IG Markets - Afternoon thoughts 15/3/12

Across Asia, markets are mixed with gains for the Nikkei, whilst the Hang Seng and ASX 200 are struggling. The region was facing mixed leads this morning after US markets finished the session relatively flat. Investor focus shifted to China growth concerns after Premier Wen made some fairly negative comments about the property market. This sent commodities lower and encouraged USD buying. Commodities declined after Chinese Premier Wen Jiabao said that property prices remained far from reasonable levels. This is likely to see recent government curbs on property speculation stay in place.

Once again, the Nikkei has outperformed the region after the yen weakened further this morning. USD/JPY broke through the overnight highs and went on to print a fresh one at 84.182. Some analysts feel the rise in the Nikkei beyond 10,000 is unlikely to significantly reduce the sensitivity of the Japanese authorities to the yen, especially in the light of the soggy sentiment readings for large manufacturers observed in yesterday's Business Outlook Survey. The Nikkei is around half a per cent firmer, while the ASX 200 is down 0.4%. The Hang Seng and the Shanghai Composite are relatively flat. Despite a fairly downbeat tone in Asian trade, US and European futures are pointing to modest gains on the open. With these markets remaining above key levels, we could see a strong finish to the week.

The Eurogroup formally announced that the second bailout for Greece had been finalised, and the EFSF would now disburse €39.4 billion to Greece in tranches. However, there is still no word on how much the IMF would be willing to contribute. There is a swathe of economic data out of the US tonight with PPI, unemployment claims, Empire State manufacturing index, TIC long-term purchases and Philly Fed manufacturing set to be released. Another strong round of economic data would see QE2 hopes pushed further out of reach.

The downward revision in the UK's sovereign ratings outlook to negative from stable by Fitch, which warned of ‘the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels and a potentially weaker-than-currently forecast economic recovery’ doesn’t seem to have had a major impact on markets. This brings Fitch’s UK rating in line with Moody’s.

Gold was the biggest loser, dropping over 2% on fading QE3 expectations and a stronger USD. This has seen the local gold stocks heavily sold off today. Newcrest Mining, OZ Minerals and Kingsgate have all dropped around 4% each. The rest of the resource space is also struggling on growing concerns about China being able to successfully engineer a soft landing. Another major talking point for Australia is current Aussie dollar weakness. The combination of China demand concerns, the fall in commodity prices and the broadly stronger USD sent AUD/USD down to 1.0423 earlier today. The pair has since come off this low, but is still looking fairly bearish in the near term. This is likely to support some of the currency-sensitive stocks that have recently been beaten up due to a high Aussie dollar.

ENDS

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