IG Markets - Afternoon thoughts June 22

FTSE 5510 -56
DAX 6287 -56
CAC 3088 -26
IBEX 6733 -41
DOW 12596 +22
NAS 2563 +6
S&P 1327 +1

Oil 78.54
Gold 1565

Across Asia, markets are weaker as global growth concerns continue to dampen sentiment. With the 'no QE' hangover persisting after yesterday's FOMC meeting and the economic data flow continuing to disappoint, risk assets had a tough time. We saw soft manufacturing numbers from Germany, China and the US flagging further economic growth concerns. The US dollar rallied against its peers, as investors shunned risk. Commodity currencies like the Aussie dollar lost significant ground to the greenback. In the eurozone, a multi-tranche Spanish auction was well received, and the yields were inevitably higher, but as we have seen repeatedly this year the treasury managed to issue above its initial target. This was a slight positive, but failed to lift sentiment through US trade.

Equity markets in the region have slumped with the Shanghai Composite leading the declines, down 1.4%. Hong Kong’s Hang Seng and the ASX 200 are around 1% lower each. Japan’s Nikkei is down 0.5% and outperforming the region on the back of a significantly weaker yen. USD/JPY popped back above 80 and looks likely to extend its gains after a retest of that level this morning. European markets are facing some hefty falls at the open as they price in the sell-off seen in the US session. US markets are pointing to a flat to mildly higher open. Yesterday’s softer-than-expected HSBC Chinese flash manufacturing PMI print preceded contractionary and slowing prints in Europe and the US respectively. The disappointing data served to accentuate the market’s disappointment from the previous day that the Fed had not done enough to provide further stimulus to the US economy and give a much needed boost in sentiment.

A synchronised slowdown in global manufacturing activity saw equities struggle. Earlier in the US session, eurozone sovereign bonds rallied on reports that the Spanish banks' stress tests would point to 'only' €60 billion in required capital, well below the available €100 billion. Later, the results from consultants Oliver Wyman and Roland Berger came in virtually as estimated – something in the vicinity of €51 to 62 billion. The stress test results also mentioned that the top three Spanish banks would not be required to raise new capital. However, this ‘good’ news was overshadowed by a synchronised slowdown in global manufacturing activity. The slowdown concerns were predictably captured in a sharp bounce in the USD at the expense of the risk currencies, gold, oil and the base metal complex. There is not much on the economic calendar today, but traders should look out for some comments by ECB President Mario Draghi.

A broad sell-off in the resource space has been the main theme of the day for the local market. After a fairly strong start to the week, the market just seems to have fallen under its own weight and failed to get any solid buying underpinning it. At current levels (4046), the market is down around 0.2% for the week. However, from this week’s high, the market is 2.7% lower. The plunge in commodities overnight has seen all the resource majors struggle. Woodside Petroleum is down 2.4%, BHP Billiton has lost 2.5% and Newcrest Mining has slumped 3.3%. Aquarius Platinum is one of the worst performers of the day with a 16% drop. As what normally happens in a risk-off session, the defensive sectors are outperforming with the telecoms actually trading in positive territory. Telstra has climbed 0.6%.

www.igmarkets.com.au

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