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IG Markets - Opening Calls

IG Markets - Opening Calls

Asian markets have found sellers all day, with the exception of the Shanghai Composite, as traders take risk off the table in response to the inaction of the ECB. In Australia, volumes have been terrible which can be construed as mildly positive given the index is down 1%. It certainly hasn’t aided material names though, with Rio and BHP seeing 4% and 2.5% move to the downside, respectively.

BHP may have announced that it is writing down $3.3 billion of the value of different assets, but despite this figure coming in well below expectations, the market has dealt the stock a firm blow. Resmed is the market darling today having announced strong earnings, with margins that met the markets expectations, getting a double kicker from the overnight strength in the USD. However, there isn’t a company that can match Sirius Resource (SIR), which touched a high of 99 cents today. Certainly shareholders lucky enough to have got in and had knowledge of the stock would have been very pleased to see the stock up a modest 1636% in two weeks!

We approach the open of the European session with cautious optimism knowing upcoming trade could be very important in understanding the new physiology of the market. A flat open is expected for European equities, however after yesterday’s repositioning exercise we are left with a market that is clearly more confused than before, with many questions that will need answers. All eyes now fall on the September 6 ECB meeting and markets are posing questions such as will the bond buying be capped? Will it be sterilised? And will Spain even request a bailout? These questions will be firmly in traders’ minds and thus every word spoken by European central bankers will be closely followed going into the meeting. It also seems that the strong emphasis has been placed back on governments to do what is necessary, and the fact that the ECB has suggested it will focus on the short-end of the curve (i.e. buying bonds with maturities of two years or less) backs up this point. This is exactly where individual treasuries have been issuing bonds of late, so it’s in their interest to bring down front-end yields. With the Fed likely to do some form of easing in September, the ECB is likely to buy sovereign bonds, although we will inevitably have to see a country like Spain formally request a bailout. With China now making growth its number one priority, there has to be a fundamental floor under risk assets, whereas before it was all about the ‘Bernanke put’, can we now say there is a ‘Berdraghi put’ under the market?

With US payrolls looming, euro bulls will be hoping for a shocker to really solidify QE3 expectations. Interestingly, in recent times US data has held up relatively well compared to expectations, so there is no reason to believe we will see a really poor number, not that 100,000 jobs is a great figure given the population growth. With some traders attributing the support in the S&P to the market pricing in a Mitt Romney victory in November, perhaps no one will be looking at these numbers more closely than President Barack Obama.

We also get reads on services PMI in Europe and the UK, although with markets still looking to digest the fallout from lack of ECB action, weak numbers here will probably be most felt against the crosses and provide GBP/AUD and EUR/AUD bears more ammunition. RBS, AXA and Unicredit also release earnings report


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