IG Markets - Afternoon thoughts 15th April

Good afternoon,
Across Asia, regional markets are all lower this Friday despite the relatively flat leads from the US and stronger-than-expected economic data out of China. It appears investors have turned cautious on the prospect of further rate hikes in China and the reemergence of sovereign debt issues in the Eurozone. The Nikkei 225 is the worst performer, down 0.7% while the Shanghai Composite, Kospi and Hang Seng are all weaker between 0.2% and 0.5%.

In Australia, the ASX 200 is currently 0.6% weaker at 4854, just off its earlier session lows of 4857. Today the market is relatively defensively positioned with all but the consumer staples, telecoms and property trust sectors in negative territory. While the market enjoyed bit of a bounce around midday after some stronger-than-expected Chinese economic data, it quickly resumed its downdraft with the energy, materials and financial sectors all seeing modest losses.

The local market is ending the week on a sour note, with the heavily weighted materials, financials and industrial stocks doing most of the damage. Given the very strong recent run and lack of any major catalyst to buy, stocks are likely to have a ‘drifting’ bias, seemingly falling under their own weigh due to a lack of buying interest. We’re not concerned about this recent patch of weakness as it’s not being driven by aggressive selling, but rather some profit taking.

The start to the US earnings season has been rather uninspiring to date. Whilst there have been no big misses and results have been broadly in line with expectations, the fact that many stocks are trading near 52-week highs and are priced to perfection has made them very susceptible to profit taking. As we said yesterday, our gut feeling is that companies will really need to ‘shoot the lights out’ to avert being sold down.

Next week the earnings season really moves into full swing with many of the big names due to report. This will give the market a much better idea into the health of corporate America and if current valuations are justified based on forward earnings.
Ben Potter
Market Strategist
IG Markets

ENDS

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