IG Markets - Afternoon thoughts July 6

Across Asia, regional markets are mostly lower as offshore indices lost ground after stimulus measures from central banks failed to inspire investor sentiment. The Kospi is the region’s worst performer, lower by 0.7%, while the Shanghai Composite is 0.5% to the downside. Elsewhere, the Nikkei and the Hang Seng are both 0.3% weaker.

In Australia, the ASX 200 is currently 0.5% weaker at 4150, just off its lows of the session. Losses on the day are relatively broad based, with the cyclical, material and energy sectors three of the day’s biggest decliners courtesy of overnight strength in the USD. Elsewhere, the heavyweight financial and industrial sectors are also modestly lower.

Despite a wave of stimulus measures announced overnight by various central banks, it seems such policies are having a muted effect on investor sentiment. Whereas 18 months ago such measures might have sparked a strong ‘risk on’ rally, its seems investors are now more immune to these ‘stimulus jolts’, that in reality do little more than mask underlying structural issues. Not even a surprise interest rate cut from China has been enough to tempt investors into the market on a Friday afternoon. Part of today’s weakness is no doubt attributable to a pairing back of expectations of QE from the Fed after last night’s stronger-than-expected employment data. All eyes are now focussed on tonight’s non-farm payrolls number. As unintuitive as it sounds, an in-line number (approximately 100,000) would be the worst possible outcome as it will essentially leave the market in ‘no-man’s land’. To really get the market moving, we’d like to see a blow-out number to the upside or to the downside. A massive beat would be a real plus for the economy’s underlying strength and boost investor sentiment, while an absolute shocker (which many are hoping for) would likely be enough to finally tempt the Fed off the fence with further QE. These are indeed strange times!

www.igmarkets.com.au

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