IG - Afternoon thoughts November 1, 2012

FTSE 5790 +7
DAX 7270 +9
CAC 3431 +2
IBEX 7817 -26
DOW 13074 -23
NAS 2643 -5
S&P 1408 -5

Oil 86.30
Gold 1721

Asian markets are mixed on the back of China’s manufacturing PMI numbers. Regional markets got off to a weaker start to the month as market participants remain uncertain about the state of the global economy, with plenty of data releases on the economic calendar today. Risk assets were mixed as US markets returned to trade in relatively quiet session to finish off the month. In the European session, comments around Greece dictated sentiment and resulted in some choppy trade as market participants tried to pre-empt headlines from the Eurogroup meetings. There is a lot of noise around the Greece bailout at the moment and it is unlikely we will get anything concrete until the Troika review report is released. Economic data released in European and US trade was mostly disappointing and failed to provide equities support. China’s manufacturing PMI came in at 50.2, bouncing back into expansionary territory and broadly in line with consensus. This was followed up by the HSBC final manufacturing PMI, which showed an improvement to 49.5 (from 49.1). Risk assets have had an interesting reaction to the data, with AUD/USD initially dropping to 1.0355 before a minor recovery, while EUR/USD remained relatively sidelined at 1.296.

Looking at the equities in the region, the ASX 200 has dropped 1%, while Japan’s Nikkei is 0.4% higher. USD/JPY has been well bid in the Asian session, rising to test the 80 level yet again and trading as high as 80.07. The weaker yen has helped the Nikkei to come off its lows, despite a 1.6% drop in the technology space. Panasonic shares took a big hit after forecasting a bigger-than-expected loss. Elsewhere in the region, the Shanghai Composite is tracking higher with a 1.8% gain on the back of the PMI numbers, which showed that manufacturing is back in expansionary territory. Since May 2009, China has only had two months of contractions (one of them being last month) with a year average of 50.8. Ahead of the European open, we are calling most of the major European bourses flat to mildly higher. France and Italy have bank holidays today but they will be trading. However, US markets are in for a softer start with plenty of economic releases on the calendar. The data kicks off with the ADP non-farm employment change followed by unemployment claims. There are also manufacturing PMIs out of the US to look out for.

The ASX 200 has declined 1% to 4472, coming off a low of 4469.4 on the back of China PMI numbers. Many would have expected to see a rebound above 50 in China PMI underpin some of the cyclical names but this has not been the case. Industrial names are the worst performers of the day, with the likes of Leighton Holdings (-1.3%) and Qantas (-3.4%) experiencing some steep falls. The materials sector is also struggling with the big names, giving back some of yesterday’s gains. BHP Billiton is 1.1% lower and Rio Tinto has dropped 1.2%. However, gold miners have responded to a recovery in gold prices, with Regis Resources adding 1.9% and Medusa Mining a touch higher. Arrium (ARI) has been an interesting one to watch today after a consortium led by Posco and Noble withdrew its offer for the company after an improved bid was knocked back. This has seen the stock plunge over 12% as speculators and impatient investors liquidate. Financial names are fairly mixed, with ANZ Bank (+0.6%) and Commonwealth Bank (+0.1%) both trading higher, while National Australia Bank (-2.4%) and Westpac (-0.7%) struggle. We’ve had some local economic data with limited impact on the market and the AUD. Australian import prices fell a worse-than-expected 2.4% (versus consensus -1.2%) on the quarter. Ahead today we have commodity prices data which is a good indicator of what we can expect in the terms of trade. The recent recovery we have seen in commodities could see a vast improvement in this data.

ENDS

www.igmarkets.com.au

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