IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5654 +27
DAX 6754 +65
CAC 3308 +28
IBEX 6660 +42
DOW 13054 -22
NAS 2642 -5
S&P 1383 -3

Oil 90.57
Gold 1621

Across Asia, markets are firmer as talk that European leaders are close to announcing relief measures to the debt crisis gains momentum. Risk assets are being buoyed by a joint statement from Angela Merkel and Francois Hollande saying they were prepared ‘to do everything’ to protect the single currency. Reports that Mario Draghi will meet with the Bundesbank's Weidmann soon to discuss such options as a rate cut, bond buying, a new LTRO, and the provision of a banking license for the ESM in the longer term has also helped sentiment. Although we have seen risk currencies give up a bit of ground today, the pullback is likely to find support from optimism surrounding Europe.

Looking at the equity markets in the region, Japan’s Nikkei is 0.7% higher, the ASX 200 has climbed 1% and the Hang Seng has surged 1.5%. European markets are facing a significantly higher open with the positive momentum from Friday’s session expected to continue. However, US markets are preparing a relatively flat start to the session. Those looking for the US Q2 GDP report to cement the case for further Fed easing on August 1 were disappointed by the 1.5% headline real GDP growth print. Investors are in for a busy week, as we are set to hear from the Fed and ECB. Expectations for further stimulus were building in line with the soft US data but the latest GDP reading might just see the Fed stay put.

With the ECB meeting looming on August 2, hopes for bolder policy action could not be any greater. The euro is likely to remain bid on the back of what appears to be a growing sense of urgency from the eurozone policy authorities. This has prompted some analysts to feel there is a risk that the euro bulls will get ahead of themselves, setting up an opportunity to fade the bounce post-ECB meeting. No-one really knows what measures will be taken by European leaders, but what is clear is that action is needed and we are likely to get it. Expectations have ratcheted up since late last week that the ECB will be restarting purchases of sovereign bonds (SMP) which it stopped last February.

The local market managed to maintain its early gains through most of today’s session. It seems the ASX 200’s advances were capped in the 4250 to 4260 region, which was previous support earlier in the year and has since turned into resistance. The resource majors are mostly higher, but the subdued gains suggest there is perhaps some cautious trading ahead of China’s manufacturing PMI, due out on Wednesday. Talk of China’s growth cooling continues to be a major issue. Financials have been the stars of the day, with all the big banks logging gains of around 1.5%. BHP Billiton has advanced 0.5% and Rio Tinto has added 0.7%. Perhaps investors are chasing the high yields offered by the banks as we approach reporting season. Commonwealth Bank is trading at its highest level since April 2010. There are several production reports due out tomorrow with Paladin, Lynas and Origin being some of the ones to look out for.
ends

© Scoop Media