IG Markets Afternoon Thoughts

IG Markets Afternoon Thoughts

Good afternoon,

Across Asia, equity markets are all significantly higher following the very bullish set of leads from the US overnight, driven by the plan to inject a further US$600 billion in the struggling US economy. Japan’s Nikkei 225 is the strongest performer, up 2.6% thanks to big gains among exporters and resource stocks. Elsewhere, the Hang Seng, Kospi and Shanghai Composite are all up between 0.4% and 1.2%.

In Australia, the ASX 200 is currently 11% firmer at 4800 but off earlier highs of 4815. Gains for the day are broad based, with the materials and energy sectors adding the bulk of the points. The financial sector is also higher, but has pared earlier gains while the utilities and telecoms sectors are modestly lower.

Markets globally are certainly in a bullish mood. We had thought we may see some sort of ‘buy the rumour, sell the fact’ situation play out after the Federal Reserve announced their plans for further stimulus. However, this seems to have been completely wrong. Rather, it’s been a ‘buy the fact’ scenario as the US dollar has continued to be sold off heavily, supporting ‘risk’ trades globally.

The materials and energy sectors are the main drivers as the underlying, US dollar denominated commodities are boosted by the US dollar weakness. It looks like markets really want to move higher. It looks like up is the path of least resistance and there is a good chance we could see a strong rally into year-end now.

We could see the trend really gain momentum as all of the sidelined money is forced to chase the market higher. There’s likely to be a fair bit of ‘fear of missing out’ based buying. A lot of traders have been waiting for a pullback to deploy capital. It hasn’t come and now looks like it might be some way off.

Another big catalyst over night was speculation Obama’s weakened governing position may see his administration open to extending the Bush era tax cuts to all income brackets. This is in turn fuelled talk that much anticipated end-of-year tax incentivised selling may not occur.

Tonight, the usually highly anticipated non-farm payrolls number has the potential to add even more fuel to the fire if it can come in ahead of expectations for +80,000 private sector jobs. On the other hand, it may be overshadowed by this week’s election and FOMC developments.

ENDS

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