IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5878 +7
DAX 7379 +3
CAC 3506 +5
IBEX 7947 +7
DOW 13505 -47
NAS 2765 -13
S&P 1452 -3

Oil 92.20
Gold 1751

Asian markets have rallied as investors respond to the growing risk appetite seen in European and US markets. There had been a number of obstacles keeping some market participants at bay including concerns about the US corporate earnings, Spain & Greece uncertainty and of course US and China growth concerns. We are now gradually seeing progress in alleviating some of these obstacles and this is giving some investors comfort and confidence to get involved in the market. Markets were broadly risk-on through European and US trade on the back of some encouraging economic data and optimism about Spain requesting a bailout. The German ZEW economic sentiment index rose to -11.5 (from -18.2), beating a consensus of -14.6. European trade balance figures also exceeded expectations, coming in at €9.9 billion versus €8.4 billion expected. Over in the US, core CPI remained unchanged at 0.1%, while industrial production rose a better-than-anticipated 0.4% (versus 0.2% consensus). These mostly positive data prints helped drive sentiment and lifted risk assets across the board.

Comments suggesting Germany is loosening its opposition to Spain requesting a bailout contributed to the euro’s gains. Moody’s decision to reaffirm Spain’s credit rating at Baa3 has given risk currencies an extra kicker this morning. The moves in the risk currency space have been very impressive in the Asian session, with EUR/USD trading as high as 1.3125, while AUD/USD printed a high of 1.0324. Should EUR/USD manage to continue this run, then September highs at around 1.3172 will be the next key level to keep an eye on. The buoyant risk environment has also seen some positive moves in the equities space as the Nikkei leads the way with a 1.4% gain. The ASX 200 and Hang Seng have risen around 1% each. However, the Shanghai Composite is underperforming with some analysts suggesting comments about China’s currency in the US presidential debate are causing the downside. Ahead of the European open, we are calling the major bourses modestly higher with gains of around 0.1% expected. However, some mild weakness is expected for US markets at the open. On the economic calendar we have building permits, housing starts and crude oil inventories due out. Investors will be hoping to see the positive momentum in US economic data continue. On the corporate earnings front, we have Bank of America and Amex on the calendar.

The local market has put in a strong performance today and broke through some important technical levels. Momentum is firmly to the upside after yesterday’s high was obliterated and the market printed a fresh 15-month high of 4536.8 today. With the major resource names participating in the rally today, the market managed to hold on to early gains. Most of the cyclicals were playing catch-up after having been left out of the recent move higher. The main focus has been on iron ore miners today after a swathe of production reports over the past couple of days. BHP Billiton is 1.4% higher, Rio Tinto has climbed 1.9% and Fortescue Metals has surged 5.1%. The production reports from the big miners have been mostly impressive, particularly on the iron ore front. Comments from these miners have also been quite encouraging and have helped improve optimism around iron ore. Although the miners have announced cost cutting measure recently, they are still happy to boost iron ore production in anticipation of strong demand from China and industrialising countries. Tomorrow will be a big day for the region with plenty of data due out of China. We have China GDP, fixed asset investment, industrial production, retail sales and FDI set to hit the wires.

www.igmarkets.com.au

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