IG Markets - Afternoon thoughts 12/4/12

IG Markets - Afternoon thoughts

Across Asia, markets are broadly higher with a strong rebound in equities after picking up positive leads from US and European markets. In US trade, markets enjoyed a relief rally after Spanish and Italian 10-year bond yields eased. Comments suggesting the ECB may revive its bond buying program helped Spanish bonds rise. Investors also responded well to Alcoa’s results which beat estimates on the previous day and the prospect of strong US earnings results.

The Aussie market has extended its early gains on the back of a stronger than expected jobs numbers reading and is currently around 0.6% higher. Though clearly a strong upside surprise on the headline employment numbers, many analysts still feel the overall trends in this report remain weak and consistent with below trend growth. The price action in the local equity market today suggests many investors out there agree with this notion. Japan’s Nikkei has edged 0.3% higher after USD/JPY recovered its poise, thanks to growing confidence that the BoJ will indeed deliver further easing at its next Board meeting on April 27. Elsewhere in the region, the Hang Seng and Shanghai are each around 0.4% higher. Given the fairly positive Asian session, European and US markets are pointing towards flat to modest gains at the open.

Ahead today we have a swathe of economic data due out in the US. Investors will be looking out for PPI, trade balance and unemployment claims figures. We are also expecting comments from FOMC members Lockhart, Raskin and Dudley. Over in Europe, today brings French CPI, the ECB’s monthly bulletin, UK trade balance and European industrial production. Tomorrow we have a big day in the Asian region with China quarterly GDP (exp +84%, slowest growth since 2009), fixed asset investment, industrial production and retail sales due out. With such a packed calendar of events over the next 24 hours, we expect to see some volatility in the currency markets.

Today, we saw a continuation of weak corporate earnings with Ten Networks delivering a fairly disappointing result. TEN traded lower following the announcement of a 70% plunge in first half profit. However, we saw TEN recover after its CEO said a range of parties have expressed interest in buying Eye Corp. Seek Limited has been one of the best performers of the day on the back of the jobs numbers. Although some feel today’s jobs numbers reduce the chances of us seeing a May rate cut, there are still several other important facts for the RBA to consider. With ongoing labour shedding by major companies, constrained public finances limiting government recruitment, and the non-mining economy experiencing contractionary conditions, there is still a strong case for a rate cut. Going forward, the key ingredient will be inflation and as long as it remains subdued as expected, we are likely to see the RBA act next month. The release of the pivotal quarterly CPI inflation data for Q1 is on April 24. The CPI data could open the door for the RBA to cut its cash rate by 25bp to 4.00%. As a result, today’s spike in the Aussie dollar might be used as a selling opportunity by traders.

ENDS

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