IG Markets Afternoon thoughts

Across Asia, markets have lost ground after China’s January CPI rose by 4.5%, faster than a 4.1% rise in December and smashing expectations of another 4.1% rise in January. This reduces scope for further quantitative easing and will go some way to crush RRR rumours. Data also disappointed in Japan with a drop in core machinery orders. Uncertainty over Greek debt negotiations also continues to dampen sentiment.

The ASX 200 is the worst performer in the region with a 0.5% drop, while the Nikkei and Hang Seng are down around 0.4% each. US markets are pointing to a weak open after having edged higher into the close. However, European markets are facing modest gains at the open after having edged lower into the close of the European session. While the Greek debacle will be the lead story, whether the BoE deliver the £50 billion additional funds for gilt purchases should support risk assets, with an extra kicker, if like last time they go above and beyond expectations.

The local market has had a tough session today, with most of the major reporting stocks disappointing. Apart from Newscorp, which is outperforming after a strong result, Telstra and Sims Metal are struggling. The next key report is Rio Tinto’s full-year results, which are due out after market close at 5pm today. Profit may rise for a third year to a record high amid expectations the company might boost its payout to shareholders. Analysts are expecting underlying earnings of around US$15.6 billion and a US$6 billion aluminium write-down. The miner is also expected to lift its dividend by as much as 40%. On a divisional basis, only iron ore is expected to post an increase in earnings from a year ago. Some analysts have also flagged an extension to the buy-back program. Newcrest Mining is tomorrow’s biggest report with no real surprises expected from analysts.

It seems that tonight is D-day for Greece, and while Greek leaders concluded a marathon seven and half hour crisis talk, it seems that cuts to pensions appear to be the main sticking point. The immediate priority is securing a deal on austerity and comments from Greek officials are that a deal will be finalised tonight, as there simply is no other choice. Time is running out and time in this case for Greece means money, and we aren’t talking pocket change; a deal simply has to be found before February 13, as this gives Greece enough time to complete the debt swap before the March deadline. That being said, once Greece has got its budget under control, we go back to Paris where the Greek government and the IIF need to say ‘yes’ to proposed 3.6% coupons and thirty-year maturities writing off 70% net-present value. Expect a holding pattern on risk assets, notably EUR/USD, which could move up to 1.33 if we get the resolution the market seems to be complacently expecting.

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ENDS

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