high and is at a 52 week low.

Perhaps the biggest event risk on traders' minds today will be the German vote on the expanded powers of the EFSF. Finland voted the measures through its parliament in a vote count of 103 to 66 overnight, although the collateral demands of the country were still very much in play. The German vote (expected at 20:00) is key and whilst most see this being voted through, markets will remain nervous ahead of it. However, on the flipside there is plenty of talk from within Chancellor Merkel's own party suggesting they will vote against it. If for some moment of lunacy they don't vote it through, all bets will be off as risk assets such as equities, commodities, risk FX (euro, AUD, NZD) get smashed.

All in all, it is likely to be a risk off day with materials, energy and industrial sectors under the most pressure. With little data due, domestic traders will be positioning themselves for tonight's German EFSF vote, US GDP and jobless claims data.

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday's close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

Please contact IG Markets if you require market commentary or the latest dealing price.

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