IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5814 -16
DAX 7266 -16
CAC 3400 -14
IBEX 7711 -24
DOW 13346 +20
NAS 2721 +2
S&P 1435 +2

Oil 92.24
Gold 1769

Asian markets are mixed after picking up some subdued leads from US trade. Risk assets were well bid in the European session as the positive momentum from Asian trade continued to support. Optimism that the S&P downgrade will push Spain closer to requesting a downgrade was the main sentiment driver. In US trade, risk assets got an initial boost from a better-than-expected unemployment claims reading. They dropped to 339,000 (versus a consensus of 368,000) and this was the lowest level in four years. However, the euphoria surrounding the data waned as risk assets pared gains and remained sidelined into the close of the US session. Looking at the risk currencies, AUD/USD had been sidelined around 1.026, but has managed to recover to 1.027. We are likely to continue seeing the pair being sold into strength. EUR/USD hasn’t done much in the Asian session and is consolidating at around 1.293.

Looking at the equities in the region, the Hang Seng has risen 0.4% led by the financials. Japan’s Nikkei is a touch lower while the ASX 200 is up 0.1%. However, the Shanghai Composite has dropped 0.3%. The main story in the Asian session is that China and Japan have agreed to hold talks over their territorial dispute. European markets are pointing towards a modestly weaker open after having significantly outperformed yesterday. This opening fall will price in the significant pullback we saw in US trade. However, US markets are pointing towards modest gains at the open. On the economic calendar we have European industrial production and US PPI, consumer sentiment and inflation expectations. US reporting also kicks into gear tonight with JP Morgan and Wells Fargo on the calendar. There is some data due out of China over the weekend including trade balance, new loans and M2 money supply. This could have a significant bearing on risk currencies when they come back online on Monday.

The local market has had a fairly quiet day with most of the gains coming from mining names. BHP Billiton is up 0.8% and Rio Tinto has climbed 1.6%. Iron ore miners have advances today despite a fall in iron ore prices to $115.80. It seems investors are more impressed by the strong rally we’ve seen in iron ore prices from the lows as it gravitates back towards $120. Overall it has been a fairly mixed performance without a dominant risk theme in place. Some of the defensives like the telecoms and consumer staples are actually among the leaders, while the healthcare sector is the worst performer of the day. Billabong has been one of the more interesting stories of the day with a 16% drop after TPG pulled its takeover bid for the company. There had already been concerns surrounding the takeover as the stock continued to trade at a significant discount to the takeover bid. We’ve recently heard some analysts suggest the stock could trade as low as 70 cents in the absence of a takeover.

www.igmarkets.com.au

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