IG Markets - Afternoon thoughts 8/6/12

IG Markets - Afternoon thoughts

FTSE 5420 -28
DAX 6107 -37
CAC 3039 -32
IBEX 6407 -31
DOW 12439 -22
NAS 2528 -7
S&P 1311 -4

Oil 83.37
Gold 1571

Across Asia, markets are weaker as investors continue to show disappointment in Fed chief Ben Bernanke’s comments. The Fed chief highlighted the potential headwinds ahead that have prevented it from taking any options off the table yet, warning that ‘the situation in Europe poses significant risks to the US financial system and economy’ and the fiscal cliff would ‘pose a significant threat to the recovery’. Bernanke flagged the risks and kept all policy options open, yet failed to offer any real hints of impending action at the FOMC meeting on June 19-20. The testimony has seen regional markets shrug off China's 25-basis-point interest rate cut, the first reduction since 2008.

Taking a closer look at regional markets, the Hang Seng has lost 0.4%, the ASX 200 has declined 1.1% and the Nikkei is 1.7% lower. However, the Shanghai Composite is outperforming the region and is up 0.1%. Apart from Bernanke’s testimony, there also seems to be a degree of caution ahead of a swathe of economic data due out in China this weekend including CPI, PPI, fixed asset investment and industrial production. These significant data points are likely to be the key drivers of price action early next week. We will of course be watching the Spanish bond market which saw relief again yesterday, but could face an uphill battle given the multi-notch downgrade by Fitch and risk aversion in Asia. We have seen modest selling in the IBEX throughout Asia, although it doesn’t look like it is going to underperform any of the other European markets, with the CAC perhaps fairing the worst down 0.7%. US markets are facing modest losses at the open with the S&P looking to open down around 0.3%. Data in the upcoming session is pretty light with US trade balance and wholesale inventories perhaps the highlights and both of these may feed through into future GDP reads.

The local market actually got off to a positive start with some big gains for some of the big miners setting the tone. BHP Billiton has risen 1.2% after having been up nearly 3% earlier, while Rio Tinto is up 0.4%. Gold miners have been hammered today after gold prices tumbled overnight. Gold has been finding sellers all day and clearly the move above $1600 had been premised on fast money speculative positioning ahead of Bernanke’s testimony; clearly these positions have been unwound pretty quickly and we find it interesting why so many people thought he would signal a shift in policy, when he very rarely signals these changes in front of Congress. Newcrest Mining and OZ Minerals have dropped over 5% each. However, the early gains quickly evaporated as losses for industrials, financials and consumer staples weighed. Qantas share price has continued to deteriorate as the stock lost over 5% today after S&P put it on negative watch. On a more positive note, ANZ bank passed on the RBA’s 25-basis-point rate cut in full. At current levels (4065), the ASX 200 is flat for the week. The encouraging fact is that the market is significantly off its lows of the week.

www.igmarkets.com.au

ENDS

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