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IG Markets - Afternoon thoughts


IG Markets - Afternoon thoughts

FTSE 5784 -3
DAX 6893 +27
CAC 3388 +14
IBEX 6777 +21
DOW 13106 +10
NAS 2679 +3
S&P 1393 +2

Oil 91.35
Gold 1608

Across Asia, markets are rallying following Friday's strong gains in offshore risk assets. Risk assets charged higher on Friday, mainly on the back of the better-than-expected US employment report for July. While the unemployment rate did tick higher to 8.3%, the 163,000 rise in non-farm payrolls dampened the risk of further Fed easing ahead of the Jackson Hole conference later this month and the September FOMC meeting. Hints from Spain's Prime Mariano Minister Rajoy that he's willing, at last, to consider applying for full assistance from his European Union partners also helped sentiment. EUR/USD managed to squeeze higher beyond 1.23, feeding off the improved tone in the equity and peripheral bond markets. Other risk currencies also benefited, with AUD/USD rallying to a high of 1.05708. Risk currencies opened today’s session on a strong note, but have lost some minor ground in the Asian session. EUR/USD printed a fresh monthly high of 1.24435 while AUD/USD struggled to match last week’s high.

Looking at the equity markets in the region, Japan’s Nikkei is 1.8% higher, the Hang Seng has surged 2% and the ASX 200 has risen 1.3%. The Hang Seng is above 20,000 with the financials leading the way while the ASX 200 approached 4300 early with the resources leading the way. Helping sentiment was China’s central bank reiterated its pledge to fine-tune monetary and fiscal policy. Regionally, we will hear from two central banks this week as the RBA decides on policy on Tuesday and the BOJ meets on Thursday. Traders may want to be modestly short JPY ahead of the BOJ decision in case another round of QE is announced. US and European markets are set to open the session modestly higher.

Investors now seem to be coming to grips with the fact that a ‘quick fix’ in Europe is not possible and a more sober assessment of Mario Draghi’s plan is necessary. Despite the recent risk rally, policy initiatives seen thus far do not seem to constitute a game changer and this could come back to haunt the bulls soon. In the background, Troika's team concluded their Greece visit on Sunday. In a jointly issued statement, the team noted that the discussions with the Greek authorities were ’productive‘ and that an overall agreement was reached on the ’need to strengthen policy efforts‘ to achieve the objectives of the economic adjustment programme.

Locally, the ASX 200 has come off its highs after matching the high from 31 July of 4288. This level is clearly near-term resistance ahead of 4300. Resource names were the standout performers today, with some big gains for BHP Billiton (+2.3%), Rio Tinto (+4.2%) and Fortescue Metals (+3%). Other big movers in the sector were Silver Lake Resources (-11%) and Integra Mining (+23%). SLR is looking to acquire IGR in an offer that values Integra share at 45.2 cents. Harvey Norman has struggled, dropping 13% after providing some negative earnings guidance mainly due to a write-down and weak sales. Some of the defensive sectors also underperformed today, as investors switched to cyclicals. Tomorrow, we have quite a few earnings reports to look out for with Leighton Holdings, Cochlear and Transurban all set to report. The RBA’s rate decision and statement will also be closely watched as it might have some bearing on the Aussie dollar.
Kind regards,
Stan Shamu
Market Strategist
IG Markets
Level 7, 417 St Kilda Rd, Melbourne, VIC, Australia, 3004
T +61 (3) 9860 1747 | F +61 (3) 9860 1702 | Mob 0414135367

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