IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

Across Asia, markets are broadly weaker after picking up some soft leads from US and European trading. In US trade on Friday, markets declined after disappointing economic numbers out of China led to global growth fears and European sovereign debt jitters resurfaced. European stock markets tumbled, led by losses in the banking sector and commodity stocks. Regional markets opened lower and basically stayed that way for most of the Asian session. The Aussie market is around half a per cent weaker, with the resource stocks struggling after commodities were hammered on Friday. Japan’s Nikkei is the worst performer in the region, dropping 1.3%, while the Hang Seng is down 0.7% and the Shanghai Composite has shed 0.2%.

Asian markets haven’t provided any relief, despite some traders suggesting the wider USD/CNY trading band was a symbolic gesture that the PBOC are in a happy space with regards to the stabilisation of growth. As a result, US and European markets are likely to extend their losses at the open. Ahead today, the eurozone trade balance will be of interest, especially as growth assumptions are still for only a modest 0.4% contraction in GDP this year. In the US, the empire manufacturing and retails sales reports are due for release. On the corporate side, Citigroup is expected to see Q1 EPS of $1.02, with revenue of $19.9 billion. The bank has a tendency to underperform on earnings day, having fallen 4 of the last 5 days after earnings.

US earnings season may have got off to a good start, and one hopes that this trend of positive surprises continues, notably given 20% of S&P 500 companies hit the market this week with quarterly results. Europe, however, will demand the market’s full attention. This is not just because we are seeing a divided ECB over the resumption of its bond buying program, but it seems Mr Sarkozy, who is probably counting his days in office, is taking Angela Merkel head on with regards to using the ECB to install some sort of pro-growth measures in Europe, something that Spanish bond holders would dearly love to see and would probably win him some much needed votes. Spanish yields will be smack bang in the cross hairs of traders’ mindsets this week, and clearly the trade will be higher yields, lower euro (despite speculative euro shorts once again getting above the 100,000 level), lower S&P futures and European equities. Thursday’s all-important Spanish two and ten-year bond auctions are the week’s key event risks, co-incidentally on the same day as the G20, when we hope to gain a better understanding on potential increased IMF resources.

It has been a fairly steady day for the Aussie market, holding the 4300 level despite continuing global growth concerns. AUD/USD in fact fell on the day as risk aversion continued to be thrown around. The telecoms have been significant outperformers led by Telstra, which is 0.6% higher. The financial space has also had an interesting session with ANZ shrugging off the bad publicity from its out-of-cycle rate rise to put on 0.7%. All the other big banks are in negative territory. The mining sector is lagging, with all the big guns in the negative region. Investors seem to be exercising caution ahead of production reports for Rio Tinto and Fortescue Metals, which are due out tomorrow. On the local economic front, tomorrow we have monetary policy meeting minutes and new motor vehicle sales to look out for. Interest rates will remain a point of focus, particularly with the banks now acting independently of the RBA.

www.igmarkets.com.au

ENDS

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