IG Markets Afternoon thoughts 2nd Sept

Good afternoon,

Across Asia, regional markets are all lower during Friday trade following the weaker leads on Wall Street and ahead of tonight’s key US nonfarm payrolls report. The Nikkei 225 and Hang Seng are the worst performers, both down 1.4%. The Shanghai Composite is down 1.2% while the Kospi is 1% softer.

In Australia, the ASX 200 is currently 14% weaker at 4245, having earlier traded to a session low of 4225. After US markets ended their 4-day winning streak on concerns about tonight’s non-farm payrolls report it was always likely to be a tough finish to the week for the local market. It has certainly proven to be the case with the market seeing broad based losses. The biggest losers on the session are the utilities, healthcare, consumers discretionary and materials sectors.

It looks like we’re seeing some classic nervousness ahead of tonight’s data; we’ve had a pretty decent rally into month-end and now it looks like traders are locking in profits, especially given US markets are closed on Monday for the Labor Day holiday

US futures have also come under pressure as Asian markets retreated. A New York Times report suggesting the US Government were set to file 12 lawsuits against big banks for misrepresenting the quality of mortgage securities during the GFC helped spur further weakness.

There has been a lot of discussion recently around the ‘quality’ of the buying seen recently. The consensus seems to indicate that a lot has been caused by short-covering as institutions and hedge funds look to lock in profits on their short positions. A classic example of this has been Fairfax and Billabong International, which both had large short-interest.

Tonight, everyone is focusing on the US nonfarm payrolls report due at midnight. As it stands, the market is expecting a figure of around 70,000 jobs. However, the whisper numbers have been as low as 0. So an inline result could see the market move higher.

Ben Potter
Market Strategist
IG Markets

ENDS

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