IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, markets that are open are mostly higher after picking up on the positive momentum seen in US markets. China is closed Monday to Wednesday this week and Hong Kong has holidays Wednesday and Friday. Sentiment has been lifted by the official China PMI (March), which came in at 53.1 (the highest in almost a year). Whilst this is at odds with the unofficial HSBC PMI, which was released last week, it is likely to temporarily ease China growth concerns.

The Aussie market (+0.1%) enjoyed a strong open, but has drifted through the session and given up most of its early gains. Japan’s Nikkei is 0.6% higher after the yen weakened following the Tankan index reading. The quarterly Tankan index, which shows sentiment among large manufacturers, was unchanged from minus 4 in December, the Bank of Japan said today in Tokyo. The weak reading raises the risk of another round of BoJ easing. Elsewhere in the region, the Hang Seng is down 0.3%, weighed by losses for property companies. Despite the mixed trading we are seeing in the Asian region, US and European markets are pointing towards modest gains at the open.

Eurozone finance ministers agreed to raise the ceiling on the combined EFSF/ESM bailout facility to €700 billion from €500 billion previously. This was roughly in line with consensus and therefore was not a big market moving event. Additionally, it was decided to accelerate the payment of government capital into the ESM. This will put additional short-term funding pressure on sovereigns who will now need to find the money more quickly, and it should soon become apparent if any ratings actions flow from this. In the US tonight, we have ISM manufacturing PMI and construction spending data due out. FOMC Member Sandra Pianalto is also scheduled to speak.

The Australian dollar was the main beneficiary of the China PMI and climbed over 100 pips at the Asia open. Unfortunately, the AUD has failed to hold on to the early gains and has drifted lower just like the local market. The China PMI number comes at a crucial moment for AUD, given the RBA is scheduled to meet tomorrow. Most analysts still expect no change to the cash rate. However, today’s rally clearly illustrates the weak points of the Aussie market. We have seen strong gains for resource sectors (materials and energy), whilst almost all the other sectors are in negative territory on a day like today. Economic data released today, including building approvals and the AIG manufacturing index, disappointed and helped contribute to today’s woeful performance. In the lead-up to tomorrow’s rate decision, we also have retail sales data due out.

www.igmarkets.com.au

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