IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, regional markets had a tough start after picking up negative leads from the US and Europe. Some of the markets in the region have since turned around, particularly in Australia. Japan is underperforming hurt by a strong yen. The USD/JPY printed a new post-WWII low overnight. Japanese automakers and marine shippers are likely to be hurt the most from the buoyant yen, which continues to hurt domestic industry. Exporting shares such as Sharp, Honda, Bridgestone and Panasonic have all been hit hard today. The Nikkei is the worst performer in the region, down 0.6%, while the Hang Seng is 0.5% weaker. The Shanghai is 0.8% higher, outperforming the rest of the region.

Australia's S&P/ASX 200 index is now above water as benign local CPI data fuels hopes of an interest rate cut by the Reserve Bank of Australia next week. Headline CPI met expectations at 0.6% for the quarter and 3.5% for the year, while the more important core CPI rose 0.3% (half of the 0.6% rise anticipated). On the charts, a close above uptrend line support at 4200 would be bullish, according to Dow Jones Newswires technical analysis. However, the downtrend line from the April peak (now at 4245) might cap the market before the EU leaders’ summit later amid concern that the timetable for an agreement on a debt crisis plan appears to be slipping. A strong night for gold has buoyed the local gold stocks. The index is up 0.6% at 4254, well off its intraday low of 4173.5 and 4197 before the CPI data.

With a rate cut now firmly in focus, AUD/USD may come off its recent highs. This would give some relief to some of the highly currency-sensitive stocks on the local market. Some of the stocks to watch will be Billabong, CSL Limited and Cochclear.

After the volatility we have seen today, one cannot help but think tonight’s session will be even more enticing. A sharp turnaround from this morning’s lows has already seen US markets begin to point to a higher open. Given the magnitude of tonight’s events, we thought we would include a timetable of tonight’s proceedings.

Indicative timetable of how things may play out on the European summit tonight and tomorrow. However, this is subject to change at any time.

Wednesday (AET)
21:00: Chancellor Merkel’s speech to the Bundestag
21:30: Bundestag Debate
23:00: Bundestag Vote
(Almost certainly positive, dependent on Parliament getting EFSF guidelines in German translation)
02:45: EU leaders arrive for meeting
03:00: Working session of the European Council
04:15: Working dinner
05:00: Probable bilateral meetings / Eurozone only session
07:00: Possible press conferences

ENDS

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