IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

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Oil 99.12
Gold 1774

Asian markets have mostly traded mildly higher today, resonating the strength seen in US and European markets on Friday. Risk appetite has remained resilient with risk currencies finding some stability despite pulling back from Friday’s highs. The Fed's new 'open-ended' easing programme has helped underpin risk assets and has resulted in significant dollar under-performance. The ECOFIN meeting on Saturday focused on the implementation of the single bank supervision mechanism, but negotiations hit a deadlock, with member states unable to agree on the details and the timelines. Considering that a single supervisor is a necessary condition before the ESM could start recapitalising eurozone banks, a continued deadlock could weigh on the recent EUR rally.

Looking at the equities in the region, it just seems like some markets are just taking a breather after the strong run they experienced at the end of last week. As a result, we have seen some fairly tight ranges being maintained. The ASX 200 is up 0.3% and is testing a key level (4400) where it faltered a couple of times in August. At the time of writing, the ASX 200 was trading at its highest level since the 4th of May 2012. This leaves it eyeing this year’s high of 4448.5. The Hang Seng is relatively flat, while the Nikkei is closed for a holiday. European markets are likely to give up significant ground at the open as they price in the pullback seen in US trade. US markets are also facing a weaker open, with the Empire State manufacturing index being the only event on the calendar.

After a week in which we saw three key and long-awaited events (German Constitutional Court; Dutch election; FOMC) yield positive results (and more importantly avoid the ‘tail’ risks that many feared), risk assets closed firmly on the front foot last week. However, this week has started off on a soft note with limited events on the calendar. Eurozone finance ministers indicated on Friday that they are willing to give Greece more time to meet budget targets and that they will decide by the end of October whether to release the next instalment of bailout money. On the economic calendar, we have European current account and trade balance figures due out.

The local market is modestly higher led by a recovery in the materials space which broke out of a downtrend last week. BHP Billiton has jumped 2.7%, while Rio Tinto has risen 1.7%. Gold miners have maintained their run with Medusa Mining, climbing 4.7%, and OceanGold is up 3.8%. Most of the industrial stocks are struggling apart from Leighton Holdings, which has surged 8%. Macmahon Holdings went into a trading halt this morning pending an announcement regarding a profit warning. This has weighed on other engineering services names such as Monadelphous (-1.7%) and Downer (-1.1%). This sector is now in focus with a slowdown in the mining likely to translate to a loss/slowdown of contracts for these industrials names. Tomorrow we have monetary policy meeting minutes and RBA Assistant Governor Debelle’s speech on the economic calendar.

www.igmarkets.com.au

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