IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5816 +29
DAX 7351 +59
CAC 3521 +20
IBEX 7908 +33
DOW 12973 +6
NAS 2652 0
S&P 1407 +1

Oil 87.98
Gold 1750

Asian markets are mostly firmer on reports that eurozone finance ministers and the IMF have reached an agreement that will pave the way for Greece to receive its tranche of aid. Risk assets got off to a subdued start in Asia as market participants exercised some caution ahead of a decision on Greece. Having failed to reach an agreement last week, there was always a chance that some pieces of the negotiation wouldn’t fall into place and further stall a decision. The mood swiftly turned positive as soon as headlines of a deal being reached started crossing the wires. Reuters reported that Greece's international lenders agreed to reduce the country’s debt by €40 billion to 124% of GDP by 2020 through a package of steps. EUR/USD spiked to 1.3, the first time it has traded there in nearly four weeks, and broke through the top-end of yesterday’s range. However, the gains were capped at 1.3 and the pair remains relatively sidelined just shy of that level. AUD/USD has had a good run and traded as north as 1.049, its highest level since 22 September, and is likely to encounter some resistance as it moves into the 1.05 zone.

Looking at the equities in the region, the ASX 200 has climbed 0.7% and is leading the way. However, the rest of the equities in the region have not quite seen similar gains and are only mildly higher. Japan’s Nikkei has put on 0.4%, the Hang Seng has added 0.3%, but the Shanghai Composite has declined 0.6%. When you consider the Nikkei you have to look at USD/JPY, and this has remained relatively flat after having lost ground in US trade and dipping below 82. The move in USD/JPY is probably what is holding the Nikkei back today. Ahead of the European open, we are calling the major bourses firmer with gains of around half a per cent. Traders will continue to monitor any comments by European leaders following the marathon meeting. A clear blueprint to bringing Greece’s debt to more sustainable levels should encourage buyers of euros, while the market will also be keen to see UK private consumption and Q3 GDP (revisions) in upcoming UK trade. Both prints are released at 8.30pm (AEDT) and growth is expected to remain unchanged at 1% on-quarter. US markets are facing a relatively flat start with durable goods orders and consumer confidence data in focus. Fed member Lockhart and Fed chief Ben Bernanke are also set to speak and this might have some bearing on the greenback.

The ASX 200 has surged 0.7% and is currently trading at 4456 after having started the session relatively flat. Momentum has definitely swung to the upside with some key near term resistance levels being broken. The healthcare sector is leading the way following a monster profit upgrade by CSL Limited, which has seen its stock jump nearly 8% to a record high. There had been increasing negative rhetoric on CSL over the past weeks by analysts who felt the stock was becoming too expensive. Citi downgraded the stock to sell last week with a $45.24 target price, as it felt CSL was too expensive. Today’s rally puts its shares up a whopping 57% for the year-to-date, with most analysts now feeling the profit upgrade justifies CSL’s premium. We are likely to see some brokers re-rate the stock over coming days due to the revised guidance. Apart from this outlier, the materials space is performing well with some solid gains for some of the big miners. BHP Billiton is 0.7% firmer, Rio Tinto has tacked on 1.1% and Fortescue Metals has climbed 1.3%. The banks are only moderately higher, with most of the big players (ANZ Bank, Westpac and National Australia Bank) only managing a 0.2% rise. The utilities space is the only sector in negative territory, with AGL Energy down 0.7%.

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