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IG - Afternoon thoughts

IG - Afternoon thoughts

Good afternoon,

FTSE 6069 +15
DAX 7715 +19
CAC 3718 +12
IBEX 8470 +17
DOW 13337 +38
NAS 2721 +2
S&P 1458 +1

Oil 93.02
Gold 1658

Regional markets are mostly firmer after the Alcoa result set the tone early in Asia. Risk assets had remained choppy in US trade as market participants search for leads and await the US reporting season. Alcoa’s results are generally considered a bellwether for the global economy and the fact that the aluminium giant forecasts higher demand in 2013 appeased investors. Apart from this, there haven’t been any major developments on the risk front to drive equities significantly higher. As a result most of the gains in regional equities are only moderate. Japan’s Nikkei is up 0.5%, the Hang Seng has advanced 0.4% and the ASX 200 has climbed 0.4%. Risk currencies have remained relatively range bound with EUR/USD sidelined just shy of 1.31. AUD/USD has been stuck in a range between 1.047 and 1.052 all week, but has had quite some action in Asia today. The pair slid from the top-end of the range on the back of much weaker-than-expected retail sales numbers. Consensus was for a 0.3% rise in retail sales, but the reading showed a 0.1% fall. Undoubtedly this will lead to increasing calls for a rate cut next month as it appears the recent cuts have not quite had the desired effect. This resulted in the pair slipping back to 1.049 and it remains firmly within the range. We expect the bottom end of the range (1.047) to act as key near-term support.

USD/JPY finally lost its grip on the 88 handle and slipped to 87 in US trade. With risk losing steam it’s not too surprising to see the yen regain some ground. The pair extended this loss to 86.31 before finally finding some buyers and bouncing back to 87.40. Traders are likely to continue favouring buying the dips in USD/JPY and the Nikkei. Ahead of the open, we are calling the major European bourses higher as they get an opportunity to react to the moves seen in Asia post the Alcoa result. This certainly seems like the calm before the storm for the single currency as we approach the ECB meeting. Later today we have the European final GDP quarterly reading and German industrial production number, and these data prints are unlikely to have a significant bearing on the single currency. We expect to see the tight range maintained until tomorrow when positioning ahead of the ECB kicks in. With so many issues for the euro to contend with this week, traders are likely to favour selling the single currency into strength. US markets are facing a mildly firmer open with focus likely to remain on upcoming earnings and reacting to the Alcoa results as they were released post-market.

The local market has managed to hold its ground above 4700 despite the resource names continuing to underperform and the disappointing retail sales reading. With retail sales figures due out today, the consumer discretionary names were in for an interesting session. Unfortunately the numbers failed to live up to expectations and we’ve seen retail names such as Harvey Norman and Myer drop over 2% each. Iron ore miners just seem like they can’t catch a break at the moment and are lagging despite iron ore price jumping to 158.50. Alumina has been a standout in the materials space, rising 3.6% on the back of the Alcoa result. In the financial space we have continued to see a rotation out of the Commonwealth Bank and into Westpac and NAB. One again the defensive sectors (healthcare, consumer staples and telecoms) are outperforming the overall market. Telstra is still testing resistance at $4.50 and a break of this level would open it up for the next leg higher.

STAN SHAMU
Market Strategist
www.igmarkets.com

ENDS

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