IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 5853 +14
DAX 7354 +28
CAC 3457 +8
IBEX 7820 +1
DOW 13126 +14
NAS 2669 -4
S&P 1418 +1

Oil 85.66
Gold 1685

Asian markets are mostly weaker in choppy trade ahead of the US presidential election. The trend is likely to continue with assets relatively range-bound, with investors exercising caution heading into the elections. The polls remain very close, which is probably why we are seeing cautious trading. Many feel a Republican win would be Wall Street’s preferred party since it has proposed a suite of tax cuts. However, given Mitt Romney’s stance on Fed policy, while at the same time proposing to label China a currency ‘manipulator’, we would not be surprised to see USD strength, which could be negative for certain asset classes, namely gold. On the other hand, a Democrat victory would provide markets with certainty about the Fed’s continued loose monetary policy and weigh on the USD. Of course, the market will also be highly concerned about the composition of the Senate and House, and if congress can finally agree on budget and tax cuts by January 1 to avoid the looming ‘fiscal cliff’. As a result, tomorrow will be a big day for markets as investors digest the results and what they mean going forward. Most of the major currency pairs have been relatively steady in Asian trade apart from the Aussie dollar, which experienced some position adjusting ahead of the RBA’s policy decision. AUD/USD spiked to 1.0383 prior to the announcement and extended this to 1.0435 post the announcement.

Looking at the equities in the region, the Shanghai Composite is lagging with a 1.5% drop, the Hang Seng is down 0.6% and Japan’s Nikkei has shed 0.5%. The ASX 200 is outperforming with a 0.2% gain, despite the RBA’s decision to keep rates unchanged. Ahead of the European open, we are expecting a flat to modestly firmer open for the major bourses after yesterday’s sell-off. On the economic front, we have Spanish, Italian and European services PMI data due out. Any headlines on the Greece front will also have some bearing on the euro as we approach the November 12 meeting. US markets are facing a flat open with elections in focus.

The local market was positive for most of the session and managed to maintain a modest gain despite the RBA’s decision to keep rates on hold at 3.25%. Apart from Europe, the RBA feels economic conditions have stabilised and also noted a recovery in some of the key commodities. Interestingly though, the RBA is still talking about large increases in capital spending in the resources sector at a time where we are seeing some significant cuts to spending by the big miners. However, the central bank is not concerned about inflation and noted ‘there are signs of easier conditions starting to have some of the expected effects’. It certainly sounds like unless the world economy deteriorates as opposed to maintaining a steady recovery path, the current rate setting will be maintained into next year. Financial names are among the leaders today, with Westpac rising 1% and National Bank up 1.1%. The miners are mixed with BHP Billiton and Rio Tinto edging higher but Fortescue Metals weaker. The retail sector has dropped with Myer (-1.6%), Harvey Norman (-0.5%) and David Jones (-1.4%) all lower. Some of the healthcare names are having a good day, with Resmed rising 0.8% and Ansell up 0.5%. Consumer staples, utilities and industrials are all in negative territory.

www.igmarkets.com.au

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