02/09/10 - 15:30
Ben Potter, Research Analyst
Afternoon thoughts from the Trading Room – 3.30pm
Regional markets across Asia are all firmer in afternoon trade, benefiting from the strong gains on Wall St; the most in 8 weeks. Sentiment improved dramatically overnight on the back of the better-than-expected manufacturing data from China and the US. The Hang Seng and Shanghai Composite are the best performers, up 1.3% and 0.9% respectively. The Nikkei 225 and Kospi are adding 0.6% and 0.4%.
In Australia, the ASX 200 is currently 0.5% firmer at 4518, well off earlier highs of 4552. Today’s significant underperformance of offshore leads should not be that surprising given yesterday’s impressive outperformance with investors seeming cautious about chasing the market ahead of key jobs data out of the US tomorrow night. Gains for the session are broad based and are being led by the consumer discretionary, financials and materials sectors while the industrials sector is the day’s laggard, trading flat.
With September traditionally a poor month, the current rally may be short lived, with traders likely to be tempted to book early profits, especially considering the ASX 200 is up 3.4% for the week. Any gains may be an excuse to sit on the sidelines and see how the rest of the month plays out.
Whilst global market trade over the last few days has been positive thanks to better-than-expected economic data, there’s still a lot of caution and tell-tale signs that sentiment is not quite what it needs to be for a sustainable move higher.
Signs of a definitive change in sentiment from our perspective would include a large scale move out of the yen, a convincing rise in treasury yields and a significant pullback in the price of gold.
Ahead of the European open
Even before yesterday's better-than-expected manufacturing data out of the US, equity markets were ascending but the sentiment attached to this reading was sufficient to ensure markets across the globe did indeed start the new month on an upbeat note. The size of the gains however - around 3% for many major indices - was such that a degree of profit taking was inevitable and we're now looking at a slightly softer start in Europe, although admittedly much of the upside is set to remain intact at least for the time being.
Those disappointing ADP payroll numbers out of the US will also help serve as something of a reality check ahead of tomorrow's non-farms and again, any surprises here could easily see all of yesterday's gains unwinding.
In terms of fundamentals, Eurozone GDP and interest rate verdicts will be top of the agenda for many, whilst the UK house price index from Nationwide is also worth watching amidst concerns that another collapse in local property prices could yet be on the cards. Earnings look relatively light too with an IMS from UK electronics retailer DSG and full-year results from Pernod-Ricard being amongst the few notable events here.
Ahead of the open we're currently calling the FTSE down 18 at 5348, the DAX down 18 at 6066 and the CAC down 21 at 3603.
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