Asia mixed and Europe set to bounce

Asia continues to experience choppy price action, with equities juggling leads from European trade and data from China.

Source: Bloomberg

Financials around the region are firmly in the red as they track the turmoil seen in European bank shares – the situation in Greece is causing a bit of panic. Perhaps the selling on the back of Greek concerns was a tad overdone but, given Europe is already facing significant challenges, a political crisis in Greece is the last thing the Eurozone needs.

The uncertainty an election for Greece would bring is what the market is particularly concerned about here. Analysts feel it will be a struggle for Prime Minister Samaras’ nominated candidate Stavros Dimas to garner sufficient support. Effectively, a decision has to be reached by 29 December to prevent an early election.

Essentially, the market doesn’t want a party that could disrupt the bailout agreement, which in this case is the anti-bailout group ‘Syriza’. Renegotiating the terms of the current bailout plan would be detrimental for Europe at such a fragile time. In the near term, investors will be watching what happens with bonds after peripheral yields spiked yesterday. 

Calmer day for China

China has managed to stabilise after the CSI traded in a 10.1% range yesterday. Focus was on CPI and PPI data, which was released at the beginning of Chinese trade. Both readings came in below estimates – CPI came in at 1.4% (versus 1.6% expected) and PPI contracted by 2.7% (versus -2.4% expected).

There was a time when such readings would see markets rally in anticipation of stimulus. However, it seems there is a clear shift in how China operates now, with current benign growth becoming the new normal. Despite this fact, cooling inflation certainly gives the People's Bank of China (PBoC) some flexibility.

The ASX 200 experienced a significant slump earlier as the banks got heavily sold off in response to the price action seen in European banks. The big banks were all down close to 2% at some point but we have since seen a recovery for some of them.

Commonwealth Bank of Australia (CBA) has popped back into positive territory, helped by a much better-than-expected home loans reading (+0.3%). Of course, CBA has the biggest mortgage book among the banks and, naturally, it benefited the most from this.

Some of the miners have been surprise performers, managing to gain some ground despite global growth concerns continuing to impact commodities. Gold names have been notable performers after the precious metal pushed higher on safe-haven demand.

A slump in the Westpac consumer sentiment reading to levels not seen since the Global Financial Crisis (GFC) added to the mountain of evidence showing that all is not well in the domestic economy. Remember yesterday’s NAB business conditions reading reversed sharply from the previous month.

Firmer open for Europe

Ahead of European trade, we are calling the major bourses firmer, with equities set to regain some of yesterday’s losses. Given Greece dominated headlines yesterday, investors will continue to monitor the situation fairly closely. Voting for the Greek president will commence on 17 December and that’ll coincide with the FOMC meeting.

As a result, there will be plenty of event risk in the middle of next week. On the economic calendar today, we have French industrial production and UK trade balance data. There isn’t much on the US economic calendar and the Fed slipped into its communication blackout period. Regardless, heading into next week’s meeting, speculation around the ‘considerable time’ reference is likely to ramp up.

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