IG Markets - Afternoon thoughts Nov 2

Good afternoon,

FTSE 5853 -9
DAX 7332 -4
CAC 3476 +1
IBEX 7900 +14
DOW 13217 -16
NAS 2689 +1
S&P 1427 -1

Oil 86.79
Gold 1713

The Asian region is responding to the positive data prints we saw in China and the US yesterday with gains for most of the major markets. Risk assets have had a strong start to the Asian session after China manufacturing data showed signs of a recovery, while US ADP jobs and ISM manufacturing data exceeded expectations. Apart from Europe, some investors are starting to gain confidence that data globally is bottoming. Recent strength in the Aussie dollar reflects the improvement in China data and markets pricing out a Tuesday ‘Cup Day’ rate cut. AUD/USD has matched October highs and it is testing key near-term resistance a touch above 1.04. A break higher could see the pair head towards 1.05. The AUD has had an even bigger move against the yen which seems to be the preferred funding currency. AUD/JPY is about to break 83.40 which would leave it clear for a move to 84. Selling the euro into strength seems to be the trade right now as market participants remain sceptical about Greece. For the second consecutive session, EUR/USD spiked early to 1.2983 only to reverse lower on Greece news. Reports that the planned pension cuts and retirement age change sought by the Troika might be unconstitutional. This could result in further delays in a solution for Greece. There has been a lot of noise ahead of the Troika report and we are likely to continue seeing the euro supressed until the November 12 meeting, when we get the Troika report. EUR/USD has dropped to around 1.293 in the Asian session.

Looking at the equities in the region, Japan’s Nikkei has climbed 1.3% as the yen continues to lose ground. USD/JPY has traded as high as 80.3 in the Asian session. The Hang Seng is 1.2% higher, while the Shanghai Composite is a touch weaker. Ahead of the European open, we are calling the major bourses mostly flat. Growth will be in focus yet again with Spanish, Italian and European PMIs on the calendar. In upcoming US trade we get the latest read on the US employment situation with the all-important non-farm payrolls (NFP). Consensus sits at 125,000 jobs, while the unemployment rate is expected to tick up to 7.9% (from 7.8%). Clearly for the index to test 1440, we will need to see both a strong NFP report and the unemployment rate to either stay at 7.8% or even fall. There are fewer implications on a political level than the previous month’s report, as there will effectively be only four days to the US elections and many votes would have already been cast, however a good number will be sure to be promoted by the Democrats.

Resource names are leading the local market after encouraging data gave key commodities a lift. Iron ore has certainly found some stability at around the US$120 per tonne mark. BHP Billiton is up 1.7% and also announced the sale of its one third stake in a Guinea-based alumina project as it looks to concentrate on higher margin commodities. The rest of the iron ore names are also doing well with the likes of Atlas and Fortescue rising around 2% each. Arrium is flat today with most analysts feeling it will find stability at around 70 cents in the absence of a takeover. Looking at the financial sector, NAB is modestly weaker today, testing support at $25 after yesterday’s sharp sell-off, while Macquarie is down 2.1% and trading ex-div. Westfield (WDC) released its third quarter trading update today. WDC stuck to full-year guidance where it expects funds from operations of 65 cents per share and a distribution of 49.5 cents per share. The market has responded quite positively to the update and the stock is trading 0.6% higher. WDC has been a quiet achiever in the local market this year, with its stock surging 37% for the year to date. Defensive sectors are lagging with losses for consumer staples and healthcare names.

www.igmarkets.com.au

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