IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5929 +4
DAX 7610 +20
CAC 3663 +17
IBEX 7944 +23
DOW 13272 +24
NAS 2683 +1
S&P 1431 +3

Oil 86.36
Gold 1710

Asian markets are firmer after picking up positive leads from European and US trade. Investors seem to be pricing in positive outcomes to some of the global macro events currently taking place. Although the lack of progress in the fiscal cliff negotiations was once again highlighted in US trade, equities managed to hold on to some gains. The two parties need to find some middle ground on taxing the wealthy and spending cuts. As stubbornly as Republicans are opposing tax hikes for the wealthiest 2% of Americans, the Democrats are just as stubbornly refusing to offer up any real spending/entitlements cuts – hence the current stalemate. There haven’t really been any fresh leads in the Asian session, but market participants are looking forward to the FOMC statement and positioning themselves ahead of it. Risk currencies remain near the overnight highs, with EUR/USD trading around 1.3 and AUD/USD near 1.053. AUD/USD experienced a minor pullback on the back of a weak Westpac consumer sentiment (-4.1%) reading. This follows on from yesterday’s disappointing NAB business confidence print. RBA Governor Glenn Stevens’ speech later today might have some bearing on the pair heading into European trade.

Looking at the equities in the region, Japan’s Nikkei has risen 0.6%, the Hang Seng is 0.5% higher and the ASX 200 has firmed 0.2%. Ahead of the European open we are calling the major bourses modestly higher with some follow-through buying expected after yesterday’s rally. US markets are also facing a stronger open with the Fed in focus. Clearly the ‘fiscal cliff’ remains front and centre, but tonight (4.30am AEDT) the Fed is expected to announce the QE4, or effectively $45 billion a month buying of US treasuries to replace its expiring ‘Operation Twist’. This will then co-exist with its current $40 billion a month of mortgage-backed security buying. In theory there shouldn’t be a huge reaction to news that the Fed is initiating this programme, given it has been speculated on for some time and should be priced in. Look for a sizeable negative reaction if the Fed either does a smaller size or delays the programme until the New Year.

The ASX 200 has climbed 0.2% and is currently trading at 4588 after printing a high of 4603.5 earlier in the day. The last time the local market traded above 4600 was in July last year. Locally, investors seem quite confident to pile back into resource names, with the materials and energy sectors among the leaders. After having underperformed for a while, it certainly seems like we are experiencing a materials-led recovery. Fortescue Metals has surged 2%, BHP Billiton is up 1% and Rio Tinto has added 0.6%. In the energy space, Woodside Petroleum tacked on 1.9% and Linc Energy jumped 20%. The big banks are mixed with ANZ (-0.6%) and Westpac lower (-0.1%), whilst CBA (+0.1%) and NAB (+0.1%) are firmer. Defensive sectors are mostly lagging apart from the healthcare sector which is flying, led by CSL Limited. CSL traded above $55 today, but remains shy of its all-time high of $55.20 which it printed on Monday.

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