IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5730 -12
DAX 7202 -14
CAC 3344 -11
IBEX 7672 -37
DOW 13394 -43
NAS 2786 -13
S&P 1434 -7

Oil 91.50
Gold 1766

Asian markets have started the new quarter on a mixed note, with Chinese markets closed for the Golden Week holiday. US and European equities lost ground on Friday despite Spanish bank stress tests coming in largely as expected. Market participants remain on high alert with Moody’s decision on Spain’s rating still due. Moody’s already has Spain on negative watch, and one more downgrade would take the country into junk bond status. Also weighing on sentiment was a disappointing Chicago PMI print which came in at a contractionary 49.7, versus an expected 52.8.

It has certainly been an interesting session in the risk space, with AUD/USD extending its falls to a low of 1.0326 following China’s manufacturing PMI reading. After slipping at the start of Asian trade, EUR/USD has found some stability and is sidelined at around 1.282. China’s manufacturing PMI came in at 49.8 versus an expectation of 49.9. This knocked the wind out of the cyclical stock’s sails after having gathered some positive momentum earlier. At the same time, Japan’s Tankan index of sentiment among large manufacturers fell in the quarter ended September to -3 (from -1). All this negative data capped the industrials and saw them give up ground and weigh on Asian equities. The ASX 200 is now flat after having been around half a per cent higher, while the Nikkei is 1.1% lower. European and US markets are facing modest losses at the open.

Focus will be back on growth later today with plenty of PMI releases on the calendar. We kick off with Spanish, Italian, European and UK PMIs. We will also have Italian and European unemployment rate data. Over in the US, we have final manufacturing PMI, ISM manufacturing PMI and ISM manufacturing prices. FOMC member Williams and Fed Chief Ben Bernanke will also be on the wires. As a result, it is likely to be a busy night for risk and the US dollar. After the slide we’ve seen in some of the major crosses in the Asian session, we’ve got some key support levels being broken and any hints of further deterioration in global growth are likely to be greeted by further selling.

The local market is flat after a strong burst through 4400 earlier in a relatively quiet session on the participation front. Some feel the downside in the local market has been limited by the slim probability of a rate cut tomorrow. The RBA is still widely expected to keep rates on hold, but there has been a growing number of analysts in the 25 basis-point cut camp. There isn’t much in the RBA’s way preventing them from cutting, but a wait-and-see approach might be the route it decides to go with to see how the various stimulus packages around the world impact Australia. Should the RBA not cut, it’ll be interesting to dissect the statement with comments on the impact of the high Aussie dollar and whether or not it might act on it. There might also be a revision of tone on capex spending by the miners after we’ve recently seen big project cuts in the sector. Arrium has surged 22% on the back of the rejected takeover which values it at around 75 cents per share. Most analysts feel the offer is highly opportunistic and looks to take advantage of ARI’s struggling share price. Recent falls in iron ore prices and some cash outflows on capex had left ARI looking quite strained.

www.igmarkets.com.au
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