IG Markets - Afternoon Thoughts
IG Markets - Afternoon Thoughts
FTSE 5933 +3
DAX 7601 +19
CAC 3647 +4
IBEX 8018 +1
DOW 13193 +22
NAS 2658 +4
S&P 1422 +3
Risk sentiment has certainly picked up in Asian trade, helped by a strong reading for China’s HSBC flash manufacturing PMI. Asian markets are mostly higher despite some negative leads from US trade. US markets lost ground on the back of renewed fiscal cliff concerns. These negative leads fed through to regional equities at the open, but we have since seen these losses reversed. The HSBC flash manufacturing PMI reading showed an improvement to 50.9 (from 50.5) and most importantly remained in expansionary territory. There are definitely clear signs of stabilisation in China and this is feeding the reversal we are seeing in risk assets. This has also helped regional markets brush off the disappointing Japan Tankan manufacturing index reading released earlier. As it stands, Asian markets look set to finish the week on a positive note. We are also seeing some positive moves in the forex space with EUR/USD approaching 1.31 and AUD/USD back around 1.053. The yen crosses have been even more impressive, with USD/JPY breaking above yesterday’s high of 83.68 and printing a high of 83.93. Unfortunately, yen weakness has not quite fuelled the Nikkei today as it is underperforming and is relatively flat after having had a strong run higher yesterday. It seems investors have decided to exercise caution on the back of weaker-than-expected Japan Tankan manufacturing index reading and also positioning ahead of the elections.
Looking at the equities in the rest of region, China is well in front after getting a boost from the strong manufacturing PMI reading. The Hang Seng is up 0.5% and the Shanghai Composite has surged 2.9%, while the ASX 200 has only managed a 0.2% gain. Ahead of the European open, we are calling the major bourses mildly firmer. Market participants will have to contend with a swathe of economic data set to be released later today. We have French, German and European manufacturing and services PMI numbers due out as well as European employment change and CPI. These numbers will be closely watched and will likely have a bearing on EUR/USD which is just nudging 1.31 at the time of writing. US markets are also facing a firmer open with CPI, manufacturing PMI and industrial production in focus. With so many economic performance/growth metrics set to be released, we are in for an interesting finish to the week. Apart from this, all eyes fall on the Boehner/Obama meeting later today, although it’s hard to believe they are going to suddenly find some common ground after detailing just how far apart they were yesterday.
The ASX 200 has risen 0.2% and is trading at 4596 despite some negative leads from Wall Street. For the week, the local market has tacked on 0.9% at current levels. Local shares remain resilient with the materials sector taking charge. It seems the recent strength in iron ore prices has encouraged investors to buy up the iron ore names. Some of the best performers in the materials sector are Fortescue Metals (+1%), Newcrest Mining (+2.8%) and Atlas Iron (+4%). The big banks are mostly higher with CBA rising 0.9% and NAB climbing 0.3%. APN has dropped 9.5% after releasing a 2012 trading update today in which it highlighted some of the challenges the company is currently facing and issued a downgrade. APN downgraded 2012 adjusted net income to $51-$54 million (from $59.5 million), well below consensus estimates of around $61 million. Its earnings are being impacted by the deterioration of publishing revenue in Australia. Goldman Sachs maintains a sell rating on the company and cut its price target to $0.28. Due to the disappointing update, we expect APN shares to come under pressure today. Insurance Australia Group (IAG) is down 1.6% after announcing it will sell its UK business to Aquiline Capital Partners. Although IAG is making a loss on the deal, analysts feel investors are likely to look towards future growth with the ongoing loss issues of the UK business removed. Although the stock has retreated today, this seems like a short-term pain long-term gain situation. Key near-term support for the stock is at the $4.70 level ahead of $4.50.
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