IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5408 +3

DAX 6386 +2

CAC 3043 -6

DOW 12646 +47

NAS 2569 +7

S&P 1330 +5

Oil 93.33

Gold 1548

Across Asia, markets are mixed as investors are caught between bargain hunting after the recent sell-off, and staying on the sidelines following a loss of confidence. In US trade, markets extended their losses after having traded in positive territory early in the session. Another round of positive economic data gave US markets an early lift, but Europe continued to unsettle investors. US housing starts and industrial production exceeded expectations, while the FOMC meeting minutes revealed several members of the Fed would back more QE if the US economy faltered, compared to only ‘a couple of members’ in the March statement. Reports the ECB will freeze lending to some Greek banks spooked investors. As expected, Greece announced a caretaker government and will have another round of elections on June 17.

Asian markets actually got off to a positive start, as the negative headlines from Greece were neutralised by some of the positive developments in the US session. The Hang Seng has risen 0.4% and the Shanghai Composite has climbed 0.6%. However, the Nikkei is flat despite its economy expanding faster than estimated in the first quarter. The Aussie market has declined 0.4% with the resources improving today, but the banks turning villains and suffering the biggest falls. After having closed near their highs, European markets are pointing to a relatively flat open. However, US markets are looking to reverse some of the losses logged into the close with modest gains expected ahead of some key data. US weekly jobless claims and the Philly Fed report are the key data releases to look out for.

European and US equities have tried in vain over the last two sessions to move higher, but any momentum has been sharply retracted as headlines around Greece hit the wires. One feels that in the absence of any negative news today, and provided the US data continues its two-day upside surprise, we could see a snap-back rally emerge. There is clear concern about a run on Greek banks, with further narrative of depositors pulling out savings, although the news the ECB would halt monetary policy operations with certain Greek banks stole the headlines. This itself is quite misleading, and possibly the biggest fallout for us on the back of this is a further eroding of confidence and therefore a continued run on Greek banks. The ECB is unlikely to let a Greek bank fail through withholding liquidity and it seems once the market had time to consider the narrative, it found that the ECB would allow these banks to return to normal ECB funding channels in the next few days. However, it is a prime example of how on edge this market is right now. We’re at a clear inflection point and one has to feel encouraged by the fact that Greek voters still want to be part of the EMU. At the same time, the costs of leaving the EMU are so high to all parties concerned that to us swings the balance of probability into the ‘Greece will not leave the EMU’ camp, but it really is a toss of a coin at this stage.

With resources edging higher, one would have thought the market will be well supported today. However, with the selling switching to the banks, the Aussie market slumped yet again today. Commonwealth Bank is the weakest of the big banks following its third quarter trading update. CBA, which is down 2%, reported 3Q cash earnings of about $1.75 billion, slightly below consensus of $1.8 billion. It seems the banks’ recent outperformance has left them playing catch up to the other sectors. Despite today’s performance by the local market, we feel the selling might be overdone now, and we may start seeing some near-term stability. The positive US data is supporting stocks, with US exposure like James Hardie and Newscorp. Both stocks are trading higher today and deserve some attention. Toll was on the losing end yet again today, dropping over 8% hurt by some broker downgrades after yesterday’s profit warning. The ASX 200 is currently hanging at around 4143, which is right at the lows where it bottomed out at the beginning of March this year. We get the feeling that if there is going to be a near-term bounce, it’s going to be from these levels. BHP, Newcrest and Fortescue have risen around half a percent each.

ends

© Scoop Media