IG Markets opening calls

IG Markets opening calls

European markets re-open after the Easter break and look set to see sharp downside, as traders price in the weaker-than-expected non-farm payrolls report. There have been a range of issues in Europe which will probably do little to appease sentiment, ranging from narrative that Spain will accelerate the sale of its banking stakes, while cutting the budget deficit to 3% next year, to talk that Italian banks borrowed a record €270 billion from the ECB in March. At the same time, Portuguese banks’ dependence on the ECB has pushed above the August 2010 peak, showing increasing tensions in the funding market; this is a story which we are sure will get more credence in the medium term. Equities are seemingly in the midst of a pullback; whether this turns out to be anything more is yet to be seen, but clearly the ‘Bernanke put’ is firmly in place, which barring a near-term shock in Europe should support assets, although those who have bought on the premise that we are seeing a longer-term sustainable recovery in the US may be a touch disappointed. Of course this puts huge emphasis on the April US payrolls print, and a number significantly less than 200,000 will again become a headwind for the USD bulls as the treasury market goes some way into increasing expectations for QE3, or ‘operation twist 2’, with a flattening of the yield curve. The US may be the epicentre of the global growth trade at the moment, but China is also a major point of contention, and while today’s trade balance figures showed the economy had swung back into surplus, it came at the hand of a weaker-than-excepted import print. The fall in the AUD and Asian bourses showed how traders felt about the release. Elsewhere, the BoJ did as most expected, and did nothing given it has the luxury of having its next central bank meeting two days after the FOMC meeting, so it can afford to see how the Fed react and act accordingly. So a mixed picture in Asia will do little to inspire European traders who will keep a firm eye on sovereign yields, notably Spain given last week’s 40 basis-point move to the upside, effectively pushing yields higher than they were pre-LTRO, which certainly won’t please the ECB. The FTSE may get some light relief given the Lloyds employment confidence and RICS house price balance figures which were released in Asian trade, and showed signs of improvement and beat consensus. US earnings season begins (as usual) with Alcoa starting the ball rolling. Whilst it has gained 10% year-to-date, the market is looking for a 4 cent loss on the quarter, with traders keen to hear more on the recently announced capacity cuts.

Ahead of the open we are calling the FTSE at 5676 -47, the DAX at 6663 - 112 and the CAC at 3264 -55

www.igmarkets.com.au

ENDS

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