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Prior to Asian trade, US President Barack Obama made a speech on Iraq suggesting the country is now looking to for a new cabinet. Mr Obama’s endorsement of the developments has been seen as a positive by markets.
While it seems there is progress in Iraq, there are some contradictory comments on the Russia front at the moment. There were suggestions that Russia was withdrawing its troops from the eastern Ukraine border. However, NATO actually came out and said there are no signs of this happening and there is a high probability that Russia could intervene in eastern Ukraine still.
While equities are on the move, the concern at the moment is the fact that major FX pairs and assets such as gold remain relatively sidelined. This shows there is still a great deal of uncertainty as far as sentiment is concerned. Yesterday I highlighted there is a risk that equities could be sold into strength in the near term. It has been a quiet session on the Asian economic calendar, but tomorrow we get some key data out of China and Japan. Perhaps this is driving the cautious tone in those markets. In China we get industrial production, fixed asset investment and retail sales, whilst in Japan we have GDP and minutes.
Banks lead local gains and data impresses
The ASX 200 has outperformed the region today, with the banks really ramping up heading into CBA’s full-year results. All the big banks have posted gains of at least 1% and this has driven the local market’s gains.
We finally received some positive local data today which has contributed towards the banking gains we are seeing. The NAB business confidence and conditions surveys showed a strong bounce from the previous month. The house price index also showed a much better-than-expected 1.8% reading, beating estimates of around 1% growth. Credit card purchases also climbed in June, while balances retreated a touch. This is a very good sign as it shows a pick-up in spending and customers paying down debt. This is particularly positive for lenders and comes at a good time as jobs weakness is a concern. Following the bearish tone that had been set by last week’s jobs numbers, this data was well received today.
Bradken rallies off lows
Apart from the big gains for the banks, it has generally been risk-on for the local market, with materials plays among the leaders. Almost all reporting companies today also managed to log some gains including Bradken, Domino’s Pizza and GPT Group.
Bradken has perhaps been the most interesting one as the stock initially dropped sharply before a fairly significant bounce. While the headline figures all painted a horror image, including a 68% plunge in profit primarily driven by weak mining sector sales, there were some positives. The company saw an improvement in gross margins, heavy cost cutting with a reduction in the workforce, and cash flow generation seems to be in better shape. The restricting efforts are also tipped to really make an impact in FY15. While the results weren’t great, the company is also coming off a low base and even in the absence of guidance, some investors feel there is an investment case at these levels.
Softer open for Europe
Looking ahead to European trade, we are calling the major bourses mildly weaker, with a slight pullback envisaged after yesterday’s big gains. The economic calendar has been light so far this week, which probably explains the lack of direction in the single currency. Through Asia, we have seen the single currency slowly lose its grip on the 1.3400 handle against the greenback.
Later today we have the ZEW economic sentiment readings for Germany and the region to look out for. A sharp fall is being forecast for both readings and this is possibly why we are already seeing some downside in the single currency. Analysts have flagged geopolitical issues as potentially weighing on this data. Should it miss estimates, then a retest of this month’s lows in the 1.333 region could be on the cards. Data is limited in the US with the NFIB small business index reading and the federal budget balance being the main readings to keep an eye on.