IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5805 -2
DAX 7228 -4
CAC 3439 +4
IBEX 7751 -25

Oil 85.90
Gold 1713

Asian markets are mixed on the back of some mixed leads from US trade on Friday. Most of the equities in the region enjoyed a fairly positive start to the week after having been sharply sold off into the close of Friday’s Asian session. However, with US elections fast approaching and Hurricane Sandy headed for the US east coast, there are quite a number of factors which are seeing investors exercising caution. Already we have heard US markets will be closed today after initial reports suggested electronic trading will be open, but floor trading will be shut. This will keep several market participants on the sidelines with thin trading across the board. US equities were essentially unchanged, perhaps foreshadowing a lacklustre 8 to 9 days ahead until the US election process has run its course and the investing world has a clearer picture as to who will be leading the US and what directions its economy is likely to take. Given the close nature of the election race and the ramifications for the following fiscal cliff negotiations, equities are likely to be both choppy and range bound in the days ahead with money managers not wanting to make big bets until the outcome is known. Risk currencies struggled early in Asian trade but have since recovered some ground. This has left them relatively flat from Saturday’s close and give a more accurate reading of sentiment out there. We are likely to see these tight ranges being maintained into the European session.

Looking at the equities in the region, the ASX 200 is leading with a 0.5% gain after stalling at the 4500 level. Japan’s Nikkei is relatively flat ahead of the BoJ meeting tomorrow which could see the yen weaken. With the market having priced in a ¥10 trillion expansion to the asset-purchase programme, there is a good chance that if this amount is revealed we may see USD/JPY face renewed pressure. So far, USD/JPY has found support at the 79.50 level and we sense the BoJ will have to do more than an expected ¥10 trillion expansion if it wants the yen to weaken from current levels. Elsewhere, the Hang Seng and Shanghai Composite are both a touch softer. Ahead of the European open, we are calling the major bourses mildly weaker. There isn’t much on the European economic calendar apart from German preliminary CPI. Traders will continue to monitor the wires for comments on Spain and Greece. Although the official publication of the Troika review is still a couple of weeks away, doubts over Greece’s ability to meet its bailout requirements may weigh on the euro ahead of the report. The euro could also struggle on the back of reports suggesting Spain is in any rush to request a bailout and activate the OMT.

The local market climbed to the 4500 level before its rise stalled with this level now acting as near-term resistance. Apart from the move we saw after the open, the ASX 200 hasn’t done much today. Resource names have led the gains with Oil Search adding 2.2%, Rio Tinto rising 1.4% and PanAust up 1.5%. Some have attributed the gains in the energy space to the likelihood that oil prices could rise should the hurricane cause a disruption in supply. Apart from the resources, financials have held up fairly well with most of the big banks mildly higher. After a poor start, Macquarie Group has turned around and are now positive as analysts reviews following its first-half results continue to trickle in.

www.igmarkets.com.au

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