IG Markets - Afternoon thoughts 5/4/12

Across Asia, markets are weaker after picking up negative leads from US and European markets. In US trade, markets were broadly risk-off, as eurozone debt concerns re-surfaced and the possibility of further quantitative easing by the Fed faded. Eurozone sovereign debt concerns increased following a very weak Spanish debt auction. The euro continued to cede ground overnight, but rather than US policy expectations as the key driver, eurozone issues are playing a greater role and the news flow out of Spain is still worrying.

The Aussie market has seen investors buying the dips today and is currently down around 0.4%. The local market has significant support at around 4300 and this level has held fairly well despite a momentary dip to 4286. Chinese markets returned to trade today only to be greeted by sellers upon opening trade. However, we have seen a recovery in the Asian region as investors remained happy to accumulate equities on the dips. The Nikkei is 0.7% lower, the Hang Send down 1% whilst the Shanghai Composite is 1.4% higher. After having been significantly sold off yesterday, European markets are now pointing towards modest gains at the open. US markets are pointing to a relatively flat to mildly positive open.

Risk appetite remains soft globally as it is clear the key central banks within G10 are in no mood to offer fresh accommodation. Add softer US data and a weak Spanish auction into the fray and sentiment was bound to suffer. The dip in sentiment is likely to be temporary as the central banks are only acting as such because of better data performance, and in highlighting the multitude or risks and measures at their disposal, insurance policies from the policy side remain in place. Ahead today, there is plenty of data to look out for with Germany and the UK due to release industrial output figures on April. In the US, the in-line ADP release on Wednesday bodes well for Friday's payrolls number, while markets are expecting a slight rise in initial claims from the prior week.

We saw some key support levels tested in the local market today with the ASX dropping below 4300 and mining giant BHP Billiton approaching the $34 level yet again. These levels managed to hold today and we have seen a pretty impressive recovery from the session’s lows. The weaker Aussie dollar is not necessarily a bad thing for the local market as it will relieve pressure on several companies. Today’s recovery was mainly led by currency-sensitive majors like CSL Limited, Amcor, James Hardie, Brambles and Aristocrat Leisure. Australia’s economic slowdown is increasingly becoming an issue and is only likely to get worse given the recurring eurozone fears. The lack of growth incentives on a eurozone-wide level is still the biggest concern for the region in general and the ECB may be challenged to provide additional stimulus to alleviate the strains from austerity measures.

ENDS

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