IG Markets - Afternoon thoughts August 9

FTSE 5866 +20
DAX 6978 +12
CAC 3454 +16
IBEX 7171 +21
DOW 13212 +36
NAS 2723 +9
S&P 1406 +4

Oil 93.73
Gold 1616

Across Asia, risk assets have remained fairly resilient in Asian trade, supported by some economic data from China and Australia. Inflation in China remained weak with CPI (1.8%) remaining relatively low. We also have fixed asset investment, industrial production and retail sales due out from China later today. In Australia, jobs numbers impressed, beating consensus and showing the economy is still adding jobs. The rotation from defensives to cyclicals continues to support sentiment. We saw consolidation being the main theme in European and US trade. The euro traded relatively heavy after S&P lowered Greece's outlook to negative, Spain revised budget deficit targets and a 0.9% drop was reported in Germany's June industrial production. AUD/USD raced to a high of 1.0613 on the back of the jobs numbers and China data. This was its highest level since 20 March. Other risk currencies have not seen similar moves and remain fairly range-bound, particularly EUR/USD.

Looking at the equity markets in the region, Japan’s Nikkei is 1.1% higher, the Hang Seng has climbed 0.8% and the Shanghai Composite has edged up 0.2%. The ASX 200 is higher by 0.3%, with gains in resource names being countered by some losses in the defensive space. With Chinese inflation slowing for a fourth month, it gives policy makers room to add stimulus and will help them fulfil their pledge to support growth. China is the biggest export market for several nations including Japan, and therefore the Nikkei has also benefited from the news. In a widely expected move, the BoJ kept its asset-purchase fund at 45 trillion yen and lending facility at 25 trillion yen. The BoJ is already finding it hard to meet its year-end target of asset purchases. In light of the positive Asian session, US and European markets are facing modest gains at the open. Trade balance and unemployment claims data are due out in the US later today. US data will continue to be monitored closely as it has a bearing on what the Fed might do come September.

Locally, the ASX 200 printed a high of 43304 today with resource names racing higher. Rio Tinto (RIO) is the standout, rising 3.7% after its earnings impressed. RIO reported after the bell yesterday and was up nearly 3% in the UK after reporting a US$5.89 billion net profit (-22%) and underlying earnings of US$5.15 billion (-34%) for the first half. The miner is predicting a modest pick-up in the Chinese economy later this year that should stimulate demand for iron ore. Resource names have also been pushed higher by China’s economic data. The dominant theme in the local market today has been increased demand for resources and other cyclical stocks, while defensives, which have had a great run this year, have struggled. Telstra set the negative tone for the defensives today with its share price dropping around 3% after its profit came in slightly below market estimates. Despite the slight miss, the company still seems to be well positioned and still managed to deliver a final dividend of 14 cents a share, which it had already flagged to the market. Investors had found safety in the stock over the past few months as a good yield play and this had driven its share price above $4. After seeing some big names reporting today, tomorrow is relatively light on the reporting calendar with Crown, Singtel and Goodman Group the notable ones. Crown is expected to report EBITDA of $707 million and NPAT of $418 million along with a final dividend of 19 cents per share.

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