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IG Markets - Afternoon thoughts August 13

FTSE 5846 +1
DAX 6952 +7
CAC 3441 +5
IBEX 7043 -5
DOW 13178 -30
NAS 2716 -7
S&P 1401 -5

Oil 93.37
Gold 1624

Across Asia, risk sentiment is subdued as investors hold on to hopes that China will announce stimulus soon. However, the stimulus hopes are being capped by the stark reality that global growth remains very fragile. After an exciting few weeks of policy anticipation, policy action and market reaction, risk assets seem to have entered a consolidation phase. Most of the major equity markets in the Asian region have been swinging between gains and losses as a result of the tug of war between stimulus speculation and growth concerns. Risk currencies, particularly the euro and aussie dollar, opened a touch lower and flat lined for most of the session.

The Nikkei and Hang Seng are both relatively flat today. USD/JPY was little changed at 78.29 after Japan GDP data this morning. Japan’s economy expanded at an annual 1.4% pace in 2Q versus a +2.3% median economist estimate. Elsewhere in the region, the ASX 200 is 0.3% higher after giving up most of its early gains. The local market is being supported by a fairly positive day of earnings. US markets are likely to give up Friday’s advance with the futures suggesting a weaker open. European markets are facing a relatively flat open.

San Francisco Fed President Williams, a voting member of FOMC this year, said Friday that he now supports another round of an ‘open-ended’ QE, echoing comments of his Boston counterpart, Eric Rosengren. However, in the wake of firmer US data in recent weeks, some analysts now feel it is unlikely that the Fed undertakes a fully-fledged QE programme in September. The week ahead is unlikely to offer the kind of information that would decisively change market direction. However, there are bits and pieces in the calendar, which could help update tracking of underlying global growth trends. The most distinctive of those is the Philly Fed survey on Thursday, a key input for our global leading indicator (GLI). Another one is the University of Michigan consumer sentiment survey on Friday. The GLI itself will follow the publication of these releases. Broadly speaking, the market expects stabilisation in consumer confidence and a mild rebound in the business survey. There was no major local economic data to look out for today. Traders are likely to continue monitoring the wires for any China headlines.

Locally, the ASX 200 topped out early and spent the rest of the session drifting. There were plenty of reports on the calendar today and we saw some fairly big moves in a number of stocks. Resource names led the gains with Newcrest Mining jumping 3.8% on the back of solid earnings. Its underlying profit of $1.08 billion was at the upper end of consensus while an EPS of $1.46 beat consensus of $1.42. The miner also had a better than expected dividend and its price is now back above $25. Bluescope has also been a standout performer, rallying over 30% after announcing a JV with Nippon Steel. Other positive reports were from Downer (+11.4%) and JB Hi-fi (+7.7%). UGL was one of the underperformers of the day after reporting a 2% rise in net profit after tax to $168.3 million, slightly below its own forecast and analyst estimates Sales were also a big miss while its dividend of 36 cents missed estimates of 41 cents. With most brokers having rated the stock a buy going into the results, we are likely to see some major revisions on the stock. As a result, UGL shares might come under pressure in coming sessions. Tomorrow is a big day of reporting with National Bank (NAB) set to release its Q3 trading update.

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