IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

Across Asia, regional markets are mostly lower despite a positive close on Wall Street spurred on by comments from Fed Chairman Ben Bernanke. The Hang Seng is the region’s worst performer, lower by 0.7%, while the Kospi is 0.6% to the downside. The Shanghai Composite is 0.1% weaker, while the Nikkei is bucking the trend to be 0.2% higher.

In Australia, the ASX 200 is currently 0.4% weaker at 4123, just off its session lows. Despite Bernanke keeping the QE3 dream alive in his senate testimony last night, materials and energy names are being heavily sold down, including BHP which released a robust quarterly production report that was above expectations. The weakness across the cyclical sectors is being partially offset by gains in the financial, information technology and healthcare sectors.

In US trade, the market’s fortunes were dictated by the words of Ben Bernanke who was speaking before the senate banking committee. Despite some initial disappointment that Bernanke didn’t outline a definitive strategy of more stimulus from the Fed, there was enough in his follow-up Q&A session to suggest the QE3 dream is still alive. US markets rallied accordingly.

Based on today’s local market action you would have sworn Bernanke had definitively ruled out ever using QE again. Materials and energy names are getting clobbered despite commodity prices greatly paring their initial losses overnight. BHP’s production report today has also been widely lauded as being above expectations, but that hasn’t stopped the sellers moving in on resource names. Perhaps the whole sector is paying for Fortescue’s modest capex increases and/or Rio Tinto’s slight downward revisions to full-year production guidance for three of its key commodities, both announced yesterday. Today’s unexpected drift might also be a square-up for yesterday’s unexpected gains? The market has a funny (and often frustrating) way of finding its level.
www.igmarkets.com.au

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