IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, markets are mostly firmer on reports that Greece has received an overwhelming response to the debt swap. Although no official announcement is yet to come out of Greece, reports are suggesting a participation rate of around 95% was achieved Whether this was achieved with the CACs or not is still unclear. The latest developments in the Asian session are China’s economic data. China's consumer price index rose at a weaker-than-expected rate of 3.2% (versus 3.5% expected) in February from the same month a year earlier. This is supportive of an easing bias and could lift risk assets. Although inflation is trending lower, lower the below consensus print did not see the sort of upside we expected from commodities and commodity currencies, especially given the market is on high alert for another RRR cut. We now wait to see more of industrial production; retail sales and fixed asset investment are due out pre-European trade. The Hang Seng is 1% higher and the Shanghai has tacked on 0.4%.

The Australian market has also gained ground (+0.7%) this morning despite the economy recording a $673 million trade surplus versus the $1.5 billion surplus expected by economists. This was a big miss and the RBA may be more inclined to ease interest rates following the numbers. Japan’s Nikkei is once again leading the region, gaining 1.2% after the yen weakened further overnight. After yesterday’s positive price action in Europe we are expecting some modest follow-through buying, although given the poor technicals the day before we probably saw an element of short covering yesterday as there has been some positioned for a move lower in equities. US markets are facing a flat-to-modestly-higher open.

It seems that Greece will get its bailout after all and Tuesdays sell-down on fears that the participation rate would be too low were grossly misjudged. The Greek government will inform the market on the success of the debt swap later today, but indications are that we will see enough participation to call it a ‘success’. Whether we initially get the level of individuals who dissented is unclear at this stage, but the total participation looks set to be above 90%, with some talk it could even be 95%, although whether this is purely ‘voluntary’ or with the use of CAC is relatively unclear. Eurozone finance minister will also hold a teleconference at around 1300 (London time) issuing further clarification on the matter. We also heard that the IMF has decided to give more colour on their contribution towards the rescue fund on March 15. The euro has been supported during Asian trade, although some traders have shown concern over the ECB’s speech in which Mr Draghi spoke of stagnation rearing its very ugly head, where near-term inflation is seen against a slowing growth profile. This in itself is the next conundrum for the central bank, who clearly have taken the case for a 50-basis-point cut off the table over the next six months in our view.

Following today’s Australian trade balance figures, pressure is likely to mount on the RBA to end a two-month pause in interest-rate cuts after the economy slowed in the last quarter and payrolls fell in February. The Aussie market is currently facing resistance at around 4200. Traders will be looking for a close above 4208 as a key move for the bulls. This would be a good sign ahead of next week’s trading. Looking ahead to tonight’s session, there is some key data due out of the US with non-farm employment change, trade balance and unemployment rate numbers due out. The non-farm employment change will be the big one with a figure of 209k expected by analysts.

www.igmarkets.com.au

ENDS

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