IG Markets - Afternoon thoughts 19/4/12

Across Asia, markets are mostly higher after shrugging off some negative leads from US and European trade. In US trade, markets retreated from the previous day’s gains, as Spain’s problems resurfaced following a spike in bad loans. There was some caution ahead of today's Spanish bond auctions, particularly in the wake of data showing that non-performing loans as a proportion of total lending in Spain jumped in February. Investors also reacted to some disappointing earnings reports from Intel and IBM.

After a fairly flat start to the session, Asian markets took off on hopes that China will soon ease policy. Speculation was triggered by a Chinese state media report which at first raised hopes of an immediate cut to banks' reserve requirements. The news really helped lift sentiment in the resource space. However, the full report seems to suggest the Chinese Central Bank had pledged to increase liquidity supply at an appropriate time, which is not necessarily now. The resource heavy Aussie market raced to its highest level since October last year and is currently 0.4% firmer after a slight pullback. Elsewhere in the region, the Hang Seng is up 0.3%, but the Shanghai Composite has lost 0.1% and the Nikkei has declined 0.8%. US and European markets are pointing towards a flat to mildly positive open.

It seems the trend of positive surprises in the global economic dataflow has started to slip, and in conjunction with the renewed flare-up in Europe's sovereign debt crisis, it is unsurprising that many investors have started to question the outlook for global growth. The big event in Europe will be Spain’s bond auction where it will be looking to raise €2.5 billion for two- and ten-year bonds. There is also the G-20 meeting where we expect to receive commentary regarding Europe’s funding going forward. In the US, it is a big night of corporate earnings with majors like Bank of America and Morgan Stanley set to report. After last night’s disappointing reaction to Intel and IBM’s numbers, investors will be hoping the financial powerhouses can maintain the positive earnings run we have seen from Goldman’s and Citigroup. On the economic front, there are unemployment claims, existing home sales and Philly Fed Manufacturing index data to look out for.

Fortescue Metals shrugged off some of the negative aspects of its production report, as investors focused on the fact that it maintained its full-year production target and expects to make up lost iron ore shipments. FMG and BHP have led the materials sector today, with gains of around 1.1% each. The ASX 200 printed a high of 4377.1, matching its April 2 high before retreating over the last hour. Should the index manage to break above this high, it will be open for a move to 4400. The momentum certainly seems to be to the upside at the moment and a successful Spanish bond auction could just be the key catalyst.

ENDS

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