IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5478 -21
DAX 6339 -51
CAC 3060 -15
IBEX 5953 -3
DOW 12568 -48
NAS 2533 -34
S&P 1331 -7

Oil 88.18
Gold 1584

Across Asia, markets are weaker as speculation that Greece is likely to miss its deficit-reduction targets. Troika initiated its review of Greece and it seems the market is gearing up for some negative headlines. Speculation that the Fed is close to announcing further stimulus seems to be helping to limit the downside. Several officials have expressed both frustration with the disappointing recovery and a willingness to act if growth and employment don't pick up. The euro and other risk currencies have been fairly stable today, apart from the slight drop in sentiment in the wake of Apple’s disappointing result. EUR/USD traded as low as 1.2042 in the US session and has come off that level in Asian trade. AUD/USD has also advanced after dipping below 1.02 and is now trading around 1.0232.

Looking at the equity markets in the region, Japan’s Nikkei is 1% lower, the ASX 200 has dropped 0.4% and the Hang Seng is down 0.3%. However, the Shanghai Composite is outperforming the region with a 0.1% gain. European and US markets are facing a weaker open, with futures suggesting the major bourses will struggle. Focus is likely to remain on the fixed income markets and any headlines out of Greece. With EU officials warning that ‘Greece is hugely off track’, we are likely to continue seeing nervous/cautious trading in the near term. The corporate earnings story in the US seems to be catching up to weakness we have been seeing in the global economy. Apple’s after market report is likely to weigh on both sides of the Atlantic. Reporting continues tonight with the likes of Boeing, Caterpillar and Visa set to release figures.

On the economic front, we have new home sales and crude oil inventories due out in the US while Treasury Secretary Tim Geithner is scheduled to speak. Yesterday’s PMI numbers in Europe were a huge disappointment and they highlight the growth concerns the global economy is facing. German and French manufacturing PMIs for July fell to 43.3 and 43.6, respectively. And while the services PMIs held up better, the German figure has been under the 50 line for two months running. Although we have seen some stability in the Asian session today, the path of least resistance for European equities, EUR/USD and such crosses as EUR/JPY remains on the downside.

The local market managed to come off its lows again today, but the lack of confidence remains evident. It is difficult to see investors pile into equities when global growth is fragile. In the absence of global growth, companies will only find it harder to continue growing earnings. Macquarie Group gave a trading update today, which didn’t do much to appease investors. Market conditions remain difficult, which is hardly a surprise, and the company said its Securities division is unlikely to be profitable in FY13 if market conditions remain at current levels. It is difficult to make an investment case for the company with such commentary, but perhaps the share price will get some support from the buyback. Locally, we CPI data was released, which came in slightly below expectations. Although we saw a mild recovery in AUD/USD, the pair continues to look bearish in the near term after closing below its uptrend from the June 1 low.
www.igmarkets.com.au
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