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IG Markets Afternoon thoughts 25/8/11

IG Markets Afternoon thoughts

Good afternoon,

Across Asia, regional markets are all higher following the late rally on Wall Street that was fuelled by stronger-than-expected economic data. Nonetheless, there was still an element of caution ahead of the Jackson Hole Symposium which starts tomorrow night Australian time. The Nikkei 225 is the top performer, currently up 2.3% while the Kospi, Hang Seng and Shanghai Composite are all up between 1.5% and 1.7%.

In Australia, the ASX 200 is currently 11% firmer at 4212, well off its earlier highs of 4233. After yesterday’s disappointing roll over the local market has so far been unable to ignore another night of solid gains on Wall Street. In mid-afternoon trade gains are broad based with all but the consumer staples sector in positive territory. Among the day’s advancers, the property trust and energy sectors are seeing the biggest percentage gains while the financial, materials and industrial sectors are also convincingly higher.

The local market has finally been able to focus a little on the domestic earnings season today, with a number of very encouraging results. Some of better ones include the likes of Iluka, Virgin blue, Toll Holdings and Ramsay Healthcare, which are all up handsomely. On the flipside, the notable underperformer is grocery giant Woolworths, currently down 5.6% after saying it was too difficult to give accurate FY12 guidance.

The stronger-than-expected core durable goods numbers in the US overnight gave the market the shot it needed, although it wasn’t until the afternoon that the buyers stepped in earnest. This was the first time in a while that economic data has surprised to the upside, which is a huge relief. Perhaps we’re getting to a situation where sentiment and confidence are so low that the expectations bar is being set too low. This may mean we see more upside surprises in coming weeks.

Nonetheless, traders are still pretty cautious ahead of the huge event risk over the weekend with the much talked about Jackson Hole symposium. Judging by the recent behaviour of markets, they’re expecting either a stimulus package to be announced or Bernanke to elaborate on what weapons remain in his arsenal. Either way, we think the market is setting itself up for disappointment as we think it’s highly unlikely a QE3 package will be unveiled. It could be a classic case of ‘buy the rumour, sell the fact’.


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