IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5763 -34
DAX 7159 -41
CAC 3383 -29
IBEX 7721 -58
DOW 13020 -84
NAS 2636 -22
S&P 1402 -11

Oil 85.40
Gold 1706

Asian markets are mostly lower as sentiment remains subdued ahead of the weekend. Today’s weakness came despite US data continuing to print a positive surprise with durable goods growing 9.9% in September, while the weekly claims came out bang in-line at 369,000 claims. Traders seem to be exerting caution, probably not willing to take any major directional views on the market, particularly with the heavily divided opinion over the outcome of some key events ahead. As a result, equity markets have been relatively sidelined this week with some profit taking resulting in modest losses. There have been some significant moves in the currency space this week, particularly in USD/JPY and GBP/USD, ahead of some key central bank meetings. USD/JPY has held above 80 after printing a high of 80.39 and remains steady, helped by the huge political pressure being put on the BoJ to drag Japan out of deflation. However, we feel there could be a clear case for a ‘buy the rumour, sell the fact’ event to play out next week, with the market fully pricing in a ¥10 trillion expansion to the asset-purchase programme. There is a good chance that if this amount is revealed we may even see the pair come under pressure, therefore profit taking before the event and potentially buying back at lower levels might turn out to be the better strategy as opposed to chasing it higher.

Yen weakness has seen the Nikkei outperform the region this week but some disappointing earnings reports from the like of Canon have capped gains. Elsewhere in the region, the ASX 200 is down 0.5%, while the Hang Seng (-0.7%) and Shanghai Composite (-1.7%) are also lower. Looking ahead to the European session, we are calling the major bourses modestly weaker. Following the better-than-expected UK GDP print, we are likely to hear some analysts revise calls for an expansion of gilt purchases at the BOE meeting on November 8. This could also underpin the pound further after GBP/USD rallied to 1.614 yesterday. US futures have come off quite a bit and focus will likely be on how Apple shares trade on the back of its earnings report. Ahead today we have Spanish unemployment and third quarter GDP releases on the calendar.

The ASX 200 has finally slipped below 4500 and is now down 1.9% for the week. Macquarie Group’s (MQG) result has been the main story of the day in the local market. Early comments suggested the stock might trade lower after the headline profit ($361 million) was largely considered a miss. However, the stock has surged over 4% after the company declared an interim dividend of 75 cents, way ahead of estimates, and showed good operating expenses momentum in the face of declining operating income. MQG said it achieved this through continued operating efficiencies which probably relates to a restructure. The investment group also reiterated FY13 outlook of earnings being at least $730 million subject to conditions. According to Credit Suisse, FY13 earnings consensus for MQG is $860 million (17% above bottom end of MQG’s guidance). Resmed has also been a highlight today after reporting a 41% jump in Q1 profit to US$71 million, 9% above guidance. The stock traded at a record high today but has since succumbed to profit taking and is now a touch weaker. RMD had rallied all week in anticipation of a strong result with its shares up around 60% for the year. As a result, its valuation was starting to look a bit stretched compared to its peers.

www.igmarkets.com.au

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