IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5788 -7
DAX 7181 -22
CAC 3398 -10
IBEX 7698 -31

Oil 85.27
Gold 1709

Asian markets are mildly firmer with many still focusing on the developments around Hurricane Sandy. We have been operating on limited leads with speculation of BoJ easing being announced at some stage today, helping regional markets stay afloat. Markets continue to tread water with US elections fast approaching and Hurricane Sandy hitting the US east coast. When a weather pattern forces multiple exchanges to close for two days, effectively the first time since 1988, you know it is serious. In this case it is not just the ferocity of the hurricane, but also the geographical location with Wall Street right at the heart of storm. Risk currencies tend to react first to any shift in sentiment and the fact that we have seen limited moves in most risk currency pairs in the Asian session suggests market participants remain unsure and are happy to exercise caution.

Looking at the equities in the region, Japan’s Nikkei (+0.4%) is leading the way after some disappointing economic data (industrial production & household spending) fanned speculation of further easing. As a result, we get the sense that the BoJ announcement on the asset purchase programme is going to be a key turning point for markets in the region. The ASX 200 is flat while the Hang Seng and Shanghai Composite are also experiencing similar moves. Ahead of the European open, we are calling the major bourses modestly lower. Greece will remain in focus as the Troika review nears an end. Latest reports suggest leaders are disagreeing with the Troika on some labour reforms. The lack of developments on the Spain and Greece end is likely to suppress the euro in the near term. On the economic front, ECB President Mario Draghi will be on the wires. We also have Spanish GDP, German unemployment change and an Italian bond auction on the calendar. On a stock level in the US, the obvious beneficiaries from the storm are the hardware and home builders names, while on the downside insurers may struggle. Disaster-modelling company Eqecat said the storm could cost the insurers between $5 billion and $10 billion, but as we have seen many times before where you get volatility in insurance stocks you also get over-reactions and therefore opportunity.

The local market is now flat after having made an attempt higher earlier. There has been a rotation into defensive names today with consumer staples, telecoms and healthcare stocks leading the charge. Energy stocks are struggling after crude prices gave up some ground. This may surprise a few who would usually expect crude to spike in times like this, however, supplies at Cushing, Oklahoma are in excess, and with the lower demand seen as motorists abandon cars, US refiners such Phillips 66, Hess Corp., NuStar Energy LP and PBF Energy have curbed output in response. On the other hand, gasoline and distillates (the ‘products’) which are produced from crude by the refiners have naturally strengthened, and depending on how long these refiners slow down output will determine the upside in crude-related products. Caltex has climbed 1.8% today. Virgin Australia has remained fairly well bid today and is currently up 5.9% after Singapore Airlines bought a stake in the company.

www.igmarkets.com.au

ends

© Scoop Media