IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, regional markets are stronger after Greece dropped voting on its financial rescue and the European Central Bank unexpectedly cut interest rates. The news brought the cyclical stocks back into play, with resource names among the biggest gainers. The Nikkei, which was closed for a bank holiday yesterday, is 1.3% higher with the exporters leading the charge. The Hang Seng is the best performer in the region with a 3.2% gain, while the Shanghai is up half a percent.

The Aussie market has surged after picking up positive leads from overnight trading Strong gains across most asset classes have translated into a solid day for the local index. It is currently trading 25% higher at 4277. The materials and energy sectors are leading the gains following a return to risk. Commodity prices rallied overnight and have been particularly supportive of our miners, with Fortescue Metals (+5.5%), Rio Tinto (+4.7%) and BHP Billiton (+3.7%) the biggest gainers. All the big four banks are each over 2% higher, with Westpac (+3%) leading the way.

Unlike previous sessions, it is quite encouraging to see the Aussie market hold on to its gains today. It was always going to be a big week with plenty of key announcements and economic data slated for release. The positive finish to the week is encouraging and investors will be hoping we have finally put the Greece issue to bed.

Mario Draghi has certainly come out with guns blazing in his first ECB conference, also highlighting that inflation pressures have abated and suggesting he ‘sees slow growth heading toward recession at year end’. We certainly expect to see another bout of volatility tonight, given the event risks. Looking ahead at tonight’s European session, traders will be focusing on the confidence vote in Greece, and it is looking more and more likely that Greek Prime Minister George Papandreou may step down with signs that the different parties are working towards the creation of a unity government. This could, in principle, take the reins on an interim basis if Friday's confidence vote fails.

Arguably one of the biggest drivers of price action, which we all look forward to every month (to get a clearer sense of the US labour market), is the non-farm payrolls report due out tonight. It could be argued that expectations have risen somewhat, given what we have seen from all the usual leading indicators, with the exception of consumer confidence (which is still very poor). The four-week moving average for the initial claims has fallen, both the employment components of the services and manufacturing ISM reports have seen good expansion, and this week’s ADP private sector jobs report was strong with 110,000 jobs created. As it stands, the consensus is that we are set to see 95,000 jobs created (with the analyst’s views ranging from 50,000 to 150,000), while the private sector is expected to see 125,000 jobs created. A better-than-expected print should see risk on around all parts of the capital markets, with a decent sell-off in US Treasury yields.

ENDS

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