IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5939 -7
DAX 7611 -4
CAC 3650 +3
IBEX 7974 -13
DOW 13249 +3
NAS 2673 -2
S&P 1429 0

Oil 86.51
Gold 1700

Asian markets are mixed despite the Fed announcing further stimulus. The Fed did not disappoint, meeting the market’s expectations in terms of QE4 and changing its targets for the Fed funds projection to now be tied to an economic threshold. The initial reaction to the announcement in the risk space was quite positive, but we have since seen risk assets retreat as the euphoria wanes. EUR/USD has pulled back into 1.3 after having printed a high of 1.031 in US trade, while AUD/USD dipped to 1.054 from highs near 1.059. However, the highlight of the Asian session has been USD/JPY which charged to a high of 83.63 and has helped the Nikkei outperform the region with a 1.6% gain. Japan’s Nikkei is trading at its firmest level since April 5. The bulls remain firmly in control and the pair may also get the extra kicker of exporter’s potential closing out of currency hedges. Many Japanese exporters put currency hedges in place around 83.00 to protect against adverse JPY strength; if these firms believe the pair will have a sustained move above 83.00 then you may see a number of them unwind these hedges, pushing USD/JPY even higher.

Looking at the equities in the rest of region, the Hang Seng is up 0.1%, the Shanghai Composite is down 0.8%, while the ASX 200 is relatively flat. There haven’t been any major data releases in the region today, but tomorrow we have the China HSBC flash manufacturing PMI and Japan’s Tankan manufacturing/non-manufacturing index. Ahead of the European open, we are calling the major bourses mildly weaker after having enjoyed modest gains yesterday in the lead up to the FOMC meeting. Investors will be keeping an eye on any comments from the EU economic summit and Eurogroup meetings. Elsewhere in Europe, NOK/SEK will be in focus as we get reads on Sweden’s November unemployment rate (expected to be unchanged 7.1%) and CPI print (expected to be -0.1%). US markets are pointing to a relatively flat open with retail sales and unemployment claims data in focus.

The ASX 200 has added 0.1% and is trading at 4587 after having traded mildly weaker for most of the session. The materials sector has remained quite strong today with BHP Billiton up 0.9% and Atlas Iron rising 2.7%. However, Iluka (ILU) has declined 6% after releasing a disappointing mineral sands update. The miner is struggling on the back of falling mineral sands prices. ILU has also been hit by a number of broker downgrades recently, with Deutsche Bank changing the company to sell. Linc Energy has given up most of yesterday’s gains and is down 17% today. Once again the banks are mixed, while the healthcare space continues to be supported by gains in CSL Limited (+0.5%). In the media space, Fairfax has been a surprise performer, jumping 11% after breaking through the 50 cent level.

www.igmarkets.com

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