Australian Market Leads - 04/24/2012

The crucial inflation (CPI) numbers to be released on Tuesday will determine the monetary policy of the Reserve Bank, which analysts and investors are anticipating an undelying inflation rate within 2% could spell rate reductions. However, the RBA will consider the tension exerted by the budgetary allocations of the Federal government as well as the European recession fears.

Analysts from CMC Markets and IG Markets have brought up the disappointing overnight trades in the U.S. and Europe that influenced the commodities and risk currencies markets.

CMC Markets chief market analyst Ric Spooner explains that if Australia's annual underlying inflation rate nears 2%, and the real prospect of the cash rate falling to 3.5/3.75% will be boost to the optimism today.

"Investors will welcome the possibility of lower interest rates and the potential for a weaker currency that will be assumed if the CPI is in line with expectations. However, they will be conscious that any rate cuts will be made against a back drop of significant fiscal tightening in next week's budget. This will be delivered amongst considerable political uncertainty domestically with investors yet to have a clear idea of the Opposition's fiscal policies. Mounting concerns over Europe will further limit confidence," Mr. Spooner explains.

Nonetheless, the grim overnight trades should also be taken into consideration.

IG Markets strategist Stan Shamu said the disappointing PMI numbers from China, France and Germany all contributed to global growth fears. He notes that another source of concern is political uncertainty in France and the Netherlands, which has undermined the future of the EU stability.

"Among the major averages, the Dow Jones Industrial Average was down 0.8% at 12927. The S&P was 0.8% lower at 1367, while the NASDAQ shed 1% to finish at 2970. This move saw the S&P break its long-term uptrend support line. European bourses were hit even harder, with the DAX slumping 3.4% and the CAC lost 2.8%," Mr. Shamu notes.

Fears of a deep European recession did not bode well for risk assets and weighed on resource names particularly in the London session.

IG Markets points out the performance of BHP's ADR recording 1.3% fall at the open to $34.87.

Analysts expect to see similar declines in other big resource names. Newcrest Mining released its March quarterly production report on Wednesday and saw output affected by high rainfall at Cadia Valley. NCM is under pressure to hold the $27.50 level, with momentum firmly to the downside.

"The miner has a history of disappointing and seems to have missed guidance yet again. The defensive stocks are likely to outperform in this risk averse environment. Wesfarmers is one to watch with its third quarter retail sales update due out this morning. Once again, Coles will be the key aspect in the report, given it has been responsible for any re-rating in the stock," he points out.

FROM IG MARKETS

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