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IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

Heading into today’s session, the Australian market had been called to unwind approximately 19 points or 1.4% higher at 4525. As things currently stand, the market is 0.65% firmer at 4535, just off its session high of 4538.

With Chinese manufacturing PMI data over the weekend coming in at 50.6, its highest level in more than seven months, optimism is building that the Chinese economy has stabilised and may now in fact be on a slight upwards trajectory. This is clearly benefitting sentiment towards our major miners and energy stocks, with the likes of BHP, Rio Tinto and Woodside Petroleum all up between 0.4% and 0.9%. Local sentiment is also being buoyed by hopes of a rate cut by the RBA at its December meeting tomorrow.

Heading into today’s session, most economists seemed to be predicting a 25 basis-point (bps) cut to 3%, which would take the cash rate back to the lowest levels seen at the depths of the GFC. The chance of a cut has been further boosted today with the release of October retail sales data, which showed flat growth for the month, less than the 0.4% that the market had expected. On this news, the AUD slipped from levels around 1.0425 back into the low 1.0390s, but it has since recovered to be currently trading above 1.04. Regional Asian markets are also benefitting from the weekend’s Chinese data, all except the Shanghai Composite, which is continuing its recent underperformance to be 0.2% lower. The Nikkei, Hang Seng, and Kospi are all in positive territory with gains of between 0.2% and 0.7%.

Turning to today’s European session, it’s looking like a bright start across the region. Friday’s session saw European indices finish flat to slightly lower and the euro ever so slightly weaker against the dollar as traders and investors alike stood unsure as to how the ongoing fiscal cliff negotiations might play out. Trading across both equities and currencies was relatively lacklustre, as, true to form, the Democrats and Republicans traded barbs, with each side trying to paint the other as the unreasonable villain in the ongoing negotiations. Despite the ongoing antagonism, the prevailing view in the market is that some sort of deal will be struck prior to year-end, even if it is nothing more than a stop-gap measure that will buy some time for further vigorous debate in the first quarter of 2013.

With negotiations likely to be both frustrating and prolonged, equities look set to remain range-bound around current levels until a deal is struck. Again the backdrop of the ongoing fiscal cliff negotiations, European and manufacturing PMI’s will be in focus during the upcoming session, but it is the weekend’s expansionary Chinese PMI data that is set to see European markets off to a solid start. Ahead of the open we’re calling the FTSE +20 at 5886, the DAX +35 at 7440 and the CAC +18 at 3575.


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