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IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5761 -9
DAX 7167 +3
CAC 3427 +3
IBEX 7617 -20
DOW 12825 -10
NAS 2587 +3
S&P 1380 0

Oil 86.02
Gold 1735

Asian markets are mixed with China in focus on the back of some economic releases over the past few sessions. Leads from Friday’s US and European sessions were mostly negative although risk sentiment improved in US trade. US equities got a lift from another round of positive economic data, while Greece concerns weighed on European equities. Greece remains in a bad place at the moment, with some saying it could run out of funding within weeks. Apart from Europe, the rest of the world seems to be in a better place, with economic releases from the US and China showing strong signs of improvement. Consumer sentiment data in the US came in well above expectations and lifted risk assets in US trade. China data from the weekend showed a big jump in the trade surplus, with exports rising at the fastest pace in five months. Risk currencies have gained some ground in the Asian session with AUD/USD perhaps the biggest mover after trading back above 1.04. AUD/USD has printed a high of 1.0422 and will now be looking to hold above Saturday morning’s close at 1.0387. Should the positive momentum continue, traders will be eying near-term resistance at 1.044. The euro remains subdued with EUR/USD sidelined at 1.272 as Greece issues continue to cap gains ahead of the Eurogroup meeting.

Looking at the equities in the region, the Nikkei is lagging and is currently down 0.7% after some disappointing economic data. Japan’s preliminary third quarter GDP reading showed a 0.9% contraction versus consensus for a 0.8% contraction. USD/JPY hasn’t had much of a reaction to the data, nor to BoJ Governor Shirakawa’s comments, and has been sidelined at 79.5. Equities in China are positive despite some disappointing new loans data. It seems investors are generally confident that China data has bottomed following the strong bounce in exports reported over the weekend. The Hang Seng and Shanghai Composite have risen around 0.1% each. The ASX 200 is relatively flat. Ahead of the European open, we are calling the major bourses relatively flat to mildly weaker. Focus will be on the Eurogroup meetings and the approval of the 2013 budget by the Greek parliament. Market participants will be hoping the Eurogroup meetings will yield some clarity on the disbursement of funds for Greece.

The ASX 200 has erased some of its early losses and is now relatively flat at 4455. The resources names are lagging the rest of the market, with the materials and energy sectors still in negative territory. BHP Billiton is down 0.3%, but Rio Tinto (+0.1%) and Fortescue Metals (+2.4%) have responded to the positive move in iron ore prices and are both higher. Incitec Pivot (-3.3%) and Orica (-4%) are both trading lower on the back of disappointing earnings. Industrial names are also in negative territory with Qantas dropping 1.6%. Financial stocks have gained ground despite a steep loss in QBE Insurance shares. QBE is down nearly 9% after a disappointing trading update. The insurer released a market update on superstorm Sandy and 2012 forecast results in which it raised its allowance for large individual risk and catastrophe claims. This latest downgrade is going to dent confidence in QBE going forward. This is not the first time QBE has issued a significant downgrade and investors will grow increasingly wary of insurers after a bad run. Westpac has risen 1% and Commonwealth Bank has added 1.3% (just shy of $60)and are leading the big banks. Defensive names are leading the recovery with telcos and utilities enjoying steady gains.


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