IG Markets- Afternoon Thoughts

IG Markets- Afternoon Thoughts

Across Asia, markets are mixed with Japanese markets struggling but the Australian market surging. A much stronger Japanese yen has weighed on the Nikkei today after USD/JPY dropped below 80 in US trade. The Nikkei is currently down 1.5% and is the weakest performer in the region. Yesterday saw European and US shares lose ground as Spanish banking downgrades, confirmation of a Spanish recession and some softer-than-expected US economic data all weighed on investor sentiment. In line with expectations, Spain slipped back into a recession with Q1 GDP contracting by 0.3%, marginally better than the 0.4% contraction expected. In a rare piece of good news for Spain, Moody's announced that Spain's new fiscal consolidation measures are credit positive for the sovereign, however this opinion would appear to contrast with that of S&P, which downgraded Spain two notches late last week. European markets are closed today for the Labour Day holiday. However, we are calling US markets a touch higher.

Ahead today, we have ISM manufacturing in the US and manufacturing PMI in the UK. In a surprise move, the RBA delivered a 50 basis point rate cut today, which resulted in a rally in local equities whilst the Aussie dollar struggled. The main reason behind the bigger-than-expected cut is the fact that the RBA doesn’t expect the big banks to pass on the full rate cut. This has resulted in equities extending their gains, with the Aussie market rising 0.9% to 4435 and currently trading at its highest level since August last year. We have seen the consumer stocks like JB Hi-Fi cheer the rate cut. The Aussie dollar has experienced a large drop with AUD/USD currently trading at around 1.0326.

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