IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, markets are weaker after picking up negative leads from US and European markets. In US trade, markets retreated after the Fed minutes revealed the FOMC does not see the need for further easing unless economic expansion falters. This saw risk assets struggle, with commodities, risk currencies and equities falling, while the US dollar strengthened. Chinese markets are still closed and will resume trading tomorrow.

The Aussie market is relatively flat after its early recovery stalled following disappointing trade balance numbers. Jitters from the trade balance figures didn’t last long as some investors saw this as further confirmation that the RBA will act on rates. The ASX 200 has seen its downside limited by key support in the 4310 to 4320 region, while the weaker Aussie dollar has also aided some sectors. Japan’s Nikkei is 1.4% softer despite a weaker yen helping to support some exporters. US and European markets are facing losses at the open today following the weakness we have seen throughout Asian trade.

The dollar rallied strongly in the wake of the FOMC minutes, EUR/USD fell from 1.3340 to 1.3320 and USD/JPY surged towards 83 as it became clear that the Fed is some distance away from pushing for fresh stimulus. Once again, like we said yesterday, investors will continue to question whether the FOMC can hold its current end of 2014 view on normalisation. Ahead today, Germany and the UK will release services PMI figures for March, while the ADP report and non-manufacturing ISM are due in the US. Data consolidation is expected to continue up ahead, but European figures are clearly lagging in momentum. The ECB will host its policy rate decision, with the market looking for rates to remain unchanged.

Today’s trade balance figures were further evidence that the Australian economy is not tracking well. Australia posted a seasonally-adjusted trade deficit of $480 million in February, compared with a revised deficit of $971 million in January. The February figure compares with economists' expectations of a surplus of $1.1 billion. Yesterday’s retail sales data highlighted the two-speed economy effect as resource-rich Western Australia showed a +1.0% month-on-month increase, while NSW and Victoria showed monthly declines. The RBA statement yesterday seems to have shown some acknowledgement of the challenges the Australian economy is facing and it seems the RBA is ready to act. The rhetorical shift means the RBA may consider a rate cut in May if the Q1 inflation reading (due on April 24) is low enough. The relatively dovish statement has seen the Aussie dollar come off significantly over the past 24 hours, with the AUD/USD printing a low of 1.02632 today. This is the pair’s lowest level since January this year.

www.igmarkets.com.au

ENDS

© Scoop Media