IG - Afternoon thoughts November 15, 2012

FTSE 5685 -37
DAX 7057 -45
CAC 3374 -26
IBEX 7615 -58
DOW 12587 +16
NAS 2534 +2
S&P 1357 +2

Oil 86.70
Gold 1726

Markets in the Asian region are mostly weaker after picking up on the negative leads from US trade. US equities were heavily sold off on the back of US President Barack Obama’s comments regarding the fiscal cliff. President Obama feels higher taxes for wealthy Americans will have to be part of any budget deal and this is likely to cause problems in the negotiation process with the Republicans. Even further dovish FOMC minutes, which pointed towards additional national asset purchases after Operation Twist ends in December, failed to inspire a recovery. Market participants also focused on disappointing economic data from Europe and the US. European industrial production missed estimates and dropped the most in more than three years. At the same time, US retail sales and PPI also fell short of expectations. AUD/USD finally gave up its grip on 1.04 and plunged from 1.046 to a low of 1.0348 in the Asian session. However, the pair has since come off its lows and looks vulnerable to selling into strength, particularly into the 1.04 region. EUR/USD has been fairly steady in Asian trade and has managed to hold on to the 1.27 level.
Looking at the equities in the region, Japan’s Nikkei is outperforming after USD/JPY and the yen crosses pushed higher. USD/JPY traded to a high of 80.31 and remains steady at around 80.20. Clearly the big mover of the JPY was news that we may see a new election in Japan, which in turn could see the LDP party regain power and thus ultimately see a change of leadership at the BoJ when the current leader Masaaki Shirakawa’s term finishes in April. It has been suggested this could bring with it much more aggressive action from the bank to weaken the JPY. As a result, the Nikkei has bucked the trend and climbed 1%, while the Hang Seng and ASX 200 have dropped around 1% each. Ahead of the European open, we are calling the major bourses between 0.6% and 1% weaker. GDP prints out of Europe later today could be the next short-term catalyst, with French and German GDP due early in European trade at 5:30pm and 6pm respectively. Weak readings could avert the markets’ attention from the Spanish/Greek saga and back onto the fundamentals of Europe; that on a relative basis, European growth is still a key concern. US markets are facing mild gains as they recuperate some of the sharp losses experienced into the close. Given all eyes continue to fall on the fiscal cliff, the market will be keen to hear of any headlines from tonight’s White House meeting between US President Barack Obama and a host of US multi-national firms. On the US economic front, we have CPI and unemployment claims data to look out for.

The ASX 200 has declined 1% and is now trading at 4345, after printing a low of 4339. Local equities in the region got off to a poor start as investors grow increasingly cautious about the looming fiscal cliff in the US. Resources are lagging, with some big losses in the materials and energy space. BHP Billiton has dropped 1.8% and Rio Tinto has lost 2%. The big banks are all weaker with losses of around 1% for Westpac, ANZ and Commonwealth Bank. There are some bright spots in the cyclical space, with Myer rising 4.5% on the back of an impressive sales update. Qantas has climbed 3.3% after announcing a buyback and debt reduction. There is also some joy in the media space today with Seven West Media (+4.2%) and Fairfax (+2.5%) both rising after both companies announced plans to pay down debt this week. Some of the defensive names are doing well with the telecoms and consumer staples in positive territory. Telstra has edged 0.2% higher while GrainCorp is a touch firmer after posting FY12 results, which were broadly in line with consensus and rejecting a takeover bid from Archer Daniels.

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