IG Markets - Afternoon thoughts 24/2/12

Across Asia, markets are marginally higher with cautious trading ahead of some key levels for US markets. Some positive US economic data set the tone for Asian markets today, preventing the drifting we normally see at the end of the week. The majority of markets in the region are range-bound and consolidating after enjoying a fairly solid week. Surprisingly, the Australian market is the best performer in the region, despite a looming leadership vote for the Labor Party on Monday. This is probably because current Labor Leader Julia Gillard is widely expected to win. The 4300 level continues to be key resistance after holding the index back yet again today.

The ASX 200 is 0.2% higher, while the Nikkei and Hang Seng are relatively flat. As it stands, Dow futures are pointing to an opening price of 13,010, which is above the key 13,000 level. However, we have seen this before and what will be crucial now is to see the Dow close above the 13,000 level. European markets are also facing a firmer open after yesterday’s slight retreat.

Greek issues seem to have taken a backseat, and really the talk on the trading floors is the upcoming ECB three-year LTRO (long term refinancing operation) and oil’s appreciation. The break of downtrend resistance in West Texas Intermediate has traders targeting $115 as a near-term target, and after yesterday’s bullish outside day, Brent could feasibly see $127 sooner rather than later. The commodity is already seeing all-time highs in sterling and euros, which is not good given the prospect that a mild recession was imminent when energy prices were manageable. It will be extremely interesting to see how the market takes the upcoming LTRO (mark two), given estimates ranging from €250 billion to €1 trillion. The impact on stocks and sovereign yields should be relatively straightforward, with a heavy take-up by European banks; anything above £450 billion to £550 billion would be considered a good take-up. This will provide further confidence that they are better capitalised and are ring fenced should Greece not live up to the demands being asked by Northern Europe.

On the reporting end, we had a production update from Newcrest Mining (NCM) and earnings reports from Crown (CWN) and AGL Energy (AGK). NCM announced a production downgrade at its Lihir gold plant in PNG. It expects production for the March quarter to be down by 50,000-60,000 ounces of gold. It has maintained guidance for the full year. CWN delivered a profit of $211.6 million, up 27.6% and ahead of the expected $208.54 million after an increase in turnover from high rolling gamblers. Earnings were up 5.2% to $386 million against consensus of $364 million. An interim dividend of 18 cents was declared. AGK’s Interim profit was down 51% to $117 million including a loss of $115.9 million from the changes in the fair value of derivatives. Underlying profit was $232.9 million, below the $255 million expected. A fully-franked interim dividend of 29 cents was declared. AGK intends to issue a $650 million hybrid note and make an $860 million rights entitlement offer to shareholders.

ENDS

© Scoop Media