IG Markets - Afternoon thoughts - Nov 29

Across Asia, regional markets are mostly higher, extending gains after yesterday’s rallies. However, some of the euphoria has worn off as investors seek confirmation of some of the reports from Europe before committing to longs. A report suggesting Standard & Poor's may give France a negative outlook within 10 days has dampened the reaction to offshore gains. Around the region, Japan is leading the gains with a weaker Yen lifting the exporters. The Nikkei and the Hang Seng are up around 1% each, while the Shanghai Composite is 0.7% higher. The Aussie market is underperforming after the Federal Government lowered Australian GDP forecasts. In light of the cautious trading we are experiencing in the region, we have seen US and European futures retreat after having posted big gains overnight. As a result, US and European markets are now pointing towards modest losses on the open.

Australia's S&P/ASX 200 is up 0.2% at 4065 in cautious trading after hitting a three-day high of 4084.9 due to both strong offshore gains in response to US retail spending data and hopes of financial aid for Italy that boosted Asian markets. A report in La Tribune citing unidentified sources said Standard & Poor's may give France a negative outlook within 10 days, which dampened the reaction to offshore gains. Further restraining the market is a 0.7% fall in BHP Billiton after spot iron ore prices fell 6% overnight, although Fortescue Metals is up 0.6%. Banks have also been shaky after Monday's strong gains, with Commonwealth Bank and Westpac both losing ground. Energy, industrial and consumer discretionary stocks are outperforming, with Woodside up 1.2%, Brambles higher 0.9% and Harvey Norman up 0.5%. Lower Australian GDP forecasts from the Federal Government didn't come as a surprise, but has largely dampened sentiment.

Tonight is a big night for markets as investors look ahead to a meeting for euro-area finance ministers. The meeting could give more clarity on some of the reports that have moved markets over the past couple of sessions and could be a key catalyst to how the market performs going into the end of the year. There is also a series of high profile speeches in Europe that could herald a significant step forward in the resolution of the sovereign debt crisis. Italy is due to auction EUR8 billion worth of government bonds this evening, and with yields demanded by investors now seemingly entrenched above 7%, traders will be watching to see whether these yields continue to blow out tonight. So far the European Central Bank has been reluctant to wade into the bond market to assist unless absolutely necessary, so if we see a weak auction tonight, markets could slide lower. France, Spain, Austria and Germany will also be in markets this week and every single result will be scrutinized.

There is a swathe of economic data to look out for in the US tonight, with the most notable being the consumer confidence reading. A strong number is expected and with bumper retail sales recorded over the Thanksgiving weekend just gone; this could indicate that the freeze on consumer wallets in the US has begun to thaw. Fitch affirmed the US rating at AAA, but lowered the outlook to negative from stable. However, both the action and the timing had been previously signalled by Fitch, which resulted in a fairly muted response.

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