IG Markets - Afternoon thoughts Sept 20

FTSE 5865 -23
DAX 7358 -33
CAC 3512 -20
IBEX 8044 -55
DOW 13534 -44
NAS 2853 -11
S&P 1454 -7

Oil 91.83
Gold 1765

Asian markets are weaker following a loss of momentum in risk assets as the enthusiasm quickly faded following the BoJ's announcement of an additional ¥10 trillion of asset purchases. Sentiment has also been dampened by the China HSBC flash manufacturing PMI number which came in at 47.8 (up from 47.6). Although this was a slight improvement, it certainly isn’t convincing at all and we get the sense investors would have wanted to see a reading closer to 50 to alleviate some of China’s concerns in the near term. Japan’s Nikkei hasn’t had much luck today, with yesterday’s solid gains swiftly dwindling. Many would have hoped to see the Nikkei extend its gains following the announcement of further easing by the BoJ. It didn’t take long for the yen to recover against the greenback and this has basically set the tone for the Nikkei today. Of course, the BoJ was looking to help ease pressure on its big export industry, but it often seems like the effects of its efforts quickly vanish. USD/JPY is now trading all the way back down at around 78.20 after slipping below 79. A break below these lows from the US session could easily see the pair trade below 78 later today. Worse-than-expected trade balance figures (-0.47 trillion versus -0.37 trillion) from Japan have not had much of an impact on USD/JPY, but it has certainly impacted the Nikkei, which is currently down 1.4%. Industrials (-1.9%) and technology (-3%) sectors are the main drag on the Nikkei. BoJ Governor Masaaki Shirakawa’s speech later today is now the main point of focus.

Elsewhere in the region, the Hang Seng has lost 0.5%, with the oil and gas sector the worst performer following the drop in oil prices. It has been a similar performance in Australia with the ASX 200 down 0.4% as energy names also struggle. The sharp drop in oil prices following a rise in inventories has weighed on the energy sector today. With the Asian region retreating, US and European markets are facing modest losses at the open. It is a busy day on the economic front with plenty more PMI numbers due out. The data kicks off with German PPI followed by French, German and European PMIs. There is also a Spanish bond auction to look out for. In the US, we have unemployment claims, manufacturing PMI and the Philly Fed manufacturing index.

Risk currencies were fairly flat early in the Asian session, but we have seen AUD/USD and EUR/USD give up significant gains following China’s PMI data. EUR/USD slipped below 1.30, while the strongly resource-correlated AUD/USD tested 1.04. The momentum has certainly shifted for risk assets and we could see some key support levels tested later today. The local market has ventured below the 4400 level today, despite a convincing break higher in the afternoon session yesterday. With commodities struggling overnight, the big losers today are Woodside (-2.7%), Santos (-3.5%) and Fortescue (-3%). The few bright spots today were in the defensive space, with gains for Telstra (+0.9%), Woolworths (+0.7%) and Coca Cola (+0.8%). David Jones bounced back with a 4% gain on the back of its earnings report from yesterday. Billabong has declined 7% after one of two potential buyers pulled out of the due-diligence process.

www.igmarkets.com.au

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