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IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5768 -8
DAX 7013 +10
CAC 3442 +10
IBEX 7346 +12
DOW 13112 +19
NAS 2785 +2
S&P 1410 +1

Oil 96.01
Gold 1668

Asian markets are mostly weaker due to a report suggesting China may slow the pace of monetary policy easing weighing on some of the regional markets. Global markets remain fairly quiet with many traders happy to remain on the sidelines ahead of the Jackson Hole symposium. The big news was that EU President Herman Van Rompuy fully endorsed the ECB's proposal for bond-buying and expressed confidence that the plan, if used, will be ’very effective‘. However, there was still no indication that a request from Spain for more EU aid is imminent. Mariano Rajoy confirmed that there are ‘no ongoing talks’ on a Spanish bailout and added that Spanish banks will need less than the €100 billion aid already sanctioned by the EU. Data in the US was mixed with the consumer confidence index dropping, but manufacturing activity contracted at a less pronounced rate in August.

After a big move in the European session, the euro hasn’t done much in Asian trade, maintaining a tight range. It has been a similar story across the FX space with other major pairs also relatively sidelined. Xinhua News Agency reported China may slow the pace of monetary policy loosening in 3Q on concerns that inflation and home prices may rebound. Looking at the equity markets in the region, the Hang Seng is flat, the Shanghai Composite is 0.5% lower and the ASX 200 is down 0.1%. Japan’s Nikkei is outperforming the region with a 0.2% gain led by the technology stocks. Apart from the FTSE which is facing a mildly weaker start, most of the European bourses are in for a modestly firmer open. US markets are pointing to a flat open and the Fed's Beige Book will probably offer further insights on the economic activity in the Fed districts. Also of interest will be preliminary GDP and pending home sales data.

There were some news reports suggesting that the ECB could target volatility of the sovereign yields rather than the yield level in its bond-buying programme. A German government official noted that German Chancellor Angela Merkel will be visiting China on August 30 to 31 to encourage the country to invest in the eurozone. Considering that Chinese investors took losses as part of the Greek debt restructuring, it could be a tough job for Ms Merkel to convince the Chinese to continue to back the euro. On the economic front, there is German preliminary CPI and Italian retail sales to look out for.

There hasn’t been much action in the local market today with only one fairly benign data release. The most interesting theme was perhaps resource name weakness, particularly in the iron ore space after the iron ore price slide. Fortescue Metals shares have been the hardest hit as the iron ore miner lost 5% and printed a low of $3.65 for the session. The stock is trading at its lowest level since May 2010. WorleyParsons has recovered from early weakness and turned positive after saying it expects ’good growth‘ in underlying earnings in the year ahead. The stock had struggled early after earnings missed analysts’ estimates. Transfield has slumped 6.8% after saying it sees FY13 NPAT at the low end of consensus.


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