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IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5775 +23
DAX 7222 +37
CAC 3493 +16
IBEX 7808 +3

Asian markets got off to a strong start and managed to reverse some of the steep falls experienced late in yesterday’s session. The China HSBC flash manufacturing PMI reading, which showed a rise to 50.4, has also helped support the positive sentiment. This is the first time this reading has been in expansionary territory in thirteen months. Optimism that an agreement on Greece will be reached on November 26 seems to be what has stabilised risk sentiment. Investors are also realising that apart from Europe, the rest of the world seems to be in a better place economically. In US trade, better-than-expected unemployment claims and flash manufacturing PMI data encouraged investors, while a cease fire in the Middle-East also buoyed sentiment. Unemployment claims fell to 410,000 (versus consensus of 415,000), while flash manufacturing PMI rose to 52.4 (versus consensus of 51.2). Over in Japan, positive steps are also being taken, with a change in government tipped to bring some fresh ideas to lead an economic recovery. There have been some interesting moves in the risk currency space, with EUR/USD enjoying an initial pop higher to 1.287 before retreating into 1.284. AUD/USD jumped on the China data to 1.04 and has been fairly sidelined since then.

Looking at the equities in the region, the Nikkei has jumped 1.1% supported by a significantly weaker yen. USD/JPY pushed higher to 82.59 early in Asia and is likely to have spooked any short attempts after the recent run. The ASX 200 is also enjoying a day in the sun with a 1.2% gain led by the resources. Hong Kong’s Hang Seng has edged 0.7% higher, while the Shanghai Composite has lost around half a per cent but is off its lows. Ahead of the European open, we are calling the major bourses firmer with a swathe of economic releases in focus. The data kicks off with French and German services and manufacturing PMIs. This will be followed by European services and manufacturing PMIs. The EU economic summit also commences in Brussels, where the budget will be discussed. With the Greece decision looming, investors would like to see the summit conclude without any major issues so as to pave the way for a clean discussion come November 26. On top of all this, there is also a Spanish bond auction to keep an eye on as Spain looks to boost its funding further. The country is already fully funded into 2013 and is likely to be looking to take advantage of calmer yields to increase its funding. A well-funded Spain and calm Spanish yields does not bode well for those hoping the OMT will be activated soon. The single currency is in for some volatility later today as traders react to the various releases and headlines. Signs of economic improvement from the PMIs could easily see the euro extend its gains. US markets are closed for the Thanksgiving holiday.

The ASX 200 has surged 1.2% and is currently trading at 4423, with risk assets tracking the euro higher. The local market had been struggling below 4400 for most of the week and just couldn’t get any positive traction. However, investors finally had enough conviction to push local equities higher ahead of China’s HSBC flash manufacturing PMI, which some anticipated would finally show strong signs of recovery. The cyclicals are back in play today with the resource sector amongst the leaders. BHP Billiton has climbed 1.4%, Rio Tinto is up 0.6% but Fortescue Metals has shed 2.7%. There are some big gains in the energy space with Woodside Petroleum rising 1.4% and Santos adding 1.8%. Financial names are also having a pretty strong day with ANZ, Westpac and Commonwealth Bank adding around 1.5% each. There is a strong recovery in the industrials space with Boart Longyear climbing 6.3% and Qantas up 2%. James Hardie has surged 1.8%, buoyed by some of the positive economic data we’ve been seeing from the US. David Jones has recovered 1.6% after having been sharply sold off yesterday. Even the defensive names are having a good day, with Telstra (+1.7%) being one of the best performers.


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