IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5918 +7
DAX 7396 +1
CAC 3532 +4
IBEX 8132 +4
DOW 13555 -2
NAS 2778 +2
S&P 1452 -3

Oil 92.10
Gold 1749

Asian markets have rallied as this week’s positive momentum rolls on. Markets maintained their positive run with another round of impressive US economic data helping sentiment. Housing starts jumped about 15% to a four-year high of 0.87 million, beating consensus of 0.77 million. Building permits also exceeded expectations, while corporate earnings from Bank of America impressed. Over in Europe, there wasn’t much on the calendar, however Spanish yields cooled after Moody’s reaffirmed Spain’s rating early in yesterday’s Asian session. The euro has been sidelined for most of the Asian session with EUR/USD trading at around 1.31. However, AUD/USD has been quite active with the pair coming within striking distance of 1.04. Due to the ties the AUD has to China and commodities, today was always going to be a big day for the aussie. With China seemingly in a better place, the Aussie dollar has recuperated some of its recent losses.

Premier Wen Jiabao’s comments suggesting the economy remains in good shape helped Asian markets get off to a strong start ahead of some economic releases from China. Asian markets have remained resilient on the back of the data which came out mostly positive and helped support the risk tone. China’s GDP was in-line with expectations, while fixed asset investment, industrial production and retail sales exceeded expectations. This helps support Premier Wen’s comments that the Chinese economy is stabilising. Equities around the region have responded well to the data with the Hang Seng rising 0.6% and the Shanghai Composite climbing 1%. Japan’s Nikkei is leading the region with a 1.7% gains while the ASX 200 is up 1.1% with the miners leading. The Nikkei has been lifted by a weaker yen which helps support the export industry. USD/JPY finally broke out of its recent trading range after bottoming out at around 78.60 early in US trade. Another round of positive US economic data set the tone for the US dollar as it strengthened against the yen. The pair charged through 79 to a high of 79.21 where it is currently hanging around. Near-term resistance is at 79.22, which is the 19 September high. Looking ahead to the European session, we are calling European markets a touch higher while the US is relatively flat. Day 1 of the EU Economic Summit will be in focus today as well as a Spanish 10-year bond auction. Over in the US, we have unemployment claims and the Philly Fed manufacturing index to look out for. On the corporate earnings front we have Morgan Stanley, Google and Microsoft.

The local market pushed higher yet again today led by the materials sector. A new 15-month high of 4581.8 was printed in the process and this has left 4600 in sight. The big materials names are clearly playing catch-up after having been left out of the recent move higher. Iron ore miners have extended their gains today with Fortescue Metals and BHP Billiton rising around 3% each while Rio Tinto has surged over 4%. The energy sector has also had a good day led by Woodside Petroleum which is up 3.4% after lifting forecasts for its oil and natural gas output this year. There has also been some action in the financials space after some unusual gains were recorded this morning. Shares in ANZ traded over 6% higher before fading to a 0.9% gain. Bank of Queensland is bucking the trend in the sector with a 0.7% loss after its results disappointed. Many will be surprised by the fact that the market has not faded after the recent run. However, because materials had caused a significant underperformance for the ASX 200, a recovery in the big resource names is helping to offset some of the underperformance in the defensive names which had outperformed this year.

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