IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

Across Asia, regional markets are all lower after a worse-than-expected non-farm payrolls report saw European and US markets post heavy losses to end the week. The Hang Seng is the region’s worst performer, lower by 1.5%, while the Kospi is 1.3% to the downside. Elsewhere, the Nikkei and the Shanghai Composite are both 1.1% weaker.

In Australia, the ASX 200 is currently 0.9% weaker at 4121, modestly off its session low of 4111. Losses on the day are relatively broad based, with the cyclical, material and energy sectors some of the day’s biggest decliners courtesy of recent USD strength. Elsewhere, the heavyweight financial and industrial sectors are also modestly lower.

Today’s price action has predominantly been about our market following the leads of the US market and its disappointment in yet another sub-par jobs report. Some are describing the US economy as the ‘zombie’ economy – not quite dead, but not really alive either. This status is proving a real frustration for investors, as it is likely to keep the Fed on the fence and unwilling to engage in any imminent quantitative easing. That said, with every passing piece of substandard economic data, consensus grows that the Fed will eventually be forced into action or face the unwanted prospect of the US economy slipping back into recession.

Today’s Chinese CPI print, which came in at a softer-than-expected 2.2%, has done little to enthuse the market today. Why? Perhaps because the market has already accepted that inflationary pressures are under control and attention has now turned to this Friday’s GDP print. While consensus estimates range between 7.7% and 7.9%, a print below 8% will still no doubt be a psychological blow for the market and further ammunition for the China bears. Some have suggested last week’s surprise rate cut foreshadows a weaker-than-expected print, while others are suggesting it is nothing more than China’s leaders getting on the front foot and taking advantage of the more benign inflationary environment. Market price action on Friday will determine who was right.

www.igmarkets.com.au

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