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IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5759 -34
DAX 7167 -47
CAC 3481 -25
IBEX 7792 -66
DOW 13207 -47
NAS 2778 -10
S&P 1422 -7

Oil 96.24
Gold 1730

Asian markets are mostly weaker as market participants exercise caution ahead of the FOMC meeting. Risk assets took a breather with risk currencies and equities retreating from their highs. EUR/USD momentarily broke above 1.28, but the lack of any fresh incentives kept it subdued, while AUD/USD held its ground above 1.033. With so many key risk events ahead, it just seems markets are entering a period of consolidation with a wait and see approach. The FOMC decision on Thursday, followed by the respective Eurogroup and ECOFIN meetings on Friday and Saturday, should offer further guidance to the FX markets. There is also the German Constitutional Court on Wednesday to look out for and developments from the Troika report.

EUR/USD and AUD/USD have continued to trek sideways in the Asian session with fairly tight ranges maintained across the board. Traders will be looking to see if the support levels in these ranges hold otherwise we could see a swift reversal in the trend. Headline risk aside, investors also have global growth issues to contend with and the data from China is still troubling. The equity markets have not fared as well with the Hang Seng dropping 0.6% and the Shanghai Composite 0.9% lower. Japan’s Nikkei has declined 0.8%, while the ASX 200 is relatively flat. Turning to the futures, European and US markets are in for a tough start with some significant losses expected at the open. There isn’t much on the data front later today, but US trade balance figures may attract some attention.

The German Constitutional Court is likely to make a public announcement today on the legal petition by German lawmaker Peter Gauweiler to block or postpone the Court's ESM ruling scheduled for Wednesday. It is, however, unlikely that the Court says anything to defer the scheduled ruling. Apart from this, investors will be watching out for the EC's proposals for single banking supervision and the Dutch general election results on Wednesday. The Troika review of Greece's bailout programme is underway, and EU officials noted that the team is expected to be in Athens for a few more weeks before a final report is submitted in October. There have been reports suggesting there are some issues surrounding the austerity plan submitted by Greece.

The local market hasn’t done much at all today and continues to trade in a fairly tight range. There were no real surprises at all apart from the subdued reaction iron ore miners had to the rebound in iron ore prices. BHP only managed a 0.2% gain, while Rio Tinto (-0.6%) and Fortescue Metals (-3.5%) have both struggled. There are some pockets of strength in the defensive space with healthcare stocks the standout. CSL Limited has climbed 1.8% after its Biotherapies unit received a US government contract for influenza pandemic preparedness and response with a potential value of $1.5 billion if all optional activities are exercised.


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