IG Markets Afternoon thoughts

Across Asia, markets have responded to the gains seen across European and US markets. Risk is currently in favour as broadly positive manufacturing prints globally further consolidated expectations that fears over a global economic slowdown are overdone. The buoyant risk environment is also on the belief that Europe will avoid a catastrophe although Greece is yet to announce a deal.

The Hang Seng and Kospi are leading the gains in the region, rising around 1.3% each. Resource stocks have spurred the ASX 200 to a 1.1% gain, which also saw it break its three-day losing streak. Japan’s Nikkei is up 0.8%, despite experiencing some technical problems that saw the Tokyo Stock Exchange temporarily suspend trading in shares of 241 companies. US markets are pointing towards modest gains at the open, whilst European trade is likely to open relatively flat.

Analysts are warning investors not to get carried away by European economic releases surprising to the upside. The austerity measures across Europe are only in their early stages of implementation and there is great risk of pain down the track. Positioning concerns are likely to be the biggest drivers of the current 'risk on' mood. A continuation of positive economic releases will encourage investors to position themselves on the long side. Markets will hope the US unemployment situation can continue to improve on the margins as jobless claims are due out tonight.

Today’s gains in the Asian region were slightly capped by the fact that investors are starting to run out of patience over the Greece debt swap talks. Repeated assurances of immediate conclusion have been pushed back and some key deadlines are approaching. The Wall Street Journal reported that differences between Germany and the IMF on how to proceed for Greece are holding up the deal, especially on the matter of official sector involvement.

The high Aussie dollar remains a talking point down under, after AUD/USD broke to a new high today following the trade surplus numbers. Australia’s trade surplus rose to $1.71 billion in December versus an expected $1.2 billion. The elevated levels for the pair are hurting currency-sensitive stocks like CSL Limited and Brambles.

www.igmarkets.com.au

ENDS

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