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IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5823 +20
DAX 7377 +34
CAC 3528 +13
IBEX 7889 +51
DOW 12976 -9
NAS 2665 0
S&P 1409 -1

Oil 86.68
Gold 1720

Asian markets are firmer as investors react positively to the comments made by US political leaders regarding the budget talks. After having struggled through most of European trade, risk assets experienced a sharp reversal after comments by US Speaker of the House John Boehner that he is optimistic about US budget talks. Markets pared losses with US President Barack Obama also quoted as saying he hopes to get the budget talks done by Christmas and he remains confident something will be done by year-end. Market participants swiftly brushed aside comments by Senate majority leader Harry Reid, which had weighed on markets in the previous session. Disappointing new home sales data, which showed a fall to 368,000 while consensus was for them to rise to 387,000, didn’t end up having too much of an impact. There haven’t been many fresh leads in the Asian session today, but sentiment has remained relatively steady with EUR/USD still hanging around the 1.295 region. AUD/USD made a move into 1.048 but has dropped back to 1.046 on the back of local private capital expenditure data. Despite there being so much emphasis on the Q3 CAPEX numbers, the reaction in the currency space was quite tepid. Perhaps the 2.8% growth at the headline print kept the AUD bears at bay, given the 6.2% gain in equipment, plant and machinery will help future GDP reads.

Looking at the equities in the region, the ASX 200 is 0.5% higher while the Nikkei and Hang Seng have climbed 0.6% each. The Nikkei is enjoying some relief after USD/JPY pushed back above 82. USD/JPY has extended its gains in the Asian session today and managed to print a high of 82.22. Japan retail sales numbers released this morning showed a 1.2% contraction, worse than an expected 0.7% fall. This will no doubt continue to fan talk that some aggressive measures are needed to bolster the economy and weaken the yen. Ahead of the European open, we are calling the major bourses firmer. On the economic front, we have the German unemployment change, European retail PMI and an Italian 10-year bond auction to look out for. US markets are facing a mildly weaker open with plenty of data on the cards. We kick off with the preliminary GDP reading and unemployment claims, with both data prints expected to show strong signs of improvement. FOMC member William Dudley will be on the wires ahead of pending home sales data, which is expected to show a 0.9% rise. With so much data on the calendar, we are bound to be in for a volatile session. However, it is clear that we are in a headline risk environment and any comments by political leaders on the fiscal cliff will supersede any economic data.

The ASX 200 is 0.5% stronger and is currently trading at 4467 with the miners leading the recovery. Earlier we had highlighted 4461 as being near-term resistance for the ASX 200. This level has now been broken with a new high of 4468.7 being printed for the week. A close above 4461 would be positive heading into tomorrow’s session. Materials names struggled early but have since turned positive with BHP Billiton firming 0.3% and Rio Tinto climbing 0.6%. BHP had its AGM today and the miner certainly sounds cautious on the outlook for iron ore and coal prices. The financial sector has also pushed higher, with ANZ Bank adding 0.8% and Westpac up 0.6%. Retailers are struggling with JB Hi-fi (-1.4%) and Harvey Norman (-0.6%) both weaker. Aristocrat Leisure has extended its run and is up another 5% after being upgraded to Outperform (from Underperform) by Credit Suisse. Some of the defensive sectors are lagging with the telecoms in negative territory.


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