IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, markets are mixed with the Nikkei and ASX 200 struggling but the Hang Seng, Shanghai and Kospi rising. The Nikkei’s good run came to an end, retreating from a six-month high after the yen recovered from its recent weakness only to hurt exporters. The yen rallied against all of its major counterparts on speculation that a surge in oil prices this month and Europe’s unsettled debt crisis may weigh on the global recovery. The Hang Seng is leading the region with a 0.5% gain, as Chinese banks climb after a report they will be allowed to lend to local governments for partially-completed projects.

Japan’s Nikkei is 0.6% lower, while the Aussie market is relatively flat, swinging between gains and losses. A mixed earnings picture in Australia has dampened investor sentiment as the market gave up early gains. In light of the mixed leads from the Asian session, European and US markets are pointing towards a relatively flat open. Good US data has been time and time again behind the dip buying in US equities, so a better-than-expected print on durable goods, case-shiller house price index and consumer confidence could be the driver to finally see the Dow close above 13,000 and the S&P above 1,370.

The consolidation continues, and whilst there is an increasing cry from strategists that risk assets such as equities have run too hard, too fast and due for a pullback, it still doesn’t seem to come News that Greece was downgraded to ‘selective default’ from CC in late US trade should not come as a surprise, with ratings agency S&P recently signalling that imposing the collective action clauses (CAC) on outstanding Greek bonds would trigger a downgrade to this status; the market now waits for clarity from ISDA as to whether the use of the clauses will trigger a credit default swap payout. It seems that whilst equities are trying nervously to move higher, the FX market is undergoing heightened volatility, predominantly as we see month’s end portfolio rebalancing-related flows.

Oil prices seem to have taken a breather and until we see a further escalation, prices will possibly be capped around these levels, which should keep the projections for around 3% global growth this year in check. Germany voted through the bailout yesterday and tonight we look to Finland to pass the measures. It is also tender day for the ECB’s LTRO II, which will be allotted tomorrow at 21:15pm (Sydney time) and 10:15 (GMT), where you get the impression that European banks will probably be supported on dips ahead of this on the hope that we see a large take-up.

On the reporting end, Aristocrat Leisure (ALL), James Hardie (JHX) and QBE Insurance (QBE) were some of the notable names. ALL’s impressed with its FY profit of $66.1 million smashing an expected $61.7 million. EBIT was up 30.8% to $119.7 million and a final dividend of 4 cents was declared. The company said it expects strong growth in fiscal 2012 with continued volatility from mixed economic conditions, currency headwinds and competitive trading settings. JHX’s third quarter net operating profit jumped 32% to US$27.7 million, below the expected $30.5 million. Total sales increased 4% to US$283 million and an interim dividend of US 4 cents was declared. JHX confirmed guidance and expects FY earnings to be between US$130 million-$140 million. QBE’s FY profit was down 45% to US$704 million, in line with consensus. Revenue was up 37% to US$20.1 billion and a final dividend of 25 cents was declared. QBE is currently in a trading halt, pending the announcement of a $500 million capital raising to replace its current tier two convertible debt. On the back of the reports, ALL has surged over 13% while JHX has declined over 3%.

www.igmarkets.com.au

ENDS

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