IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

Across Asia, equity markets are treading water with a slightly positive bias after yesterday’s strong move higher. The Nikkei and the Hang Seng are around half a percent higher while the ASX 200 is up 0.3%. Resource stocks have been a talking point in Australia after mining giant BHP Billiton posted its quarterly production report this morning. The report has been well received and largely beat estimates with solid numbers in the three key businesses of iron ore, petroleum and base metals. BHP’s shares are around 0.7% higher and are helping the Aussie market stave off weakness in the financial sector. In other news, the World Bank has cut its global growth forecast to 2.5% (from 3.6%) and warned the globe is on the edge of a new financial crisis.

After having drifted lower into the close, US markets are now pointing towards slight gains at the open. However, European markets are pointing towards a weaker open as they are yet to react to the pullback we saw in US markets.

The euphoria from yesterday seems to have fizzled very quickly with markets quietly consolidating today. Reporting season in the US continues tonight with Goldman Sachs set to report fourth quarter earnings. The company has beat EPS estimates in six of the last eight quarters. However, after Citibank and JP Morgan failed to top estimates over the past week, expectations are likely to be dampened. There is also a lot of economic data to look out for in the US tonight with PPI, industrial production and TIC long-term purchases numbers due out. Locally, tomorrow is a big day for AUD/USD with employment data due out at 11.30am. The unemployment rate is expected to remain unchanged at 5.3%.

Greece is reportedly nearing a deal with private creditors that would give them cash and securities with a market value of about 32 cents per euro of government debt. The country will today resume talks with the Institute of International Finance, which represents private creditors. Negotiations broke off last week after failing to agree with the government about how much money investors will lose by swapping their bonds. Should a deal be in place before March 20, Greece will not have to make the scheduled EUR 14.5 billion. However, there are still several hurdles to jump before concluding a deal, with potential for official lenders objecting if they decide that the deal would be too expensive for Greece. The interest rate that new bonds will pay is also of concern. Many analysts feel markets have not priced in a hard default as that is an unlikely scenario.

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