IG Markets - Afternoon thoughts Sept 24

FTSE 5803 -50
DAX 7423 -29
CAC 3508 -23
IBEX 8160 -71
DOW 13555 -24
NAS 2858 -4
S&P 1457 -3

Oil 92.80
Gold 1761

It has been a negative start to the week in the Asian session, with risk assets mostly struggling. The sharp reversal in gains from Friday’s European session during US trade seems to have set the tone for the Asian session. AUD/USD has extended its drop to 1.04 after having started the session this morning at 1.045. EUR/USD also extended its losses under 1.3, but near-term support at around 1.292 has held so far. There is a lack of positive catalysts to drive markets higher from current levels. In fact, it just seems like a fresh bout of uncertainty is brewing around China and Europe. Focus seems to have switched to Spain now following the Financial Times report suggesting that EU officials are working with the Spanish government behind the scenes for a new rescue programme for Spain. The other issue now is German Chancellor Angela Merkel’s refusal to be rushed into introducing a banking union while French President Francois Hollande feels it should be done as soon as possible. Comments from a PBOC advisor that China’s economy hasn’t shown any signs of rebounding in QE3 also haven’t helped sentiment in the Asian session.

Looking at the equities in the Asian region, we are seeing gains in China, while Australia and Japan are weaker. The Nikkei is around 0.6% softer, the ASX 200 is down 0.5%, while the Hang Seng is flat. The general theme is money flowing out of the cyclical space (resources, industrials, retailers) and into the more defensive stocks (telecoms, infotech and healthcare). European markets are facing declines of between 0.5% and 1% at the open as they give back the gains from Friday’s trade. US markets are likely to open mildly weaker. There isn’t much to look out for on the calendar, but German IFO business climate data might get some attention later today.

It certainly looks like it is a pessimistic start to the last week of the quarter. Data is relatively light this week; however it seems Spain will once again take centre stage as the ‘will they, won’t they’ crowd continue to speculate on a date when which the Spaniards will request assistance. The market will be focused on Spain’s budget and banking sector review, and although there are multiple implications which can occur from the results, EUR bulls will be hoping that we hear signs that it will commit to a 4.5% deficit/GDP target and hope it may look to request assistance from the ECB sooner, rather than later.

The local market hasn’t really found its footing today, with the major resource names weighing on the index. Materials and energy sectors are worst performers today, with most of the heavyweights contributing to the losses. Rio Tinto and Newcrest Mining are both over 2% weaker, while BHP Billiton is down 0.8%. Only a handful of sectors are enjoying mild gains in the defensive space. CSL Limited has added 0.9%, Sonic Healthcare has risen 1.3% and Telstra is up 0.1%. For the quarter so far, the ASX 200 is higher by 7.2% at current levels. That’s certainly not a bad performance so far, but considering all the measures taken by policymakers to ease pressure, we would have expected to have at least seen us test this year’s high. The index seems to be stuttering at that 4400 level yet again and it seems we will need a much more significant catalyst to take us the next leg higher. Some feel China uncertainty is what’s holding the local market back and therefore focus is likely to switch to any comments by Chinese officials this week, should we get any. We have China’s HSBC final manufacturing PMI numbers on Friday.

www.igmarkets.com.au

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