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IG Markets - Afternoon thoughts 27/2/12

IG Markets - Afternoon thoughts

Across Asia, markets are mixed with the Nikkei trading higher, though the Aussie market is losing ground. The Nikkei continues to outperform on the back of a weaker yen. USD/JPY hit a high of 81.661 this morning, helping to ease pressure on the country’s exporters. A number of factors are at play in Australia, with ex-dividend falls in major stocks, including BHP Billiton and Woodside Petroleum accounting for most of the weakness. The Aussie market is down about 0.6%, despite Prime Minister Julia Gillard winning a vote to remain as the Labor party leader. The political circus rolls on, and clearly while Julia Gillard won the ballot (as expected), the warring at the top has set a very nervous six months for her.

Leading the way in the region is the Nikkei which is 0.5% higher, followed by the Hang Seng and Shanghai, both up 0.4%. The trend in global markets still seems to be up, however the whippy nature of price action as the S&P 500 tries to break 1370 is still very much evident and highlighted by today’s expected weaker open for US and European markets. The event risk starts to ramp up tonight, with US pending homes sales, Dallas Fed manufacturing activity and European M3 money supply on the economic data side.

US futures have hardly moved today, but the forex markets have been busy, and after an initial pop, risk forex has pulled back, with EUR/USD 40 pips off its high and commodity currencies actually lower on the session. The G20 went as planned, and luckily for risk assets, expectations were low going into the meeting so we didn’t have the same disappointment we have felt in meetings gone by. This week’s finance ministers’ meeting on Thursday and Friday should get that much more significance, as it seems Angela Merkel has eased her stance on a bigger EU bailout fund and narrative of either combining the EFSF and ESM or running the funds concurrently to create a €750 billion ‘firewall’ could be enough to open the door to a USD 2 trillion rescue package from the G20 in April. The talk on trading floors will be on the upcoming LTRO later in the week, and while consensus is for a take-up of around €500 billion, it seems the sums Lloyds and RBS are seeking should be around €15 billion between them. We start the fun and games off tonight however, with Germany set to vote on the EU bailout; it is expected to pass although any surprise rejection will send risk assets into a downward spiral.

On the reporting end, we had Caltex (CTX), Beach Energy (BPT) and Mesoblast (MSB) being some of the big movers. CTX delivered an interim loss of $714million down 325% including significant items after a write-down in refinery assets of $1.16 billion. Profit excluding one-offs and the impact of changes in the oil price fell to $264 million, which was in-line with a consensus of $267 million. Final dividend of 28 cents was above consensus. BPT’s interim profit of $56.3 million was up 165%, in-line with consensus helped by higher oil prices. Total production of 3.4646 One thousand barrels of oil equivalents was down 0.7% after rain and spot fires caused access issues. A dividend of 75 cents was declared, and higher capex is expected for FY12 assuming no flooding. MSB reported an interim loss of $44.1 million after costs associated with the expansion of multiple clinical and preclinical trials. Total revenue was $18.7 million. The company has a strong cash position of $241 million, which will enable development of multiple products. MSB has risen over 4%, while BPT had declined around 6% today.


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