IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, markets are broadly higher after shrugging off a weaker–than-expected GDP reading from China. We saw Asian markets track US and European markets higher this morning after comments from key FOMC members invigorated hopes of more Fed easing action (QE III). Rumours also made the rounds that the China GDP data, which was released today, will be better than the 8.4% expected. China’s quarterly GDP came in at +8.1%, way below consensus of +8.4%. The Chinese GDP whisper numbers had propelled markets earlier in the session, with some suggesting that a GDP number with a 9 in front of it was possible. However, we saw regional markets come off their highs following the numbers. Despite the disappointing headline number, the data offered support that underlying growth momentum remains firm.

There were some positives including better-than-expected industrial activity growth of +11.9% and accelerating retail sales. We have already seen pre-emptive and accommodative policy easing by China and this is likely to be supportive in the long term. As a result, some analysts feel GDP growth will bottom out here and accelerate in the following quarters. Hong Kong’s Hang Seng is leading the region with a 1.6% gain, while Japan’s Nikkei is 1.2% higher and the Aussie market has tacked on 0.8%. The Shanghai Composite is only a touch higher and is lagging the region. Despite the strength we are seeing in Asian markets, US and European markets are facing modest losses at the open.

There has been a sharp switch in sentiment from the beginning of the week when Europe’s problems resurfaced and resulted in some significant selling pressure, which saw markets test some key support levels to the gains we have seen at the end of the week. As the week draws to an end, focus has switched from Europe to China and potential quantitative easing from the US and Japan. Ahead today, we have CPI prints in Germany and the US as well as PPI data from the UK. Traders should also look out for comments by US Fed Chairman Ben Bernanke and FOMC Member Dudley. Investors will be looking for further hints of more Fed easing as they seek to see the recovery continue. However, the real talking point (as it always is) will be China.

After coming off its highs post China data, the Aussie market has held up fairly well above 4300. At current levels, the Aussie market is relatively flat for the week, which is a decent effort after a poor start to the week. With reduced fears of a China hard landing and improved forecast for China GDP growth later in the year due to credit growth, it seems there is still significant optimism out there. The materials sector has been at the forefront of today’s gains, with all the major miners firing in all cylinders. Fortescue Metals has led the iron ore giants with a 3.2% gain. Prima Biomed has also had a solid day, rising 18% after announcing its listing day on the Nasdaq. Next week is a bit light on the local economic calendar front, but investors will be eyeing the RBA minutes for a gauge on what will happen with rates.

www.igmarkets.com.au

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