IG Markets Afternoon thoughts
Across Asia, regional markets are all sharply higher after US indices staged a strong rally from their lows after
surprisingly better-than-expected ISM Non-Manufacturing PMI data. Short covering is also helping to drive shares higher
following three consecutive days of losses. The Kospi is the best performer, up 2.6% while the Shanghai Composite,
Nikkei 225 and Hang Seng were all firmer between 1.2% and 1.7%.
In Australia, the ASX 200 is currently 2.4% firmer at 4173, right on its highs of the session. After US markets fell
much less than expected overnight the local market has been playing catch up today to negate some of yesterday’s
overselling. A stronger-than-expected read on Q2 GDP has also helped boost local sentiment. As a result we are seeing
broad based gains today with the heavyweight materials, financial, industrials and energy sectors all seeing advances of
between 1.8% and 2.7%.
We’ve seen a classic rebound from oversold levels today after the Aussie market yesterday priced in big falls on
European and US bourses overnight. This didn’t occur and triggered a sharp snap back rally that was helped by a big
short-squeeze in risk assets after the Swiss National Bank put a floor under the EUR/CHF cross of 120.
All this recent turmoil had seen a lot of money flow into the Swiss franc as it is seen as a safe haven currency. Now
that the franc can’t appreciate any further, traders were forced to rethink their long Swiss positions. The trade was
long Swiss franc, short risk assets; that is being unwound now as traders rush to buy back short positions in risk
assets.
The better-than-expected GDP figures and upbeat comments from RBA Governor Stevens have also helped boost the domestic
market and local currency. The comments from Governor Stevens were quite positive as highlighted the good position
Australia was in to deal with the current global dislocations. Nonetheless, it looks like the RBA is taking a ‘wait and
see’ approach to rates as he indicated a willingness to leave rates on hold as the world economy continues to muddle its
way through the current problems.
Looking ahead, markets are now going to focus on the German EFSF vote this evening ahead of President Obama’s much
anticipated jobs plan due tomorrow night.
ENDS