IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

FTSE 5749 0
DAX 6744 +4
CAC 3226 -3

DOW 13173 -32
NAS 2722 -3
S&P 1395 -5

Oil 104.44
Gold 1656

Across Asia, markets have turned lower after having enjoyed a fairly positive start. In US trade, markets extended gains on the back of some stronger-than-expected data and well-received corporate earnings. Pending home sales comprehensively beat consensus, as the improving jobs environment continues to lift the housing market. We have seen sentiment take a hit post-US trade, as S&P cut Spain’s rating by 2 notches to BBB+ from A. This isn’t totally unexpected, given it was put on outlook negative on January 13. The Aussie market is down 0.1%, the Shanghai Composite is 0.2% lower but the Hang Seng is 0.5% higher.

The highlight of today’s Asian session has been the swathe of economic releases out of Japan. The BoJ delivered on adding ¥5 trillion to asset purchases and kept rates on hold. The ¥5 trillion in extra purchases bolsters the asset-purchase programme to ¥70 trillion. However, the overall result was net positive given the slight increase in other asset purchases along with the ¥10 trillion (larger end) of increase in JGB purchases. The news resulted in a spike in Japan’s Nikkei, which is currently up 0.6% and some big swings in USD/JPY. Ahead of the European open, we are calling the FTSE, DAX and CAC relatively flat with some caution at the start of the session following the Spain downgrade. US markets are facing a modestly weaker open with some key data in store.

As part of the downgrade, S&P warned that Spain's 'budget trajectory will likely deteriorate' and more national support may be needed for the banking sector. The euro traded through session lows on the back of the release, though in general the marginal impact of such releases seems to have diminished throughout the course of the debt crisis. Some analysts feel there is now less focus on the eurozone's structural issues and more on rapid political shifts in the region, which could yet trigger a shift in the underlying fiscal/growth dynamics in the eurozone. It remains to be seen what the bond market will favour more between consolidation of finances or organic growth. Focus now shifts to Italian debt auctions (5- and 10-year) set to take place later today, where they will be looking to raise €6.25 billion. We also have US Q1 GDP (expected to gain 2.5%), although the market seems to have a fair idea of what to expect from the breakdown. However, a strong Q1 US GDP print would see modest QE3 expectations being paired back and should encourage USD buying. Although the data hasn’t been brilliant of late, we feel the print could come out mildly better.

Turning to the local market, it has been yet another disappointing session for the Aussie market. Following the US close, futures were pointing to yet another open above 4400, but once again this was not meant to be as the market barely tested yesterday’s high of 4393. At the current level of 4369, the Aussie market is facing a flat week. Apart from the high yielding stocks like Telstra and Commonwealth Bank, most stocks struggled to gain traction today. Weakness in the consumer space was highlighted by JB Hi-Fi, which issued yet another earnings downgrade today. This resulted in some pretty steep falls across the retailers and highlighted the need for a rate cut when the RBA announces its policy decision next week. Macquarie Group is one of the few bright spots in the market today, rising 3.5% following its FY12 earnings report. The company managed to meet previously downgraded guidance and the report was well received by the market. The report is quite encouraging and shows MQG’s earnings cycle might have finally seen the bottom. Traders will be now waiting to see how the price action responds to the $30 resistance level.

www.igmarkets.com.au

ENDS

© Scoop Media