IG Markets - Afternoon thoughts Sept 21

FTSE 5876 +21
DAX 7417 +28
CAC 3527 +17
IBEX 8076 +54
DOW 13631 +34
NAS 2866 +4
S&P 1463 +3

Oil 93.78
Gold 1771

The positive momentum seen late in US trade carried through to the Asian session, and as a result we are seeing some modest gains in the Asian region. US equities were down around half a per cent early, but staged a turnaround and finished the session flat. Risk currencies have also responded to the move with AUD/USD and EUR/USD drifting higher. AUD/USD has charged up to 1.0476, while EUR/USD is still struggling near the 1.30 level. It was all about PMIs yesterday as they dictated sentiment through the Asian and European sessions. US unemployment claims were worse than expected, but this shouldn’t have been a reason to sell considering the Fed’s pledge to keep the taps open until employment picks up. Spain had a successful bond auction, but there was still a modest rise in Spanish bond yields. EUR/USD slid below 1.3 and dropped to a low of 1.292 and is struggling to reclaim the 1.30 level. USD/JPY has returned to its usual tight ranges and has been stuck between 78.20 and 78.40.

Looking at the equities in the Asian region, we are seeing gains in Australia, Japan and China. The ASX 200 has risen 0.3%, the Nikkei is 0.4% higher and the Hang Seng has climbed 0.7%. Sectoral gains in the region appear to be skewed towards telecoms and technology, while financials are also holding up well. Many have attributed this to the release of the iPhone 5 which has been a major talking point this week following the significant demand for the phone. We have also seen a significant bounce in oil and gas stocks after oil recovered from its mid-week slide. Looking ahead to the European session, we are calling the major bourses modestly higher with gains of between 0.3% and 0.6% on the cards. US markets are also pointing towards a mildly firmer open.

Some market experts attributed the recovery in the US session to a Financial Times (FT) report which was released during US trade. It suggested that EU officials are working with the Spanish government behind the scenes for a new rescue programme for Spain. This article in the FT report is likely to become a major talking point in coming sessions as it suggests an economic reform programme will be unveiled next Thursday. This will put peripheral yields and the euro firmly in focus, which is probably why we have seen a subdued performance by the single currency when other risk currencies have pushed higher today. Apart from this, it looks like a fairly quiet session ahead on the economic front, with Belgium’s NBB business climate and FOMC member Mr Lockhart’s speech the only events on the calendar.

The local market has drifted higher today, but has so far fallen short of the week’s high of 4421. For the week, the ASX 200 is 0.5% firmer, which is not a bad result as it consolidates gains from recent weeks. The banks have had a good session today with Westpac rising 1.2% and all the other three of the big four trading in positive territory. The miners have been mixed today with Fortescue up 2% but Newcrest down 3% after announcing a disruption in production at its Lihir operation. Woodside Petroleum has climbed 1%, lifted by the recovery in oil prices.

www.igmarkets.com.au

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