IG Markets - Afternoon thoughts 1st April 2011

Good afternoon,
In Asia, regional markets are mostly higher heading into the weekend, with traders seemingly shrugging off the slightly negative leads from Wall Street. The yen has continued to weaken, providing a boost for beaten up Japanese exporters. The Nikkei 225 is the best performer, up 0.4% while the Kospi and Hang Seng are 0.2% and 0.1% firmer respectively. Once again, the Shanghai Composite is bucking the broader trend, currently lower by 0.1%.

In Australia, the ASX 200 is currently 0.7% firmer at 4872, right on its session highs. Gains for the day are relatively broad based but are being led by the consumer staples and energy sectors with strong support also coming from the financials, industrial and materials sectors. The market’s performance today has been impressive given the soft US leads and ahead of a weekend that reveals the latest US non-farm payrolls report. The local market has now bounced nearly 400 points or 9% since recent lows 2-1/2 weeks ago.

Today’s strength has surprised us all today. Following the flat US lead, we thought the risk was clearly to the downside heading into today’s session. With gains of more than 2% on the table and US nonfarm payrolls due tonight, we thought participants would be looking to close out positions ahead of the weekend.

This has been far from the case. The market opened slightly higher and hasn’t looked back, touching its highest level since the 23rd of February. The ASX 200 looks to be riding the coattails of a strong Nikkei 225, which is benefitting from a sharply weaker yen. The weaker yen is indicating that risk aversion may be easing, with risk currencies the likely beneficiary.

Tonight’s non-farm payrolls report will be the big focus in the coming hours. As it stands, the market is expecting approximately 190,000 new jobs to have been created. A much stronger-than-expected figure is likely to give the FOMC hawks further ammunition for the normalisation of monetary policy, hence providing further support for the US dollar.

Ben Potter
Market Strategist
IG Markets

ENDS

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