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IG Markets - Afternoon thoughts August 14

FTSE 5858 +26
DAX 6944 +34
CAC 3439 +13
IBEX 7089 +19
DOW 13186 +17
NAS 2735 +6
S&P 1406 +2

Oil 92.94
Gold 1612

Across Asia, markets are mixed with a lack of fresh leads keeping some investors at bay. It was a fairly flat session for risk assets amid limited data or headlines. The euro was perhaps the most significant mover of the session, edging higher across the board. A successful Italian bond auction was one of the contributors to the euro’s strength. Additionally, the pace of Greece’s economic meltdown was not quite as steep as the few economists who try to forecast the data expected. EUR/USD pushed back beyond 1.23 to a high of 1.237, while AUD/USD momentarily dipped below 1.05 before recovering to 1.052. With the stimulus optimism euphoria waning, it is difficult to see what will support markets in the near term should China stay put.

Japan’s Nikkei is the best performer in the region with a half a percent gain. A weak Q2 GDP print out of Japan failed to disturb USD/JPY, although soft data such as this certainly raises the risk of additional policy easing from the Bank of Japan and so should, in theory, be yen-negative. A weaker yen is positive for the Nikkei as it supports exports. Hong Kong’s Hang Seng and the ASX 200 are only a touch higher while the Shanghai Composite has lost 0.4%. European markets are set to open higher after having lost ground yesterday. US markets are also facing a firmer open ahead of US retail sales, PPI and business inventories. This could spark some volatility in the greenback and US equities.

Looking ahead, there will be a slew of data releases from Europe including French GDP and CPI; German GDP and ZEW economic sentiment; and European industrial production. As a result, the euro and other risk assets could be in for a volatile session which would be a big switch from yesterday’s price action. Despite yesterday’s encouraging Italian bond auction, the ECB confirmed that it has not bought any sovereign bonds for a 22nd consecutive week through its Securities Market Programme (SMP). With stimulus talk slowly fading into the background, growth concerns are likely to ramp up, should all these economic releases disappoint.

Locally, the ASX 200 struggled early but managed to edge higher, supported by the defensives. The healthcare and telecoms sectors have outperformed by a long way today. Ansell (ANN), which reported earnings today, is leading the way while Cochlear (+2.7%) and Primary Healthcare (+2.3%) are also having a strong day. ANN (+3%) reported an FY net income $130 million versus a consensus of $129.2 million. EPS came in at 98.9 cents (versus 97 cents consensus) and the company sees FY13 EPS growth in mid-single to low double digit range (107 cents – 112 cents). Telstra is having a big day, rising 2% after bouncing off support at around $3.75. NAB (-1.2%) shares are struggling after its 3Q12 update failed to impress. Cash earnings were flat at $1.4 billion, missing the $1.5 billion expected by analysts. Tomorrow we have Commonwealth Bank set to report its FY12 results. Cash earnings are expected to rise 4% year-on-year to $7.12 billion with a final dividend per share of $1.90. As usual, the bank’s margins will be closely watched as well as the asset quality (bad debts) and the dividend payout ratio. Today’s relatively subdued price action in CBA suggests the NAB result put some doubt in investors who have been very bullish on banks. Gold miner OZ Minerals is also reporting tomorrow.

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