IG Markets - Afternoon thoughts August 17
FTSE 5845 +10
DAX 6997 +1
CAC 3495 +15
IBEX 7439 +22
DOW 13245 -5
NAS 2764 -4
S&P 1414 -2
Across Asia, markets are trading higher, supported by increased hopes of action from the ECB and China. Regional markets have continued the positive momentum from yesterday following Chinese Premier Jiabao Wen’s comments. With China pledging to fulfil this year’s economic and social development targets, it seems monetary policy action is not far off. German Chancellor Angela Merkel said Germany is in-line with the ECB’s approach to defending the euro. The comments propelled the euro higher, with EUR/USD moving beyond 1.23. Other risk currencies also reacted positively to the comments, but we haven’t quite seen them maintain the momentum in the Asian session. Even GBP/USD has stalled after enjoying a sharp move higher due to a surprise rise in retail sales.
Japan’s Nikkei has is up 0.9%, the ASX 200 has tacked on 0.8% and the Hang Seng is 0.5% higher. Angela Merkel’s comments helped dispel some of the scepticism out there that Germany hadn’t endorsed ECB President Mario Draghi’s bond buying plan. European markets are set to open mildly higher today, while US markets are likely to open slightly weaker. Ahead today, we have European current account, trade balance and German PPI to look out for.
In the US, we are seeing treasury holdings being dropped and this has been pushing treasury yields higher. Gains in US equities came despite some mixed economic data. Housing starts in July fell to 746,000 from a downward-revised 754,000 the previous month, while the August Philly Fed index improved to -7.1 from -12.9 and jobless claims were up by 2000. Analysts now broadly feel that that further asset purchases are unlikely and that if the Fed does chooses to act in September, a more likely approach would be the introduction of a targeted bank lending scheme delivered via the Fed's discount window where cheap credit would be made available in return for bank pledges to on-lend the cash to the real economy. There isn’t much on the calendar today with investors left to focus on preliminary consumer sentiment and inflation expectations.
After a soft start, the local market took off in afternoon trade to print a high of 4368.7, its highest level since May 7. At current levels, the ASX 200 is 1.9% firmer for the week. Surprisingly, this has happened on a day when BHP Billiton is lower with the banks looking like the preferred destination. ANZ Bank (+2%) has been the highlight of the day after reporting a third quarter cash profit of $1.527 billion, beating a consensus of $1.48 billion. The result was driven by a strong performance in institutional banking which helped offset weakness in the wealth income division Its asset quality seems to have stabilised with no further deterioration reported. As a result, we could start seeing a rotation from other banks into ANZ as the banks seems to be in a good position going forward. QBE Insurance had a tough morning session but is off its lows after reporting disappointing earnings. Santos is around 4% higher after its first-half earnings beat consensus. Profit was up 20% to $283 million versus consensus of $265 million. PNG LNG is on track to deliver first LNG in 2014 and its interim dividend of 15 cents was in-line. Full-year guidance was unchanged at $610 to $640 million. Analysts are likely to continue monitoring the PNG LNG project costs going forward.