IG Markets - Afternoon thoughts 6th April

Good afternoon,
Across Asia, regional markets are all higher, shrugging off the flat leads from Wall Street and news that China upped its interest rates for the fourth time since October yesterday. Also, the Bank of Japan is meeting and may signal its readiness to further ease monetary policy to help support the earthquake and tsunami ravaged economy After a few days of holiday, the Shanghai Composite is the best performer, up 0.8%. Elsewhere, the Nikkei 225, Hang Seng and Kospi are all higher between 0.1% and 0.6%.

In Australia, the ASX 200 is currently 01% firmer at 4904, having traded in a narrow 20-point range over the course of the session. Following on from flat overnight US leads it has been a subdued day of trading on relatively low volumes with the market seemingly struggling to find a clear direction. The day’s best performers include the healthcare, consumer staples and materials sectors, while the energy, consumer discretionary, and industrial sectors are among the laggards.

It’s been another fairly quiet session on the local market. Defensive sectors are among the best performers, possibly seeing some upside as investors rotate out of more cyclical names given how hard the market has rallied over recent weeks. There’s a general feeling that the market is overextended in the short-term and due for a healthy pullback or consolidation. This is probably why we’re seeing some funds flowing towards more defensive assets.

It’s interesting to note how the markets have reacted to yesterday’s news that China had raised rates again. Unlike in previous months where materials names have been sold off heavily on the news, they have in fact rallied today, with BHP hitting a three and a half year high of $47.84. It’s encouraging to see the market less fearful that rate tightening in China could slow their appetite for Australian resources.

Tomorrow is likely to be a big day on currency markets as the Bank of Japan, Bank of England and European Central Bank all deliver their latest interest rate decisions. The ECB is likely to hold the most interest as they are expected to raise rates this month. What might be of more interest is the accompanying statement, with traders keen to ascertain the likely timing of further policy moves.

Ben Potter
Market Strategist
IG Markets

ENDS

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