IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5798 -11
DAX 7308 +2
CAC 3407 -7
IBEX 7849 -18
DOW 13454 -28
NAS 2796 -3
S&P 1443 -3

Oil 91.73
Gold 1774

Asian markets are mostly flat after some mixed leads from European and US trade. There have been some contrasting reports on Spain and its bailout which have caused some confusion for investors. It seems like traders are searching for the next catalyst to drive markets and they feel it will come from Spain. We’ve had a Reuters report suggesting that Spain is close to requesting a bailout, and this helped drive sentiment earlier this week. However, Spanish Prime Minister Mariano Rajoy was quoted as saying a bailout request is not imminent, while some German officials have commented that Spain should hold off requesting a bailout. As a result, we are likely to continue going through this will they/won’t they cycle until the eurogroup meeting, where we could get some clarification.

The Aussie dollar has remained the biggest mover in the risk space, with AUD/USD extending its losses to 1.0217. The pair was trading at around 1.038 before yesterday’s RBA rate cut. The AUD has been sold off heavily against all G10 currencies and with the threat of a November cut looming over the Aussie, we would expect traders to sell strength from here. EUR/USD has just dipped below 1.29 but has certainly held up much better than AUD/USD. However, this still doesn’t do much for confidence in the risk space as we continue to see some key reversals across the board. Looking at the equities in the region, Hong Kong’s Hang Seng is back online today, but the Shanghai Composite is still closed. After having traded higher earlier, the Hang Seng and ASX 200 are now relatively flat, while the Nikkei is down 0.4%. US and European markets are set to open moderately weaker today.

There is plenty of data to look out for today with focus switching from manufacturing to services PMIs. We kick off with services PMI releases for Spain, Italy, Europe and UK. There is also European retail sales due out later today. With all this data due out and the possibility of further comments on Spain requesting a bailout, the euro could be in for some volatility and EUR/USD may extend its drop below 1.29 should Spanish PM Mariano Rajoy’s ‘a bailout request is not imminent’ stance hold. Over in the US, we have ADP non-farm employment change and ISM non-manufacturing PMI data due out.

The local market surged to May highs early, but stuttered shortly after that. However, the ASX 200 managed to print a fresh high of 4454.6 which is its highest level since August 2, 2011 before retreating. The main trigger of the retreat from early highs was the trade balance release. Australia posted a seasonally-adjusted trade deficit of $2.027 billion in August versus an expectation of a $685 million deficit. This put further pressure on the AUD which is still being punished on the RBA’s dovish tone. In terms of what the RBA said yesterday, we feel the key things to take away were the bank’s outlook for China’s growth prospects, the persistent strength seen in the local unit and the fifth paragraph (which seems to be getting the bulk of the attention) that the peak in resource investment may occur next year and could be at a lower level than anticipated. The September low of 1.0167 now looks like near-term support after a break of the uptrend line from June. Tomorrow we have building approvals and retail sales data on the calendar. These releases should give some indication of the shape of the economy and sentiment among consumers.

www.igmarkets.com.au

ends

© Scoop Media