IG Markets - Afternoon thoughts

Across Asia, regional markets are mostly higher despite the predominantly weaker overnight leads and nervousness ahead of tonight’s US nonfarm payrolls figure. The Shanghai Composite is the standout performer, up 0.5% while the Hang Seng and Kospi are 0.3% and 0.1% firmer respectively. On the downside, Japan’s Nikkei 225 is taking a breather, lower by 0.2%.

Locally, the ASX 200 is once again floundering in negative territory, with volumes continuing to be on the thin side. The market is currently down 0.4% at 4705.9, off earlier lows of 4690.3. Most of the weakness is coming from the materials sector after the stronger US dollar overnight hurt US dollar denominated commodities. Elsewhere, financials are marginally lower while strength among industrial and consumer names are helping to limit the damage.

The market seems very heavy and sluggish; these macro concerns hanging over it seem to have sapped any life from it. Couple this with the crucial release of tonight’s US nonfarm payrolls and you have a recipe for keeping participants on the sidelines.

However, there does seem to be some support through the psychologically important 4700 level; it’s found buying support below it on a number of occasions this week.

The stronger-than-expected ADP private sector jobs number and jobless claims report has seen nonfarm payrolls expectations adjusted higher. Given the recent US dollar strength, it looks like a bit of money has positioned itself for an upside surprise too. A pretty game move in our opinion as a lot of upside is likely priced in; it would need to blow away the forecasts for a massive move higher. On the other hand, and inline or worse result could see significant downside.

On a completely different and farfetched tangent, US Treasury Secretary Geithner recently sent a special letter to every member of Congress warning them that the US could reach its debt limit as early as March 31st of this year. He said that if lawmakers fail to raise the debt limit, it could “precipitate a default by the United States.” As of today, the national debt stands at $14.01 trillion, which is not far from the current debt ceiling of $14.3 trillion.

This is rather disturbing given the US funds its day-to-day operations through borrowing. If the debt ceiling wasn’t raised, we’d be faced with dire consequences across all asset classes. It’s for this reason that it will certainly be raised; nonetheless, it’s a very interesting topic indeed.

ends

© Scoop Media