IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

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Asian markets are mixed and mostly off their lows helped by data showing that China’s manufacturing may contract at a slower pace. Equities got off to a poor start after picking up some negative leads from US and European trade. Risk assets declined in US trade, with limited data releases to encourage participants to keep driving markets higher. Corporate earnings continued to dictate the negative tone as equities were sold off through European and US trade. Facebook was one of the few bright spots; its shares surged after its sales exceeded estimates. Some reports are suggesting that Spain’s GDP continues to contract at a much faster rate than expected, and this means the country will probably miss its deficit targets. Once again, there wasn’t anything specific weighing on markets, but rather a variety of factors holding market participants back from buying. We are also approaching the business end of the week on the economic calendar and this may be prompting caution among some investors. Looking at the risk currency space, the Aussie dollar has been a big mover in the Asian session. AUD/USD had an initial spike to 1.0305 on the back of the Australian Q3 CPI reading then to 1.03175 following the HSBC flash manufacturing PMI. However, it hasn’t been the same for other risk currencies as EUR/USD has been fairly steady around 1.298. The euro has a big day ahead with plenty of PMI releases on the cards.

Looking at the equities in the region, Asia simply reacted to the overnight bloodbath, but followed the slow grind in futures back up. This was helped by a strong HSBC PMI print in China that improved by 120 basis points, although remained under the 50 mark. The Hang Seng and Shanghai Composite are trading relatively flat to positive, buoyed by the PMI release. Elsewhere, the Nikkei is down 0.3% while the ASX 200 is lagging the region with a 0.6% drop. As it stands, European markets are facing a firmer open which will see them recuperate some of yesterday’s losses. It will be interesting to see if Europe can keep this momentum going, and the flash PMI numbers from the region could really go some way to picking up sentiment. We also have the German Ifo business climate reading due out. Comments from ECB President Mario Draghi and the FOMC statement also deserve some attention. Clearly we have a situation where central bank policy has been aggressive enough to lift markets, and it would be extremely attractive to see the data respond in a positive fashion. Given equities seem to be driven predominantly by micro forces at present, traders will then pay close attention to the next wave of names set to report, although with Boeing, AT&T and Cliffs being the headline acts out of the US, perhaps we won’t see the same sort of threat to price action as some of the other multinational names released this week.

The local market is well off its lows after attracting buying interest in the 4500 support region. Australian CPI, which came out just before the China data has given the RBA a mild headache, printing above consensus and right in line with the RBA’s forecasts, thus throwing an element of doubt over a November cut; a situation that many in the forex market thought a fate au complete. Although resources are the clear laggards today, even the defensive names are also struggling, with every sector in the red. We have seen a big turnaround in some of the resource names with Fortescue Metals finding support and now trading in positive territory, up 0.6%. There are a few bright spots with Fairfax rising 4% on the back of its AGM. Financials are relatively flat with most of the banks experiencing limited moves. Ten Network is back in the doldrums with a 7.5% drop after having been lifted by the EyeCorp news yesterday.

www.igmarkets.com.au

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