IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, markets have lost ground after picking up negative leads from US and European markets. In US trade, markets declined in a decidedly ‘risk-off’ session. A sharp rise in Spanish and other peripheral European sovereign debt yields dented investor confidence. The inability of Spain's fiscal austerity measures to alleviate the pressure in the bond market is worrisome, as Economy Minister de Guindos declined to rule out a rescue for the country and Bank of Spain Governor Ordonez said Spanish lenders may require additional capital if the economy weakens more than expected.

The Aussie market has saw investors buying the dips earlier today, but has since slumped and is currently down around 0.9%. We have seen some local majors test key support levels over the course of the session, with BHP Billiton dropping below $34. All the cyclical names are struggling, while the defensive stocks are outperforming. Japan’s Nikkei is 1.4% lower with exporters being weighed on by a stronger yen. USD/JPY experienced a sharp drop to 80.616 as investors rushed for safety. However, many analysts feel the pair will remain well supported. Any further USD/JPY pullback towards 80.00-80.50 would provide attractive re-entry points for dip buyers, given the clear risk of BoJ easing at the next Board meeting on April 27 (reinforced by the overt political pressure for further action) that will only intensify the extent to which USD/JPY and the Nikkei head lower in the interim. Elsewhere in the region, the Hang Seng is down 1.3% and the Shanghai has shed 0.3%. After having been significantly sold off yesterday, European markets are pointing towards modest losses at the open with some follow through selling expected at the open. However, US markets are in for a light bounce at the open with modest gains expected.

Spanish yields are likely to remain in focus this week, with analysts also eyeing any negative spill over into the Italian bond market. Although Spain managed to announce some ambitious budget cuts, analysts remain concerned about the economic contraction this will induce. The US dollar strength against most majors (apart from the yen) is likely to progress as markets continue to trade decidedly ‘risk-off’ and as the Fed backs away from QE3. Ahead today we have the Fed's Beige Book, which will provide the state of 12 US districts and a slew of Fed officials due to speak - Lockhart, George, Rosengren, Bullard and Yellen. This might result in a volatile session for currency markets.

On the local economic front today, there was more evidence of weakness in the Australian economy with further contraction in the home loans data. Tomorrow we have MI inflation expectations, employment change and unemployment rate numbers due out. Analysts are looking for an unemployment rate of 5.3% and 6,700 jobs added. After last month’s woeful performance on the jobs added/lost front, we wouldn’t be surprised to see yet another disappointing round of data. Seek Limited will be an obvious stock to watch following the data. We also have plenty of data due out in China, with new loans and M2 money supply numbers to look out for.

www.igmarkets.com.au

ENDS

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