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IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5854 +21
DAX 6970 +23
CAC 3466 +17
IBEX 7151 +22
DOW 13184 +19
NAS 2746 +10
S&P 1408 +2

Oil 94.23
Gold 1603

Across Asia, markets are trading higher as Chinese Premier Wen Jiabao said easing inflation is allowing room to adjust monetary policy and positive signs are emerging in the Chinese economy. The comments reignited hopes that China will conduct easing in the near future. We had seen markets remain choppy through the US and European sessions as mixed US economic data kept investors guessing whether the Fed will conduct further easing. Despite the comments by Premier Wen, risk currencies haven’t responded in a positive manner and in fact we are actually seeing the likes of AUD/USD (dropped below 1.05) and EUR/USD (dropped below 1.23) fluctuate. With markets starting to price out QE3, it is not surprising to see the USD gain ground in most of the major crosses. Spiking treasury yields have resulted in USD/JPY being one of the more significant movers after breaking out of its recent trading range. USD/JPY nudged through 79 and has raced to a high of 79.275.

Japan’s Nikkei has surged 1.7% supported by a weaker yen. A softer yen supports its large export industry and Japanese officials will be happy to see that. Elsewhere in the region, the ASX 200 has jumped 1% and the Hang Seng has climbed 0.3%. The Australian market is in the thick of reporting season and yield plays continue to underpin the market. Following the strength we have seen in the Asian region, US and European markets are now facing some modest gains at the open. However, we could continue to see some caution ahead of the loaded events calendar in September. In Europe, we have the Eurogroup and ECB meetings scheduled for the first week of September while in the US the Jackson Hole and Fed meetings to look out for. Ahead today, we have European CPI and US building permits, unemployment claims, housing starts and the Philly Fed manufacturing index.

The local market surprisingly leapt higher early today with some of the big reporting names like AMP Limited (+4.1%) and Wesfarmers (+5.2%) impressing. We have also seen some follow-through buying on Commonwealth Bank (+1.3%) after its solid report yesterday. All these stocks are high yielding. However, most of the resource names are struggling and underperforming the index. There have also been some disappointing earnings reports from Adelaide Brighton (-9.9%) and Alumina (-7.6%). The online advertising plays, Carsales (CRZ) and REA Group (REA), have been among the best performers this year and both stocks reported this week. CRZ’s FY12 net profit was up 23% on year to $71.6 million, 6% ahead of consensus at $67 million. It also delivered a final dividend of 30.5 cents when analysts expected 22 cents. The company has demonstrated the ability to grow earnings and returns in a tough consumer environment and its stock is trading at an all-time high. It has a dominant market position and is benefiting from the structural migration towards online advertising. REA has posted its results this afternoon and delivered an underlying earnings growth of 22% to $126 million, roughly in-line with consensus. Its net profit was up 29% to $86.8 million (versus $85 million) consensus. The company continue to benefit from growth in residential, commercial and online display demand. Its earnings report has propelled it to its all-time high above $15. These two stocks have massively outperformed their peers which are still in the traditional media space.


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