IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

FTSE - 5746: -21
DAX - 6663: -31
CAC - 3206: -17

DOW - 13192: -15
NAS - 2700: -5
S&P - 1390: -2

Oil: 103.05
Gold: 1634

Across Asia, markets are softer going into the end of the week, with investors exercising caution ahead of the US non-farm payroll later today. The whispers on Wall Street hint it will be a disappointing result and this has seen risk assets struggle today. However, we often see whisper numbers prove to be wrong, resulting in speculators being burnt. In US trade, markets declined amid another round of disappointing economic data. Global growth concerns are increasingly becoming an issue, with US data starting to turn negative. Weaker-than-expected US services ISM and disappointment that the ECB continues to warn of downside risks weighed on markets.

Looking around the region, the Hang Seng is 0.7% lower while the Shanghai Composite is relatively flat. The ASX 200 is down 0.6% and is hanging around key support at 4400. Japan markets are closed again today for Greenery Day. With Asian markets struggling, US and European markets are facing some losses at the open. We have seen some fairly tight ranges today and we would not be surprised to see this trend continue until the US jobs numbers are released later today. However, even when we do see the payrolls report, traders then need to position themselves for the weekend drama, with the Greek elections the major event risk.

Although the ECB left rates unchanged as expected, dollar bulls were initially emboldened by ECB President Mario Draghi's reference to ’downside risks‘ to the economic outlook and the steeper-than-expected 27,000 drop in US initial jobless claims to 365,000. Clearly the rhetoric from Mr Draghi disappointed traders who were hoping he would acknowledge the weakness in manufacturing and other data points and indicate easing at a future meeting, although he did leave the door open for cuts if its growth outlook proves too optimistic. Mr Draghi stressed that the impact of the LTRO (long-term refinancing operation) is not fading away, suggesting we will not see a third round of liquidity injections anytime soon, while also saying that the ECB ‘did not discuss any specific move in interest rates’.

Looking at the local market, stocks struggled from the onset today, resulting in some key support levels being tested. After having flown higher in the first half of the week, the Aussie market is currently up 0.9% for the week. This is quite disappointing, considering we had climbed nearly 2% for the week at some stage. The market printed a low of 4392.5 and is still within a key support region. This region contained the Aussie market for most of last week and is now an important area for the bulls to defend. The RBA’s statement of monetary policy released this morning didn’t really bring many surprises, with the central bank painting a more subdued outlook for growth in Australia. This is hardly a shock considering the surprise 50 basis point cut it announced this week. Additionally, next week’s budget is expected to be extremely tight as the government pursues a surplus.

Most of the cyclical stocks, particularly in the resource space, have struggled today. However, there have been some positive performances in the defensive space. Investors are also favouring high-yielding stocks as growth concerns become apparent. Telstra has been a perfect example of high-yielding stocks prospering in the current conditions. The stock is nearly 3% higher this week and looks set for further upside. Westpac cut its standard variable rate by 37 basis points today, leaving ANZ as the only one out of the big four that hasn’t announced a cut. Borrowers with ANZ will have to wait until next week Friday to get a verdict on rates.

www.igmarkets.com.au

ENDS

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