IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

Across Asia, markets are mostly firmer after picking up some strong leads from US and European markets. In US trade, markets rallied after Fed Chief Ben Bernanke said he remains prepared to do more to stimulate growth if needed. The gains came despite a slightly more hawkish tone from the FOMC meeting, which caused an initial dip in risk assets. A strong round of corporate earnings, including Apple’s monster result, also spurred the market to its gains. We saw Asian markets fly out of the gates before pulling back on some profit taking following the recent run. In Australia, the market is around 0.3% higher after having been up 0.8% earlier. Elsewhere in the region, the Hang Seng has climbed 0.5% while the Shanghai Composite is 0.2% lower and the Nikkei is flat.

We are seeing some cautious trading in Japan ahead of a swathe of economic data set to be released tomorrow. The BoJ meeting will be the highlight, with the market thoroughly expecting an increase of ¥5 trillion to its asset-purchase program. With expectations high, a failure to act would see traders pouring back into the JPY, resulting in USD/JPY weakness. USD/JPY had been underpinned by expectations of Fed-BoJ policy divergence. With a lack of fresh leads in the Asian session, US and European markets are pointing towards a relatively flat open.

In the US, there was no real change in policy, although the statement did mention that economic growth would remain moderate over the coming quarters and would pick up gradually It went on to say the unemployment rate has declined, which could be taken negatively given that the previous statement made reference to the unemployment rate decline ‘notably’, but as we have seen in the monthly payrolls report, the pace of declines has slowed. As expected, the Fed upgraded its view on 2012 GDP, while lowering its unemployment rate forecast to 7.8 to 8%. It is clear that the Fed is acknowledging the recovery but is not overly convinced, and Dr Bernanke is trying very hard not to send too strong a signal to the market either way, so at this point it is very much a ‘wait and see’ approach, and hugely data dependent. Interestingly, a survey by Reuters of primary dealers suggested that only 28% thought we are going to see QE3, while 8 out of 13 believe the Fed will lift the federal funds rate and start normalising monetary policy in the second half of 2014. Ahead today, we will get to see the weekly jobless claims and pending home sales. Over in Europe, investors will continue to focus on the pound after the Q1 GDP print confirmed that the UK is back in recession. Many analysts feel the data is hard to reconcile with the leading indicator data and a recovery in PMI readings from the more important services sector noting that positive revisions in services and construction are very likely.

The local market’s performance has been fairly disappointing today after significantly retreating from its highs. Investors were expecting to see the market trade above 4400 early but the selling crept in right at the open with the materials being the main culprits. Yet again, we saw some selling on the back of poor earnings updates with Seven West Media coming to the fore today. SWM shares plunged around 17%, with a recovery in the advertising market seemingly a long way away. Until the consumer sectors gain momentum in the event of a pick-up in the local economy, it is difficult to determine how much longer the current trend in the advertising market will last for. Newcrest Mining has also continued to struggle after receiving some broker downgrades following a disappointing production report. The stock might start seeing some buying near key support at $25. Macquarie Group shares have been relatively subdued ahead of its FY12 results tomorrow. In February, MQG revised its guidance lower and expects FY12 earnings to be approximately 25% lower than FY11. This implies earnings of $717 million, which is broadly in line with most analyst expectations. JPM expects MQG to post FY12 earnings of $721 million and $864 million for FY13.

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