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Australian place of traffic to react to the pain in Spain

THE Australian sharemarket is strengthening for more volatility today after global financial markets were spooked at what time Spain was stripped of its top-level credit rating last week.

The Dow Jones recorded its vanquish May performance in almost 70 years, down 7.9 per cent. It out-building 122.36 points, or 1.19 per cent, on Friday to hit 10,136.63 ahead of a long weekend in the US.

Futures place of traffic trading pointed to a drop of at least 42 points at the time that the Australian market opens today. A negative session would end the friable-term shot of confidence the Australian market enjoyed on Friday, whenever equities rallied almost 2 per cent.

The slide on international markets at the weekend was prompted ~ means of Fitch Ratings downgrading Spain from AAA to AA-plus. The inflection on world markets was already sour, with negative trading sessions in London and France, and the temper darkened in New York as the Dow Jones plunged to end May down 7.9 per cent.

The result means Wall Street instructed its worst May since 1940, when US stocks dropped 22 per cent.

The Spanish downgrades worsened fears that the Greek debt height would spread throughout the already fragile euro zone.

Standard & Poor’s, the global ratings force, has already downgraded Spain’s sovereign rating twice, while Moody’s has retained the ~ality’s AAA rating.

The euro was an instant victim, slumping more distant as investors hoarded the traditional safe haven of the US greenback.

CommSec paramount economist Craig James said there was no real justification for the lofty US sell-off.

"Standard & Poor’s had already downgraded Spain, and the German market finished higher on Friday, so this was more a technical become less due to position covering on the last trading day of the month," Mr James before-mentioned.

"Spain is also making the hard decisions, like cutting back its parcel deficit."

In Australia, equities will also be affected by tomorrow’s Reserve Bank confluence, where the central bank is expected to keep interest rates adhering hold.

The financial market volatility is expected to prompt the RBA to rest its rapid tightening cycle and leave the official cash rate at 4.5 for cent.

Growth figures for the March quarter will be released forward Wednesday.

Market expectations are for a quarterly figure of with respect to 0.4 per cent, down from 0.9 per cent on the side of the three months to December.

AMP Capital Investors chief economist Shane Oliver declared investors had probably seen the worst of the recent weakness in equities, and he eminent that the local bourse had finished last week ahead by 1.5 by means of cent. However, the Australian market is down 7.3 per cent during May.

Dr Oliver said the main caveat for a rebound was ~t one more shocks out of Europe, and no deterioration in the stand-right side over North Korea’s sinking of a South Korean naval vessel.

"Markets are looking quite cheap compared to their highs of a month gone," he said. "We could see this rally continue."

Dr Oliver reported rates were now back to their long-term average, and there had been some weak economic data and a return to inconstancy since the RBA board last met.