IG Markets - Afternoon thoughts 11th May

Across Asia, regional markets are mostly higher following the strong US leads overnight and robust economic data out of China that showed CPI of 5.3%, down slightly from the previous month while Industrial Production eased to 13.4%. The Korean Kospi is the best performer, up 1% while the Nikkei 225 and Hang Seng are 0.4% and 0.3% firmer respectively. The Shanghai Composite is 0.1% higher for the day.

In Australia, the ASX 200 is currently 0.9% firmer at 4770, having traded to an earlier high of 4778. A third consecutive day of gains for US markets and further gains in commodity prices is providing the impetus for today’s advance. Gains on the day are broad based but are being led by the energy, material and industrial sectors which are all higher by more than 1%. Modest advances are also evident across the financial and consumer and telecoms sectors.

It’s been impressive to see the market largely hold onto the day’s gains. Following the release of the Chinese figures, which showed inflation was down modestly from the previous month and industrial production had weakened by nearly 1% on month the local bourse quickly dropped 17 points. Encouragingly, the selling didn’t follow through, with traders stepping in to recover most of the fall.

The improvement in global risk appetite is seeing our cyclical sectors outperform, which is encouraging. With the budget now behind and no surprises announced, a significant amount of uncertainty has been removed from the market, which can only be positive. Whilst there are still many headwinds, this was weighing on a lot of traders’ minds. Hopefully this means we’ll see some sidelined money re-enter the market, although attention now seems to have shifted to interest rates.

The RBA may have been hoping the budget would do some of their dirty work. This doesn’t appear to be the case, with the budget largely seen as ‘less tough’ than expected. This means the RBA’s views are likely to be unchanged, with an interest rate hike a high possibility in the coming months. Many will be worried about whether our two-speed economy can handle such pressures.

In currency markets, it’s been another pretty quiet Asian session, with even the raft of Chinese data unable to ignite volatility. The AUDUSD hit a session high of 1.0870 on rumours of a lower-than-expected CPI reading from China; this failed to materialise, with the AUD retreating slightly to 1.0855.

The EURUSD has been quiet too, trading in a 40 pip range. The market tried to push through the 1.44 level on a few occasions but strong selling pressure was seen just north of the 1.44 figure. The sterling is basically flat since the start of Asian trade ahead of key trade balance and inflation reports this evening.

Ben Potter
Market Strategist
IG Markets

ENDS

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