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IG - Afternoon thoughts November 19, 2012

FTSE 5650 +44
DAX 7020 +69
CAC 3374 +32
IBEX 7663 +75
DOW 12636 +48
NAS 2543 +9
S&P 1367 +7

Oil 87.57
Gold 1722

Asian markets have picked up on the positive reversal seen into the close of US trade and kicked off the week on a firm note. There haven’t been many fresh leads in the Asian session today, but the global macro developments have been enough to keep investors busy. Risk assets lost ground in Friday’s European session, only to recover in US trade on optimism that fiscal cliff negotiations are progressing after US politicians met at the White House. Further Greece concerns, Middle-East tension and disappointing US industrial production numbers had seen risk sold off in European and early US trade. It is clear that fiscal cliff issues will continue to dictate sentiment going into the end of the year. As soon as US elections were concluded, focus switched to the fiscal cliff and we have since seen sentiment slump. Of course, initial fears were around a hard-line approach by US President Barack Obama and the Republicans refusing to yield. However, both parties now seem to be echoing the idea of a balanced method and this seems to be encouraging investors that the two parties will find some middle ground. Risk currencies have also edged higher with AUD/USD extending its gains from an open of around 1.034 to a high of around 1.0374. EUR/USD has also had a fairly solid run after a strong bounce off 1.27 in US trade. The pair is now trading at around 1.277 and is back above the 200-day EMA.

Looking at the equities in the region, the Nikkei is once again leading the gains and has surged 1.6% ahead of the BoJ’s meeting tomorrow. There has been plenty of talk regarding a sustained period of loose monetary policy once the election takes place. Prime Minister Yoshihiko Noda dissolved the lower house of parliament last week and called a near-term election on December 16. However, the yen has actually gained ground today as some market participants feel USD/JPY has gotten ahead of itself. The pair has rallied significantly since last week and now seems to be succumbing to some profit taking. Elsewhere in the region, the ASX 200 has risen 0.4%, the Hang Seng has climbed 0.7%, while the Shanghai Composite is actually down 0.3%. Ahead of the European session, we are calling the major bourses significantly higher after having been considerably weaker on Friday. As a result, European markets will simply be playing catch up at the open today. US markets are also looking like they will extend their gains with futures drifting higher in Asian trade. Market participants will continue to monitor any rhetoric on the fiscal cliff and there is also US existing home sales data due out.

The ASX 200 has enjoyed a steady recovery today and is currently 0.4% higher at 4354. We get the sense that the market is also enjoying a relief rally after having been sold off since the conclusion of the US elections. The resource names are leading today, with energy names rallying on the back of stronger oil prices. Santos has surged 2.6% and Paladin has climbed 7.2%. BHP Billiton has tacked on 1% while its iron ore peers Rio Tinto (-0.6%) and Fortescue Metals (-0.8%) have lost ground. Financial names are mixed, with National Australia Bank firming 0.6% but Macquarie Group dropping 0.7%. Billabong has jumped 11% after announcing one of its US directors is considering a buyout of the company. Boart Longyear (BLY) shares have surged 5% despite downgrading its earnings guidance again, with some analysts pointing towards the steady revenue guidance, one-off costs and upbeat outlook as the main reasons behind the rise. There is plenty to look out for tomorrow, with the RBA’s monetary policy meeting minutes set to hit the wires. After the RBA decided to keep rates on hold this month, the minutes will be highly sort after as investors search for clues on whether we will finish off the year with another rate cut. Following the RBA’s statement, which accompanied the last rate decision, it certainly seems like it is happy with the current rate setting going into next year.


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