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IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 6085 -19
DAX 7676 -15
CAC 3700 -8
IBEX 8546 -35
DOW 13467 -44
NAS 2724 -11
S&P 1468 -5

Oil 93.85
Gold 1678

Apart from the ASX 200, which has surged nearly 1%, the rest of the region seems to be in a consolidation phase as the leads on the global front remain fairly mixed. Investors have to contend with an array of factors ranging from economic data to earnings reports, with mixed outcomes across the board. In European trade, investors had to contend with Germany cutting its growth forecast, while the World Bank also cut its global growth forecast. Surprisingly this didn’t have too much of an impact on risk, with EUR/USD remaining flat lined at around 1.33. AUD/USD has experienced a fairly big move in Asian trade on the back of Australian jobs numbers. The pair was trading at around 1.057 at the beginning of the Asian session, but the fragile jobs numbers saw it drop to 1.0526. Unemployment came in at 5.4%, in-line with consensus, but the economy is shedding an incredible amount of jobs with 13,800 full-time jobs lost. Of course given some of the recent restructures announced by several companies, particularly in mining and mining services names and other industrials, this is hardly surprising. Other economic metrics such as trade balance and retail sales have also come in worse than expected in recent releases. AUD/USD might possibly find some support in the previous range (1.047-1.052). Other FX pairs have also started coming off, with USD/JPY dropping to 88.30 and EUR/USD looking like its headed towards yesterday’s lows at 1.324.

Looking at the equities, Japan’s Nikkei is only mildly firmer (+0.2%), while the Hang Seng (-0.2%) and Shanghai Composite (-1.1%) are weaker ahead of tomorrow’s data dump from China. Tomorrow’s Asian session will bring us China’s GDP, fixed asset investment, industrial production and retail sales. Ahead of the European open, we are calling the major bourses weaker. On the economic front, we will have the ECB’s monthly bulletin to look out for. US markets are also facing a softer open with building permits, unemployment claims, housing starts and the Philly Fed manufacturing index in focus. Of course we will also continue monitoring the wires for earnings and Boeing, which continues to struggle on the back of issues with its 787 Dreamliner.

The ASX 200 continued to punch higher, up 0.7% to 4771 after trading through this year’s high at 4750 as the local fourth-quarter earnings season started in earnest. Defensives are mostly leading and we suspect this was a result of investors piling back into yield plays and other defensives ahead of what seems to be a fairly uncertain month for risk. WPL, STO, ILU and PDN all reported before the open with mixed results. The two energy plays posted strong returns; WPL’s result was particularly firm with revenue up 30% and output higher by 31%, which saw the stock moving up 0.8% to $35.48. The report from mineral sands producer ILU showed a 30% drop in revenue and a 56% fall in zircon sales, yet these figures were expected as the company’s production rates also slowed to account for rising inventories. The latter piece of data saw ILU rise 7.9% early in the session to $10.12 as the company continues to see subdued trading in 2013. We see the high volatility in ILU continuing over the coming weeks as we look for fundamental updates from major research houses which have been quite bearish on the stock. We expect the company to bounce around over the coming days as most research suggests it is a sell; any upgrades, however, will push it higher. Following yesterday’s restructure announcement, Boral has extended its gains by 3% and have been upgraded to buy (from hold) by Deutsche Bank with price target of $5.50.


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