IG Markets - Afternoon thoughts

IG Markets - Afternoon thoughts

FTSE 5837 +31
DAX 7311 +50
CAC 3449 +29
IBEX 7720 +41
DOW 13437 +13
NAS 2741 +1
S&P 1442 +2

Oil 91.81
Gold 1737

Asian markets are firmer after picking up some positive leads from US trade. Risk assets were fairly well bid in US trade with an initial boost coming from better-than-anticipated retail sales data. They rose 1.1%, beating expectations of a 0.7% gain. On the earnings front, Citigroup was a highlight, jumping 5.5% after its earnings topped estimates. There was a lot of scepticism ahead of the US reporting season and so far the results haven’t actually been bad at all. So far, 38 companies have reported and 27 of those have beaten estimates. This could help instil some confidence in investors going into year end. A Financial Times article suggesting the Spanish government is prepared to make a rescue request has been a key driver for risk currencies. The article goes on to suggest the issue is being delayed by the needs of other countries in the single currency. Fears that Spain might announce a bailout request have kept some euro sellers at bay for a while. EUR/USD charged to 1.298 early in the Asian session and has continued to hold near that level. AUD/USD has been relatively range bound at around 1.026.

Looking at the equities in the region, Japan’s Nikkei is outperforming with a 1.2% gain on the back of a weaker yen. Exporters have been well supported by the impressive US retail sales. Telecoms in Japan have also been lifted by a 10% jump in Softbank following its bid for Sprint. The ASX 200 has climbed 0.3% to 4496 after having printed a fresh 14-month high 4516.9 earlier. The Hang Seng is up 0.3% and the Shanghai Composite has added 0.6%. Major banks in the region are also enjoying solid gains on the back of the Citigroup result. European markets are set to extend their gains from yesterday with a firmer open expected for all the major bourses. However, US markets are in for a relatively flat start. On the economic front we have the German and European ZEW economic sentiment, European CPI and trade balance figures due out. There is also a lot of data due out of the UK with CPI and PPI readings on the calendar. Over in the US, CPI and industrial production are the key releases to look out for. After the recent attention US economic data has received, we are confident any major variation from the expected 0.2% rise in core CPI will be a source of volatility.

The local market made a brief attempt at breaking the previous high of 4512.8 today. However, a break of resistance does not really count until we see a close above it. As a result, if we manage to witness a close above that level today, it would be a bullish sign for market participants. Banks led the gains today with NAB rising 1.4% and Macquarie climbing 1%. However, the market found it hard to hold on to the gains with the miners not participating in the rally. Although the financials were among the best performers of the day, the iron ore space got a lot of attention with some key releases from Fortescue Metals (+2.7%) and Rio Tinto (-1.5%). FMG’s report was roughly in-line with expectations and some of the key takeaways from the report were that they see iron ore stabilising at $120 and that it will restart the Kings Project as soon as the market rebounds. RIO’s third quarter report looks solid with iron ore production coming in at 52.628mt, beating analysts’ expectations by around 5%. FY iron ore production guidance for RIO is 250mt. There have also been a growing number of analysts’ articles stating how bullish they are on iron ore. Gold miners retreated today after the precious metal struggled. This presents an opportunity for fresh entries after a sharp rally in gold stocks recently.

www.igmarkets.com.au

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