IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, markets are mostly higher, with investors digesting the latest data out of China. Chinese manufacturing PMI came in at 50.5, slightly ahead of expectations of a 50.3 reading. This is above the level of 50 that marks the division between contraction and expansion. The fact that it’s still an expansion is positive for higher beta assets, particularly risk currencies and commodities. This has shored up the majority of the markets in the region. On the flip-side, the PMI number could reduce the odds of further policy easing.

The Nikkei is leading the region with a 0.3% gain, while the Hang Seng is relatively flat. Disappointingly, the Aussie market is underperforming the region today, with the ASX 200 down around half a percent. Following the relatively bullish China manufacturing PMI number, European markets are pointing towards modest gains on the open. However, US markets are headed for a relatively flat start.

The Aussie market is way off the pace today, with many analysts attributing the underperformance to the high Aussie dollar, plus some disappointing earnings reports, particularly in the resource space. A strong day for media stocks has failed to lift the index. The strength of the Aussie dollar seems to be a cause for concern ahead of earnings season, and will pose problems for a number of sectors. Brokers are also becoming increasingly bearish on the banking sector, with UBS downgrading Australian banks to neutral in its model portfolio. While global conditions have improved at the margin, UBS feels the domestic economy remains in a phase of unbalanced growth, with capital spending booming (overwhelmingly concentrated in the resource sector), while retail, manufacturing and housing remain weak and the employment cycle stalled recently.

The Greece saga is ongoing, with some reports now suggesting that today could see a final deal between private sector creditors and the Greek government. However, public sector participation also needs to be determined, and is also required. Current price action suggests that investors do not wish to be aggressively positioned for more risk as deadlines approach.

US data ran into some speed bumps as the Chicago PMI came in weaker than expected, albeit at resilient levels. Ahead on Wednesday night, more manufacturing PMI numbers will be released globally, and investors will be hoping for stable growth to compensate for jitters coming out of the sovereign debt front.. In the US we see the first indications of Friday’s non-farms with the ADP private payrolls suggesting a slowdown in job creation with 180,000 new jobs being recorded by ADP.

www.igmarkets.com.au

ENDS

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