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IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5775 -1
DAX 7214 +9
CAC 3414 +6
IBEX 7618 -6
DOW 12859 +48
NAS 2586 +13
S&P 1383 +5

Oil 85.28
Gold 1734

Asian markets are mostly lower as they track some negative leads from US and European trade. Risk assets slumped on reports a decision on releasing funds for Greece might not come until later this month. Market participants were hoping to see the current Greek uncertainty being put to bed on November 12 when European leaders meet. These reports outweighed the positive impact from better-than-expected US trade balance and unemployment claims data. China data released in the Asian session has seen some of the risk assets come off their lows. China CPI came in at +1.7%, missing a consensus of +1.9%. This leaves China officials room for easing to stimulate the economy should need be. China’s PPI was broadly in line with consensus but investors are still waiting for fixed asset investment and industrial production data due later today. This might warrant some caution ahead of the weekend when we get a further China data dump with trade balance, new loans and M2 money supply releases set to hit the wires. The Aussie dollar has been an interesting one to watch as it has seen some big moves against the USD, EUR and NZD over the past few weeks. AUD/USD briefly ventured below 1.04 early but bounced back following the RBA statement and China data. The AUD is finding its footing as the RBA’s easing cycle looks like it will pause for a while and at the same time China data is showing signs of stabilisation. The euro is currently the preferred funding currency as EUR/AUD experienced a sharp retreat from 1.28 to 1.22 over the past few weeks (8 October to 8 November).

Looking at the equities in the region, the Nikkei is lagging and is currently down 1% on the back of a stronger yen. USD/JPY slipped below 79.80 and dropped to 79.32 before stabilising. The Hang Seng is down 0.5%, while the Shanghai Composite is mildly firmer. Ahead of the European open, we are calling the major bourses relatively flat. Industrial production numbers for Germany, France and Italy will be in focus as investors continue to monitor growth in the region. Another set of disappointing figures could see the single currency extend its recent slide. EUR/USD traded at its lowest level since September 8 yesterday as negative factors continue to mount for the region. With some saying Greece will run out of funding within weeks and Spain’s bond auctions going well (hence reducing the need to imminently formally request a bailout and activate the OMT), investors will remain sceptical about buying the euro. As a result, the bounce it is currently experiencing is likely to be greeted by sellers in the 1.28 region.

The ASX 200 has dropped 0.5% to 4464 after a poor start to the day on the back of negative leads from US trade. The fact that some of the main banks are trading ex-div with a 19 point chunk being taken out of the index has not helped. As a result the financial sector is the worst performer, with Westpac dropping 3.1% and National Bank down 3.8%. In the materials space, Rio Tinto (-1.2%) and BHP Billiton (-0.8%) are both lower, but the gold miners are outperforming with Newcrest Mining rising 0.6%. China data will be on tap today with CPI, PPI, fixed asset investment and industrial production due out. Emeco Holdings (EHL) shares have slumped 17% on the back of a profit warning. First-half net operating profit guidance has been slashed to a range $23 million-$26 million, from previous guidance of $29.2 million. This implies an 11%-21% downgrade as the company suffers from lower Australian activity. Utilisation has dropped to 66%, significantly lower than an average of 91%. It’s really not too surprising, considering we have already heard from miners cutting capex. It has also been a similar trend with other mining services companies over the year. EHL shares tested 50 cents today, its lowest level since June 2010.


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