IG Markets – Afternoon Thoughts

IG Markets – Afternoon Thoughts

Across Asia, regional markets are struggling as European issues continue to weigh on sentiment. News that France and other euro nations were downgraded by S&P along with increasing fears of a Greek default has largely affected sentiment. Investors seem to be exercising caution ahead of the European session, as the region is yet to react to news of the downgrade. The Nikkei is the worst performer in the Asian region with a 1.6% drop, while the Hang Seng and Shanghai are down around 1% each. Following the weakness in the Asian session, European markets are pointing towards a soft open. The US is on holiday today for Martin Luther King Day.

In Australia, materials and financial names are leading broad-based declines. The Aussie market is currently 1% lower at 4152. Mining heavyweights BHP Billiton and Newcrest Mining are down around 1.5% each. However, there are a few bright spots, with gains in the telecoms and InfoTech space. Leighton Holdings has also bucked the trend, putting on 4.4% after it raised its 1H profit guidance.

Tonight promises to be an interesting session across Europe. S&P’s ratings downgrades, while heavily speculated upon during Friday’s European session, were not confirmed until after the US closing bell and as such today’s session will see a truer picture of global markets’ reaction. This response will be somewhat complicated by the fact that US markets are on holidays for Martin Luther King Day. That said, these downgrades should not have come as much of a surprise. In retrospect we may look back on them as the most flagged and blatantly obvious downgrades in history. Did anyone really think heading into 2012 that we wouldn’t see more European sovereign downgrades? What we saw late Friday was nothing more than S&P delivering on its pre-Christmas threats to issue further sovereign ratings downgrades, should meaningful and constructive measures not be implemented to avert the continuing European debt crisis. This warning was issued prior to the early December European summit and when that summit failed to deliver, the downgrades we saw over the weekend seemed almost inevitable. While markets will open lower, one gets the feeling that we are learning to live these downgrades. After all, the ratings agencies have been quoted in the past as saying they’re only opinions!

It is a big week ahead with plenty of data to look out for on all fronts. In the US, traders will be eyeing earnings reports. On the European front, Greece will be in focus as talks continue in a bid to prevent the country from defaulting on its debt. China GDP numbers set to be released tomorrow will take centre stage as the world waits to see how the fastest growing economy is travelling. A figure of around 8.8% quarterly growth is expected. There is also fixed asset investment, industrial production and retail sales data out of China tomorrow.

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