IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, markets are flat to modestly higher after an improvement in risk appetite during US trade Friday. Softer-than-expected US housing data on Friday saw the US dollar starting the new week on the back foot. The weaker USD supported equities on Friday and it seems we are getting follow-through buying in the Asian session. Resource stocks and Japanese exporters are among the best performers in the region. Commodities advanced on Friday after the US dollar lost ground. Oil and gold were among the biggest gainers on Friday. Although Asian markets seem to have started the new trading week modestly higher, you get the feeling we are only one slightly negative headline or data point away from a ‘fresh excuse to sell’.

The Aussie market has managed to hold on to a 0.2% gain, despite retreating from its early highs. Elsewhere in the region, the Hang Seng and Shanghai are relatively flat, while the Nikkei is 0.2% higher. US and European markets are pointing towards a firmer open. The ‘hard landing/soft landing’ debate dominated investors’ mindsets last week, as did the ability of the US economy to hold its current upwards trajectory. Many are sceptical and will need to see continued evidence before they are willing to push equities beyond their recent highs. There’s no doubt that with equities having hit some key levels (Dow 13,000, S&P 1400, DAX 7000), there is a high degree of caution about getting too carried away.

The main issue in Europe this week will be on the reinforcement of Europe’s firewalls after Germany finally eased its stance on it. However, there is still scepticism about Spain after Italy’s Prime Minister Mario Monti warned that the country could reignite the European debt crisis, as euro-area ministers this week prepare a deal to bolster the region’s financial firewall. The EU's Rehn offered reassurances over the weekend that officials ’will take a convincing decision on the reinforcement of the firewalls’ ahead of the finance ministers’ meeting on March 30. The euro will be closely watching any reaction by the ratings agencies, not to mention Spanish yields and further post-PMI signs of weakness in the German IFO data for March due out later today. We are also likely to see some quarter-end rebalancing and window dressing possibly driving risk assets higher, although volume is expected to continue to be light.

The RBA is set to announce the interest rate decision on Tuesday next week. After last month’s surprise decision to keep interest rates steady, there has been growing pressure for the RBA to ease given the slowing activity on the east coast of Australia Investors will be looking for any clues as to what the RBA will do, although analysts widely expect no change yet again. Stocks with high US dollar exposure are struggling today after the Aussie dollar regained ground against the greenback on Friday. We are seeing underperformance from the likes of CSL Limited, Resmed and Newscorp. These stocks had enjoyed a fairly solid run when the AUD slid last week. Qantas is up 2.3% on the back of its China Eastern deal to start Jetstar Hong Kong in 2013. The move presents a fantastic opportunity for the airline to establish itself in the Asian region, which is its key strategy going forward.

www.igmarkets.com.au

ENDS

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