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IG's trading wrap - Monday, December 29, 2014

IG's trading wrap - Monday, December 29, 2014

FTSE 6628 +18
DAX 9941 +19
CAC 4320 +24
IBEX 10515 +33
MIB 19417 +65

China leads Asia rally

Asian equities are off to a great start to the week with investors growing increasingly optimistic about China deploying stimulus. Chinese equities are leading the way with solid gains for the Hang Seng and Shanghai Composite. China’s industrial profits data, released on Saturday, showed a 4.2% drop which was worse than the previous month’s 2.1% fall. With data continuing to show strain, the country is reported to be looking at waiving reserve requirements for some banks temporarily as data continues to deteriorate. There have also been suggestions the People’s Bank of China will adjust bank deposits calculation, allowing deposits from non-bank financial institutions to count as reserves, from next year. This has seen bank and other financial services stocks lead the gains in China and Hong Kong. On the calendar this week we have the revised HSBC manufacturing PMI to look out for and it is expected to remain in contractionary territory at 49.5. Japan is lagging but the Nikkei is still within striking distance of the 18,000 level as USD/JPY continues to cement its position above ¥120.00.

Miners bounce on stimulus bets

The ASX 200 has also picked up on the positive lead from China and is trading at its highest since November 13th. The materials space is leading the way with a rebound in iron ore and gold stocks. There will be plenty of questions around how sustainable this is, considering the fundamentals haven’t really changed. Additionally, volume is limited and this tends to exaggerate moves. To put it into perspective, today’s volume is just over a billion while the average volume is around four billion. This is also well short of the monster rally on December 19th when nearly ten billion traded. With the way the price action is going today it seems we could be in for a solid finish to the calendar year. Perhaps the cheap valuations will be enough to entice some money that’s been on the sidelines to finally underpin the gains. Outside of the commodities space, the banks just continue to edge higher particularly CBA which looks like it will print yet another record high today. Some of the retailers like Myer got a bit of a kicker today from reports suggesting the government is considering a tax on overseas internet purchases.

Firmer open for Europe

While it is a short trading week for markets across the globe, there is still enough activity to keep traders busy. Focus now shifts to Europe where we have Greece’s final attempt to elect a president. Prime Minister Samaras nominated Stavros Dimas and failed to get him elected after the first two attempts. Basically, Samaras has 155 of 300 seats in parliament and needed 200 votes to get his nominee elected. Today, he only needs 180 but still this looks like a long shot. The positive though is that should we go to elections, recent polls have shown that anti-bailout Syriza only holds a small lead to Samaras’ New Democracy party. Traders however remain quite sceptical about the euro given the challenges the region is facing. The Greece situation is likely to dictate how risk trades for the rest of the week.

STAN SHAMU
Market Strategist

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