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IG - Afternoon thoughts November 21, 2012

FTSE 5730 -18
DAX 7148 -25
CAC 3452 -10
IBEX 7748 -31
DOW 12757 -32
NAS 2586 -9
S&P 1384 -4

Oil 86.78
Gold 1724

Asian markets were mostly positive but have since lost their grip on reports European leaders are yet to reach a decision on Greece. Markets had been trading cautiously with the potential for an unfavourable outcome from the meeting keeping some investors at bay. Once again, Japanese markets are the standout today after yet another big move higher in USD/JPY. Risk assets got off to a subdued start in the Asian region on the back of some choppy trade in the US session. Market participants continued to monitor the wires for a potential deal on Greece as European leaders meet. Anticipation of a positive outcome saw European markets finish in positive territory. In US trade, investors focused on Fed Chief Ben Bernanke’s comments regarding the potential impact of the fiscal cliff. This overshadowed some positive economic data, which came in the form of better-than-expected housing starts (0.89 million versus 0.84 million consensus). Building permits data came in in line with expectations. Risk currencies were in tight ranges earlier but have since slumped with AUD/USD dropping from around 1.038 to 1.035 while EUR/USD has slid from 1.28 to 1.275.

Looking at the equities in the region, the Nikkei has jumped 1% supported by a significantly weaker yen. USD/JPY came just shy of 82 on the back of worse-than-expected trade balance figures. Japan’s trade balance data showed a deficit of ¥0.62 trillion (versus a consensus -0.46 trillion). Exports declined sharply with a 6.5% fall versus consensus of a 4.9% drop. Such a big miss is likely to stoke expectations of an ultra-loose monetary policy further and his would in turn be bullish for USD/JPY. It is becoming clearer that a change in government is likely to result in some drastic action on the monetary policy front. The LDP party, which is widely expected to win the election, will be looking to implement a 2% inflation target. The ASX 200 is lagging the region with a 0.3% fall, while the Hang Seng has climbed 0.4% and the Shanghai Composite is relatively flat. Ahead of the European open, we are calling the major bourses weaker. The Eurogroup meetings concluded with some headlines emerging suggesting there is a delay in the Greece decision yet again. Headlines from the meeting are likely to continue hitting the wires and affect sentiment. US markets are also facing a softer open with unemployment claims, flash manufacturing PMI, consumer sentiment and crude oil inventories in focus.

The ASX 200 is down 0.3% at 4373, with some mixed performances across the board. There is no dominant theme today and the price action suggests market participants are unclear of what to make of recent developments and therefore this warrants some caution. Most of the defensive sectors are in the black apart from the healthcare sector, which has dropped significantly on the back of a sharp fall in CSL Limited. CSL has dropped nearly 3% today after being downgraded to Sell (from Neutral) by Citi. After having enjoyed a 52% gain thus far and trading at an all-time high, some analysts are beginning to feel the stock is now expensive. However, Telstra has climbed 0.7% and is trading at its highest level since 2008. Cyclical names are mostly struggling and lagging after a subdued session in the commodity space. BHP Billiton has dropped 0.2%, Fortescue Metals has declined 1.9% and Rio Tinto is down 0.8%. Financial names are mostly higher with the big banks enjoying mild gains. David Jones (DJS) shares have plunged over 6% after its first quarter sales revenue missed estimates despite the company returning to positive sales growth for the first time since 2010.


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