IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, equity markets are trading higher after picking up positive leads from US markets. They have rallied as investors cheered on news that Greece resumed negotiations with bondholders, plus reports that the IMF is looking to expand its lending fund by as much as $500 billion in a bid to safeguard economic growth. Some analysts say a swift deal between Greek and private sector bond holders appears to be within reach. The Financial Times reported that greater flexibility on the terms of the bonds could be introduced, which would result in a satisfactory voluntary agreement. Sentiment is also being lifted by some firm US economic data and a positive Goldman Sachs earnings report which smashed expectations, bucking the negative trend in earnings reported by its financial peers. The Nikkei is up 1.3%, the Hang Seng and Shanghai have climbed around 1% each and the ASX 200 is half a percent higher.

US markets are pointing to a relatively flat open as they consolidate after the overnight gains. European markets are pointing to a strong open as they did not have a chance to react to the gains seen on Wall Street. Following last night’s strong move in US markets, there will probably still be a lot of longs in the system with traders hoping the current bullish momentum continues particularly with the S&P closing significantly above 1300. Earnings reports and a big round of economic data out tonight could be catalysts for further gains should they come in positive.

The Aussie market is lagging the Asian region after disappointing employment data. Australia's unemployment rate was unchanged at a lower-than-expected seasonally adjusted 5.2% in December, but the number of employed fell 29,300. Economists on average had expected an unemployment rate of 5.3% in December, with the number of employed up by 6,000. The data saw an immediate negative reaction in the Aussie dollar, as it makes the case for further monetary easing to aid an ailing economy. Analysts already expect the employment figures to weaken due to major job cuts expected at the big banks this year. Despite the momentary dip, AUD/USD is now consolidating at around 1.04, with support in the region down to 1.036. The pair faces near-term resistance in the 1.04-1.05 region, which coincides with a downtrend resistance line which has been in place since July 2011.

Tonight is another big night of data for the US including building permits, CPI, unemployment claims and the Philly Fed manufacturing index. Investors will be looking for further signs of economic improvement, with unemployment claims expected to drop to 387,000. Some of the big earnings reports to look out for in the US tonight are for Morgan Stanley, Microsoft and Amex.

Europe will continue to be in focus with Greece at the fore front. Traders will be looking to see if the Greece negotiations yield any results. ECB President Mario Draghi will also be on the wires.

www.igmarkets.com.au

ENDS

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