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ASX: Market risk to the downside in GDP data

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Fuseworks Media
Fuseworks Media

By Ric Spooner (Chief Market Analyst, CMC Markets)

Firm but quiet looks like being a reasonable description of early stock market trading.

The local market may have been marginally wrong-footed by steady US markets, which failed to frank yesterday’s 0.7% decline in the local market. However, there is not a lot to suggest a return to optimism in the opening session.

While iron ore prices rallied marginally yesterday, a move back above $100 may be required to convince traders that this is more than just another minor blip against an ongoing downtrend.

Market attention will be focussed on today’s GDP figure. However, investors will be conscious that a lot has changed since the first quarter. This includes the sharp drop in iron ore prices, the budget and the associated blow to confidence plus a run of moderate data for April. These changes are likely to temper market reaction if first quarter GDP turns out to be a bit stronger than currently forecast. A weaker than expected number could on the other hand fuel growing concerns about a tepid growth outlook. This would be backgrounded by an expectation that the RBA is not likely to provide additional support with further rate cuts in the near future.

Currency markets are focussed on tomorrow’s ECB decision. Despite a disappointingly low inflation read of 0.5%, the Eurodollar firmed last night. This appears to be a bit of sell the rumour, buy the fact positioning in advance of the decision. Even so, EURUSD has been unable to push back above its 200-day moving average. Traders are conscious of the possibility that having flagged the likelihood of action at this meeting, the ECB will now seek to maximise the psychological impact by surprising the market with the extent of its stimulatory package.

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