IG Markets - Afternoon thoughts 17/4/12

Across Asia, markets are weaker as investors react to a drop in foreign direct investment (FDI) in China. The country’s FDI fell 2.8% to $11.76 billion. In US trade, markets were mixed, with the Dow enjoying gains, the S&P flat and the NASDAQ losing ground. Economic data was also mixed, with US retail sales coming in better than expected, but the Empire State Manufacturing Index much lower than anticipated. Citigroup results beat expectations and helped the Dow to its gains, while falls in Apple weighed on the S&P and the NASDAQ.

The Aussie market has given up its early gains and is currently 0.1% lower following the China news. Elsewhere in the region, Japan’s Nikkei is flat after having been a touch higher earlier despite a stronger yen. USD/JPY will remain in focus, with some analysts feeling that further weakness in the pair pullback should provide an attractive opportunity for dip buyers ahead of the key Fed and BoJ policy decisions next week. Any additional weakness in USD/JPY and the Nikkei would simply magnify the risk of a bolder policy reaction in Japan which, superimposed upon a steady Fed stance, could quickly put the yen on the back foot again. Hong Kong’s Hang Seng is 0.6% lower and the Shanghai Composite has shed 0.2%, with the banks leading the declines. US markets are facing mild losses at the open, while European markets are pointing towards slight gains at the open.

News from Asia will do little to influence traders’ mindsets, who will focus on European and US issues going into the weekend. Spain will get the ball rolling with two different bill auctions, which in theory should not rock the boat too much given the short maturities, but it is a small step towards Thursday’s key two and ten-year auction. US housing starts and building permits give us further insight into a housing market that many say is showing signs of bottoming, while industrial production will also be on interest and should show moderate improvement. European CPI is expected to show a strong (but hopefully temporary) spike in March, while weakness in the ZEW confidence print would see EUR/USD heading back down to the key 1.30 level. US earnings come in thick and fast as well, with Coca-Cola, Goldman Sachs, Johnson and Johnson, Intel and IBM to name a few. Given what we have already seen from JP Morgan and Citigroup, you can probably expect a rebound in FICC trading revenue and volumes, while equity trading should see trading revenue growth on the quarter, but down on the year The bank is expected to earn $3.55 and it is worth pointing out that it has missed EPS estimates three of the last five quarters on the bottom line, while missing four of the last five quarters on the top line.

The RBA minutes have been the main talking point in the local market today. Once again, the central bank reinforced that it is waiting for the release of first quarter inflation data before it can move to cut interest rates. Most sectors were in positive territory earlier today but we have since seen most of the cyclical sectors come off particularly in the resource space. This has been mainly as a result of the China FDI figures, which suggest that foreign investors are not as confident about the Chinese economy as they used to be. The defensive sectors continue to impress whilst most of the cyclical sectors struggle. Healthcare, telecoms and utilities names are at the top end, with all sectors enjoying modest gains. Telstra is up 0.3%, CSL Limited has risen 1.6% and AGL Energy has tacked on 0.2%. In the financial space, Macquarie Group has surged 2.5% lifted by a positive result from Citigroup. Rio Tinto is up 0.3% ahead of its production report

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