IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

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Oil 85.84
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Asian markets have recovered and are now mostly in positive territory. We had seen a subdued start to trading after US equities fell into the close. Trade was choppy through the US session as the indecision among market participants remained evident. Disappointing economic data out of Europe set the negative tone early as the euro and other risk currencies got sold off. European, German and French flash manufacturing PMIs all missed expectations, while the German IFO reading also disappointed. In US trade, investors focused on new home sales data, corporate earnings and the FOMC statement. Although the new home sales data came in better than expected, it failed to inspire a sustained rally through the session as risk appetite swiftly waned. An interesting fact is the level of interest in bond auctions of late. There was significant demand in the two-year and five-year bonds yesterday with pension/insurance funds taking out 15.5% of the issue, the highest since November 2010. The bund auction also got away very well with €5.06 billion raised (above €4 billion target); the first time they have done that in a while. With the fiscal cliff uncertainty, US earnings disappointing and euro data not improving, the bond market is clearly reacting to the uncertainty in the market place.

Given the fact that Asian markets continue to attract buying off their lows while US markets are being sold into strength, it seems the trade is perhaps to sell overextended US markets where valuations seem to be stretched given the disappointing corporate earnings we are seeing and buy into some of the recently underperforming Asian markets. Looking at the equities in the region, the Nikkei has climbed 0.6% after USD/JPY came just shy of the 80 level for the second time this week. Speculation that the BoJ will announce further asset purchases next week has seen the yen trade near a four-month low. The ASX 200, Hang Seng and Shanghai Composite are flat to modestly higher. Looking ahead to the European session, the major bourses are in for a relatively flat start. However, US markets are looking to recuperate some of the losses they experienced into the close with modest gains expected. Data is fairly light on the European front today. Elsewhere, the pound broke ranks with the euro surging back above the 1.60 level on speculation that tonight’s Q3 preliminary GDP print, forecast to be 0.6%, might come in higher than expected, thus lessening the need for the MPC to further expand its current asset purchase programme. In the US we have unemployment claims and pending home sales data to look out for. It will also be a busy session on the reporting end with the likes of Apple, ConocoPhillips, Credit Suisse and Amazon on the calendar.

The local market is once again well off its lows after attracting buying interest in the 4500 support region. It has been a fairly quiet session with nothing major on the economic calendar. Yesterday’s CPI data set the tone for the AUD’s recovery as some analysts revised down their expectations for a November rate cut. A growing number of analysts now feel the RBA will keep its powder dry in November and pull the trigger in December. This less dovish stance on the back of a pick-up in the rate of underlying inflation has spooked some of the AUD bears in the near term. ANZ Bank’s earnings were the highlight of the session with the bank’s shares trading 1% lower despite reporting results that were broadly in-line with expectations. However, the bank’s attractive dividend should keep the stock well supported going forward. ANZ’s peers (NAB, CBA and WBC) are all trading higher today. The miners have been mixed today, with gold names underperforming following the recent slump in the precious metal. Newcrest Mining is down 1.9% and OceanaGold has lost 4.5%. Resmed has added 1.7% ahead of its Q1 earnings report. The stock is up around 60% for the year and has traded at a fresh record high today.

www.igmarkets.com.au
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