IG Markets - Afternoon thoughts 1/3/12

Across Asia, markets are mostly weaker after picking up a negative lead from US and European markets. Reduced scope for further quantitative easing saw risk assets taken off the table, with commodities bearing the full brunt of the sell-off. The Nikkei is outperforming the region, gaining half a per cent after the yen lost ground against the greenback. This has lifted Japan’s exporters, which basically dominate the country’s market. The main event in the region has been China’s PMI number which came in at 51, roughly in line with expectations. The figure shows the economy is expanding and might reduce the need for further easing as it removes concerns of a slowdown. As a result, interpretation of the number can be difficult at times.

Markets in the region have been relatively unresponsive to the data, but it has helped prevent markets from sliding further. The resource-heavy Aussie market has been the hardest hit today, with mining heavyweights losing significant ground. However, the ASX 200 is off its lows and currently 0.7% weaker at 4269. The Hang Seng is around half a per cent softer and the Shanghai is relatively flat. With Asian markets halting their slide, US and European markets are now facing a fairly flat start.

Ben Bernanke not only pulled the rug from under the gold and silver price, but also got the lion’s share of headlines, despite a strong take-up of cheap ECB funding. It’s amazing to see the reaction that ensured after Mr Bernanke’s speech. Despite risk assets seeing strong gains in recent times (partly due to an improvement in US economic data), it appears traders were surprised by the Fed President’s acknowledgement of the improvement in the labour market, with traders seemingly expecting a repeat of the dovish FOMC statement. The moves in silver were especially aggressive and again highlight that anyone trading this commodity needs a very robust risk management strategy; yesterday, we were talking about a technical break-out and now a key component of price appreciation has effectively been removed.

The local market has continued to stutter at the 4300 level, with any attempts higher quashed at that level. After yesterday’s strong move, many would have expected the local market to finally hold above 4300 However it was just not meant to be, as the market opened sharply lower this morning. Reporting season is winding down and Woolworths was the only major company to report today. WOW’s first-half net profit was down 16.8% to $996.9 million, in line with consensus. EBITDA was up 4.1% to $2.28 billion. Profit fell on the restructure of its Dick Smith stores, with comments about cautious consumer spending. An interim dividend of 59 cents was below an expected 61 cents. WOW gave guidance for NPAT in the range of 2%-6% for the full year versus a consensus of 2.4%. The company expects a $300 million provision for the closure of its Dick Smith stores this year and claims to have received significant interest in the franchise. Investors were fairly happy with the result and outlook, with the company’s shares gaining ground on a fairly gloomy day. With reporting season coming to an end, investors will now be looking out for major broker ratings changes to stocks.

ENDS

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