IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5870 -15
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CAC 3461 -18
IBEX 7810 -28
DOW 13158 -88
NAS 2661 -20
S&P 1417 -11

Oil 88.38
Gold 1724

Asian markets are mixed with traders focusing on election results which are trickling in throughout the day. Current predictions are that Republicans will keep the House and Democrats will keep the Senate. Equities in the region have been relative flat but we have seen some interesting moves in the currencies space. Most of the risk currencies drifted lower early as Mitt Romney took an initial lead. However, we have since seen a bounce in risk currencies after President Obama took the lead for the first time. Like we mentioned earlier, an Obama victory could weigh on the greenback given the easy monetary policy stance of the Democrats. However, a Romney victory could see the USD bid as it casts doubt on an extended easy monetary policy stance. AUD/USD slipped to 1.041 before recovering to 1.0437, while EUR/USD declined to 1.278 and has since bounced to 1.284. The euro is getting some support from comments by eurogroup head Jean-Claude Juncker that the Greece vote on austerity will be ‘yes’ and that the country has no alternative to the austerity programme. Volatility in the currency space is likely to persist as analysts digest the results and potential implications for the economy going forward.

Looking at the equities in the region, the Shanghai Composite is lagging with a 0.4% drop, the Hang Seng is down 0.3% and Japan’s Nikkei has shed 0.1%. The ASX 200 is outperforming with a 0.3% gain despite major resource names giving up early gains. Ahead of the European open, we are expecting a relatively flat to weaker start, but this could easily change as we receive election results. Apart from the election results, European markets will be focusing on retail sales, German industrial production and the Greek government debt crisis vote. The vote is expected to pass, but if we do see a failure to push through the measures, we should witness a strong move lower in EUR/USD and other risk assets. There has been a sharp drop in US futures, leaving US equities facing a significantly weaker open. The drop in US futures and US dollar weakness suggests the market might be starting to price in an Obama victory.

The local market was positive for most of the session and managed to brush off equity weakness in other parts of the Asian region. The ASX 200 has added 0.2% to 4495 in relatively quiet trade as market participants eagerly await results from the US presidential election. Resources had a good start to the session after commodities bounced back yesterday. BHP Billiton is flat, with investors focusing on reports that the mining giant is working on a CEO succession plan. Newcrest Mining has added 0.7% and OceanaGold has jumped 6% on the back of a spike in gold prices. The financial sector is mostly higher, with ANZ Bank rising 1% and Macquarie surging 1% on reports it is considering getting into retail banking through Yellow Brick Road. Commonwealth Bank (CBA) shares are currently up 0.3% on the back of a trading update, which showed earnings are tracking in-line with expectations. Industrials are lagging, with Bradken dropping 2.7% and Leighton Holdings down 0.8%. Retail names have continued to decline after the RBA left rates on hold yesterday heading into the key festive trading season. Harvey Norman is the worst of the lot, slumping 4% on the back of a disappointing sales update.

www.igmarkets.com.au

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