IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

Across Asia, regional markets are all broadly strongly after European and US markets rallied overnight.

The Kospi is the region’s best performer, higher by 1.9%, while the Hang Seng is up 1.7%. Elsewhere, the Shanghai Composite and the Nikkei are also enjoying strong sessions to be firmer by 1.1% and 0.9% respectively.

In Australia, the ASX 200 is currently 1.3% firmer at 4176, just off its session high of 4183. Gains on the session are broad based but are being led by energy and materials names, with Woodside Petroleum in particular having a very strong session after a surprise upgrade to full year production. Such this the strength of the market today, even the weakest sectors are seeing gains of more than 0.5%.

Overnight, Fed Chairman Ben Bernanke, speaking before the House Financial Services Committee, essentially repeated his testimony from the previous session linking future Fed action to the US employment picture. With the US labour market clearly softening in recent months, expectations remain high that the Fed might look to further balance sheet expansion at its mid-September meeting. This has helped stabilise commodity prices which last night were flat to modestly higher resulting in a strong rebound across the local market for recently oversold materials and energy names.

Yesterday we commented that BHP’s production report had been widely lauded across the analyst community, but that hadn’t stopped the sellers moving in on resource names. For a few days it seems the whole sector was paying for Fortescue’s modest capex increases and Rio Tinto’s slight downward revisions to full-year production guidance for three of its key commodities. Unfortunately yesterday, BHP suffered from the ‘guilt by association’ trade. Still, BHP has bounced strongly today, so it could be seen as a case of better late than never! What has been confirmed in recent days (as if we didn’t already know) is how the performance of and sentiment towards materials names completely dominate our market. Having seen how intensely the market has dissected and reacted to this week’s quarterly production reports, it stands to reason that we can expect some more fireworks from the sector when these same companies announce their profit results in the August reporting season.

www.igmarkets.com.au

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