IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, most markets are modestly higher after picking up some positive leads from US and European trading. In US trade, markets advanced following stronger-than-expected manufacturing PMI data out of China, the UK and the US. It was an impressive start to the quarter, with US ISM manufacturing coming in at a better than expected 53.4. This saw US equities recover from earlier losses. Japan’s Nikkei is underperforming the region on the back of a stronger yen. The Nikkei has dropped 0.6%, with the exporters coming under pressure. USD/JPY dropped from around 83.309 to a low of 81.551 before a slight recovery this morning. Elsewhere in the region, the Kospi is 0.8% firmer.

The Aussie market is now flat after having opened around 0.4% higher supported by resource names following a big night for commodities. The RBA kept the cash rate on hold at 4.25% as expected and whilst this outcome was widely expected, the local market came off significantly in the aftermath. US markets are facing mild losses at the open, whilst European markets are pointing towards a relatively flat to mildly firmer open, with some follow-through buying expected after yesterday’s gains.

US markets followed most of Europe higher as the market continues to react positively to the rebound in manufacturing indices in the US and China. Fears of a new downturn in output have been allayed for the time being. However, central banks are likely to continue voicing caution over the economic outlook. The FOMC is due to release its latest meeting minutes later today and investors will continue to question whether the FOMC can hold its current end of 2014 view on normalisation. Some analysts are talking about normalisation in as early as 2013 depending on US data managing to surprise to the upside. Eurozone growth remains an issue after the manufacturing PMI was confirmed at 47.7; a fall from February's print of 49. The region’s February jobless rate rose to 10.8%, in line with consensus. The numbers underscore the challenges faced by European governments to hit their fiscal targets without overly damaging growth. This saw the euro trade heavily through the European session, before a recovery in the US session. Ahead today we have European final GDP and PPI numbers to look out for.

The local market gave up significant ground following the RBA’s interest rate announcement; it seems some investors might have been holding out for a rate cut today. The central bank certainly sounds like it is prepared to cut rates should demand conditions significantly weaken provided inflation is within target. The Aussie dollar also slid following the rate cut, with a general feeling that a rate cut is not too far off, weighing on the AUD. AUD/USD dipped below 1.04 to a low of 1.03952. The telecoms have outperformed the market today with a whopping 2.1% gain for Telstra, as some investors park their funds in the high-yielding company. Tomorrow we have the trade balance figures due out at 11.30am to look out for.

www.igmarkets.com.au

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