IG Markets Afternoon thoughts – Sept 30

Across Asia, regional markets are mostly lower as traders seemingly ignored the positive close on Wall Street and looked to lock in profits for the week. The Hang Seng is the worst performer, down 1.7% while the Kospi and Shanghai Composite are 1% and 0.5% weaker respectively. On the upside, the Nikkei 225 is seeing modest gains of 0.2%.

In Australia, the local market gave up early gains to be trading slightly lower in early afternoon trade as investors looked to lock in profits for the week ahead of important economic data out of the US this evening and China tomorrow. Currently, the ASX 200 is 0.2% lower at 3999, well off early highs of 4035 and lows of 3980. Financials, consumer staples and materials are doing most of the damage while energy names are among the best performers.

Today’s trade has been a classic example of the Friday afternoon selloff. With the ASX 200 up more than 2% for the week, traders have been very eager to lock in profits for the week, especially given the recent performance of the market. It’s hardly surprising that traders are looking to book short term profits. No one has any confidence in trying to let profits run by holding positions over the weekend; there’s simply too much uncertainty in the world at the moment.

On a positive note, the economic data that came out of the US overnight was encouraging and perhaps shows the very beginning of a recovery from the recent soft patch. Tonight could provide further clues in the puzzle as the market digests the latest reading on personal spending, Chicago PMI and revised Consumer Sentiment. The most important will probably be the PMI figure, with the market expecting a reading of 55.8. A stronger-than-expected number could help boost sentiment in a market that is probably positioned for further downside. If economic data begins to improve, we wonder whether it may take a little bit of the focus off of the Eurozone crisis.

If tonight’s data isn’t enough, tomorrow release of Chinese Manufacturing PMI will be closely watched and could mean an interesting re-open for markets on Monday morning. There has been a lot of talk this week about the possibility of a hard landing in China so this release may take on added significance. We don’t subscribe to this view. We believe many developed nations would love to have the policy flexibility and balance sheet strength China currently has.

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