Press Release – IG Markets
Across Asia, markets have enjoyed a positive start to the week with equities making gains on the back of resilient risk appetite. In US trade, markets shrugged off news of a Spanish downgrade and a weaker-than-expected US GDP print to finish the session …IG Markets Afternoon thoughts
FTSE – 5782: +5
DAX – 6816: +15
CAC – 3266: 0
DOW – 13235: +7
NAS – 2745: +4
S&P 1404: +1
Across Asia, markets have enjoyed a positive start to the week with equities making gains on the back of resilient risk appetite. In US trade, markets shrugged off news of a Spanish downgrade and a weaker-than-expected US GDP print to finish the session higher. Investors instead focused on acceptable results from the Italian 5- and 10-year bond auctions, strong US company earnings results and rising hopes that the Fed will usher in QE3 to support the sagging US economy. The GDP miss added credibility to Fed Chairman Bernanke’s generally dovish assessment of the economic outlook.
With Chinese and Japanese markets closed today, it has been a fairly quiet trading session. The Hang Seng is leading the region with a 1.1% gain, while the ASX 200 is around 07% higher. Resources are leading the advances in Australia, while banking names are on top in Hong Kong. Chinese markets return to trade tomorrow with key PMI numbers due out, and are expected to come in at around 53.6. With risk sentiment holding steady in the Asian session, US and European markets are pointing to a flat to modestly higher open.
Adding to the euro’s upside momentum on Friday was German Chancellor Angela Merkel appearing to throw her weight behind the idea of complementing fiscal austerity and economic reforms with a growth agenda – something Germany has, until now, seemingly resisted. In a weekend press interview, she suggested that politicians might ’further strengthen the capabilities’ of the EIB, and use European structural funds more flexibly in a bid to stimulate growth. The grim news that Spanish unemployment, at around 25%, has albeit reached levels not seen since 1994 and is a further challenge that austerity is reaching its limits in Europe. Elsewhere, with the US economy clearly slowing (predominantly as a result of reduced Federal Government defence outlays), Wednesday’s manufacturing PMI data and Friday’s non-farm payrolls report will be heavily scrutinised and will be key drivers of Fed policy expectations in the near future.
Turning to the local market, the index has started the week with a bang after breaking through last week’s high of 4393. The market traded to a high of 4395 and continues to knock on the 4400 level. Local focus remains on the RBA interest rate decision tomorrow. A 25 basis point rate cut is already priced in, with a slim chance of a 50 basis-point cut also on the cards. Markets are even pricing in a 32% chance we will see 50 basis points being cut from the cash rate. Perhaps the RBA needs to cut by 50 basis points, given Wayne Swan is about to deliver an extremely austere budget, whilst the banks have been putting rates up independently. However, with low unemployment there is a very small chance of 50 basis-point cut. It seems logical that if we only get a 25 basis-point cut in May, the Reserve Bank will cut again in June. As always, the RBA’s statement is a must-read to get a sense of whether we will see a prolonged easing cycle.