IG Markets Afternoon thoughts

IG Markets Afternoon thoughts

FTSE - 5858: +16
DAX - 7316: +24
CAC - 3423: +16
IBEX - 7926: +35
DOW - 13596: +12
NAS - 2790: +3
S&P - 1458: +2

Oil: 90.21
Gold: 1779

Asian markets are mostly higher despite some negative leads from European and US trade. Yesterday there was a degree of caution being exercised ahead of the US earnings season and some key meetings among European leaders. After trading at the top end of the recent range, it just seems like market participants are reluctant to keep driving this market higher until we get the next catalyst. Growth concerns also resurfaced with the IMF cutting its global growth forecast. However, sentiment changed when a report surfaced that China is looking to unveil a significant railroad and infrastructure investment. Some are suggesting the package could be as big as 2.3 trillion yuan. The Aussie dollar has been the main beneficiary of the improvement in risk sentiment. AUD/USD has rallied from around 1.0188 to a high of 1.0244. EUR/USD has remained relatively sidelined at 1.297.

Looking at the equities in the region, China has really driven the gains and equities have surged in Chinese markets. Hong Kong’s Hang Seng has climbed 1.1% and the Shanghai Composite has surged 2.0%. The ASX 200 has finally pushed through 4500 and is currently 0.6% higher. Japan’s Nikkei is underperforming the region and is currently down 0.5%. European markets are facing a modestly higher start with event risk set to ramp up over there as leaders meet. US markets are likely to open a touch higher with some traders returning from the Columbus Day break. There is no major economic data due out of the US today. However, reporting companies will be in focus with Alcoa kicking off proceedings.

The European economic calendar is quite busy today with French government budget balance and trade balance due out. This will then be followed by ECB President Mario Draghi’s speech and ECOFIN meetings. German Chancellor Angela Merkel’s Greece visit is likely to grab headlines as she looks to restore confidence in the country and its future in the euro. There is still uncertainty surrounding Spain requesting a bailout as some European officials have been on the wires reinforcing the country does not need one. All this uncertainty and events on the calendar are likely to be the reasons the euro has been in fairly tight ranges. Traders are approaching the euro with caution and this has kept EUR/USD below the 1.3 level.

The iron ore miners were pivotal to the local market’s strength today. A 6% rise in iron ore prices was the trigger for a major turnaround in the big miners. BHP Billiton has climbed 1%, Rio Tinto is 1.8% higher and Fortescue has surged 5.3%. Apart from the materials, the energy sector has also had a solid performance with Woodside firming 2.2% and Oil Search adding 3.7%. Lagging today have been some of the defensive names, with Telstra falling 0.4%. With the market now trading at its highest level since July last year, some investors might start to feel the best way to get involved in the market is on pullbacks. Analysts have already started downgrading some stocks on valuation grounds after big runs in share prices. Coca Cola Amatil was a prime example today, falling 0.9% after being downgraded to sell by UBS.

ENDS

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