Afternoon Market Report
The lack of resolution in relation to the Cypriot bailout remained the main influence on regional markets on Wednesday. The Cypriot parliament has voted against levy on bank deposits by a margin of 36 to 0 with 19 members abstaining. Eurozone officials remain defiant that Cyprus must contribute to its rescue. Germany has remained steadfast, re-iterating that no support will be offered until Cyprus meets the terms on the table at present. Cypriot banks and the stock exchange will remain closed until Thursday. The ECB repeated its commitment to the provision of liquidity as required within the existing rules. The main risk lies in the ECB withdrawing this support, which would see a collapse of the Cypriot banking system. The risk to the broader Euro banking system arises from Cypriot banks having lent an amount equivalent to around 4% of Greece's GDP to Greek banks. German and French banks have exposure to Greek banks.
The U.S. equity markets, which appear to have traded in the sinuous see-sawing seen earlier this year for an uninterrupted climb this month, are about to fall off a cliff. At least that’s the opinion of several Wall Street portfolio strategists, who have been warning clients over the past few days that an overvalued stock market is about to be hit by various rally-killing disappointments and suggesting equities are in for a fire sale before the year is up.
Despite the weakness of recent days, the market has remained well supported. More than $5.5bln shares changed hands on Wednesday indicating a high level of investor participation despite the re-emergence of systemic/political risk in relation to the European banking system.
Mining stocks were by far the biggest underperformers during the session. Several factors continue to create headwinds for the sector. Iron ore prices remain at their lowest levels for the year, in addition to industry voices highlighting that current levels for bulk commodity remain unsustainable in the medium term. As a consequence high profile broker downgrades for RIO and BHP have been a feature of the last day informing the decline seen in each stock on Wednesday.
One of the bright spots of the session was the support seen for a number of retailers in the wake of a better than expected result posted by David Jones. The group announced an Interim Net Profit of $73.5m down 13.5% which was ahead of the market consensus of $72.9m. The company said the challenging environment contributed to the fall in sales. David Jones said it would pay an interim dividend of 10 Australian cents a share, slightly lower than the previous year´s 10.5 cents. David Jones finished the session at $3.08 up 4%. Elsewhere in the sector JB HI-FI closed at $14.88 down 1.78%, Harvey Norman finished at $2.80 up 0.72%, Myer settled at $3.03 down 0.66%
Apart from developments in Europe and Nicosia, the main event tonight in northern hemisphere trade will be the FOMC meeting. The markets will remain vigilant in relation to comments on budget negotiations and the horizon for interest rates and QE. With an improving US economy markets are becoming increasingly wary of the feds commitment the monthly program of $85 billion worth of bond purchases.
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