Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

If Cyprus is going to snowball into a sizeable issue, given the potential weekend antics, then Australian investors certainly haven’t shown too much concern, piling into the banks’ 5% yield. The rest of Asia seems to have struggled though, with the Nikkei the underperformer.

You can pick one of five positive factors – a strong Philly Fed, solid existing homes sales , jobless claims and leading indicators, or even the fact that the House of Representatives approved a plan to keep the government funded for another six months, but it seems the US market chose Cyprus as the key concern. Ultimately the market closed just off the session low, and traders will be keen to see if the index can hold the 21-day moving average at 1535, ahead of the February pivot high of 1530 in the short term.

Cyprus has once again dominated the headlines, and Monday could be a big day for risk assets with the EUR at the epicentre. The Cypriot government has drawn out plans to overhaul the banks, which will include winding up the country’s largest bank and splitting it into a ‘good’ and ‘bad’ bank. The winding-down process should save €2.3 billion, while the remaining funds would come from other sources, which includes leveraging off its gas-reserves. One gets the sense that at the end of the day the Cypriots should see the pain that will come from a disorderly bank failure, and cobble together a weekend deal. Or at least that’s the plan, because if they don’t the ECB will not be there to help them out on the liquidity front. A final weekend agreement is our base-case and therefore in theory should cause the EUR to gap higher on Monday. While we feel EUR/USD has modest short-term upside risks, there will be some nervous traders who probably won’t run a flat book into the weekend. In true European style though, the plan will be sketchy and so loose that the market will probably come to see it as a band-aid solution, thus in theory after an initial spike we feel many will look to square and reverse positions.

As we detailed earlier in the week, the chance of default and euro exit can’t be ruled out (although not our initial base-case) as the EU is standing firm and not giving in at all. If nothing is heralded from the weekend, then it will be down to the ECB to sort the mess out and perhaps then we could see them do ‘whatever it takes’. Given the political instability in Italy at present, we feel the Italians, more than most, will be watching to see if further down the road Cyprus can actually survive and thrive outside of the union. Italy has actually reasonable fundamentals, running a primary surplus of 3.6% of GDP, has low foreign debt of 25% of GDP. It would not only be the most likely country to survey outside of the union, with such a strong manufacturing base it could break away from the decade of very low growth if it could devalue the lira – again unlikely, but never say never.

As we said, the ASX 200 has found buyers after hitting an intra-day low of 4927, a fall of 0.6% on the day and a 4.6% pull-back from the March 12 high of 5163. Clearly this was enough for some and the fact that the market has rallied 1% from today’s low is positive. The banks are predicably finding the love in the market, with staples not far behind. How long can these same names keep picking up the pieces? Interestingly, while the market has rallied just over 14% from the November low, the four banks have put in 42% of the points, while BHP (who has a double digit weight on the market) has put in meagre eight points (out of the 640 rally).

The gains in Australia seem to be in isolation though, with Japan down 1.5%, China lower by 0.2% and the Hang Seng softer by 0.2%, although most of the traders are off watching the Hong Kong Sevens. European markets therefore look set to see modest downside on the open and there has been nothing of note to suggest a clear directional bias from traders.

The fact there is limited data also suggests little reason to expect a pick-up in volatility, and it will be down to government officials to throw the markets around. The key release will be the German IFO survey, while currency traders will look out for unemployment numbers in Norway and Mexico.

Ahead of the open we are calling the FTSE 6373 -15, DAX 7930 -2, CAC 3771 -3, IBEX 8325 -26 and MIB 15915 -20


© Scoop Media

Business Headlines | Sci-Tech Headlines


Trade: NZ Trade Deficit Widens To A Record In September

Oct. 27 (BusinessDesk) - New Zealand's monthly trade deficit widened to a record in September as meat exports dropped to their lowest level in more than three years. More>>


Animal Welfare: Cruel Practices Condemned By DairyNZ Chief

DairyNZ chief executive Tim Mackle says cruel and illegal practices are not in any way condoned or accepted by the industry as part of dairy farming.

Tim says the video released today by Farmwatch shows some footage of transport companies and their workers, as well as some unacceptable behaviour by farmers of dragging calves. More>>


Postnatal Depression: 'The Thief That Steals Motherhood' - Alison McCulloch

Post-natal depression is a sly and cruel illness, described by one expert as ‘the thief that steals motherhood’, it creeps up on its victims, hiding behind the stress and exhaustion of being a new parent, catching many women unaware and unprepared. More>>


DIY: Kiwi Ingenuity And Masking Tape Saves Chick

Kiwi ingenuity and masking tape has saved a Kiwi chick after its egg was badly damaged endangering the chick's life. The egg was delivered to Kiwi Encounter at Rainbow Springs in Rotorua 14 days ago by a DOC worker with a large hole in its shell and against all odds has just successfully hatched. More>>


International Trade: Key To Lead Mission To India; ASEAN FTA Review Announced

Prime Minister John Key will lead a trade delegation to India next week, saying the pursuit of a free trade agreement with the protectionist giant is "the primary reason we're going" but playing down the likelihood of early progress. More>>



MYOB: Digital Signatures Go Live

From today, Inland Revenue will begin accepting “digital signatures”, saving businesses and their accountants a huge amount of administration time and further reducing the need for pen and paper in the workplace. More>>

Oil Searches: Norway's Statoil Quits Reinga Basin

Statoil, the Norwegian state-owned oil company, has given up oil and gas exploration in Northland's Reinga Basin, saying the probably of a find was 'too low'. More>>


Modern Living: Auckland Development Blowouts Reminiscent Of Run Up To GFC

The collapse of property developments in Auckland is "almost groundhog day" to the run-up of the global financial crisis in 2007/2008 as banks refuse to fund projects due to blowouts in construction and labour costs, says John Kensington, the author of KPMG's Financial Institutions Performance Survey. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news