IG Markets - Afternoon thoughts 19/3/12

Across Asia, markets are moderately higher with the Aussie market leading the gains in the region. Markets had a fairly positive start after shrugging off reasonably subdued leads from US trade on Friday There was a modest rise in risk appetite, with most risk assets and currencies edging higher. With perceived European 'tail risk' having been reduced, the data and comments from Fed officials should figure more prominently in the FX equation this week. A growing number of analysts are less pessimistic on Europe and this has given the bulls further impetus.

The ASX 200 has risen 0.5%, whilst the Nikkei is 0.2% higher. Hong Kong’s Hang Seng is relatively flat and the Shanghai Composite has dropped 0.3%. Markets seem indecisive at the moment and it seems investors will wait for the next catalyst before committing to a direction. However, the mood has not been too damp, with mild gains being realised in parts of the region. Momentum is definitely with the bulls after US markets posted significant gains last week. After a fairly ‘risk-on’ Asian session, US and European markets are facing modest gains at the open.

Last week was very strong for risk assets, with a 2.4% gain for the S&P and Dow. This saw the S&P cap off its best week since mid-December. Financial names were the clear driver of last week’s gains after better-than-expected Fed stress test results. It was there not too surprising to see risk assets in consolidation mode on Friday. The main near-term risk to the US dollar would be any dovish talk from the Fed. Tonight's speech by New York Fed President William Dudley, plus appearances by Fed Chairman Ben Bernanke on Tuesday, Thursday and Friday will be closely watched. So long as Mr Bernanke does not drop any 'QE3' hints, the US dollar should be well supported. The other focus this week will be on US housing, and many analysts suspect the results should be USD positive.

Although many investors are starting to give the all clear to Europe, officials remain concerned about the ability of Athens to politically deliver on the tough economic-overhaul policies, especially considering that the forthcoming elections in Athens may mean new leaders aren't as committed to reforms. An IMF staff report warned Friday that Greece's loan programme faces ’exceptionally high’ risks and said Athens may need further debt restructuring and additional financing that Europe should cover. However, this hasn’t stopped some analysts from revising Europe’s outlook. UBS analysts still expect a eurozone contraction, but now only by -0.4% y/y compared with the previous forecast of -0.7% y/y.

The Aussie market has pulled back to below 4300 after printing a high of 4309 earlier today. The index continues to struggle at around the 4300 region, which has resulted in several weeks of underperformance. A close at or near the high of the day would be very positive for the market. Iron ore miners outperformed with BHP Billiton and Fortescue Metals being notable gainers. In the media space, Ten Network has risen over 2% after saying it is mulling the sale of its Eye Corp outdoor advertising unit. David Jones shares are in a trading halt after the company said it has called a board meeting on Tuesday to assess its strategic plan ’in light of speculation in the media this morning’. Press reports suggested the company expects a 50% slump in its credit card earnings. There hasn’t been anything major on economic calendar today, but tomorrow we have monetary policy meeting minutes and RBA Assistant Governor Malcolm Edey speaks. Investors will be looking for any hints on the RBA’s next move with interest rates.

ENDS

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