Equities remain bid as optimism around earnings ramps up

Risk remained well bid despite a continuation of US dollar strength. There were no surprises from Fed chief Ben Bernanke’s testimony in front of the Senate as he reiterated what he had already said in front of the House.

US dollar strength was primarily driven by some better than expected unemployment claims and Philly Fed manufacturing data. Unemployment claims dropped to 334,000 versus 344,000 expected while the Philly Fed manufacturing index came in at 19.8 versus an estimate of 8.

A headline also crossed the wires that Moody’s upgraded US credit rating from negative to stable AAA. Meanwhile earnings also impressed, with Morgan Stanley leading the way. According to Bloomberg, out of the companies that have reported earnings so far, 73% have topped analyst estimates. Most of the major investment banks have trumped estimates (including Goldman Sachs, Citi and Morgan Stanley) and this is usually a good forecast of market conditions.

This helped the S&P to a record an intraday high of 1,693 as optimism continues to ramp up heading into the thick of reporting. USD strength resulted in a big move higher in USD/JPY which managed to print a high of ¥100.66 heading into a key weekend. With the pair riding high, Japan’s Nikkei is facing a gain of around 0.8% at the open which will bring it within striking distance of 15,000.

It is the last day for traders to position portfolio ahead of the weekend’s upper house elections in Japan. The polls are suggesting a strong victory for Shinzo Abe’s LDP party which would be positive for the Nikkei, and negative for the JPY. Prior to that though, we get the weekly MoF fund flows at 09:50; another week showing good buying would be good for the Nikkei.

Ahead of the open we are calling the Aussie market up 0.4% at 5012. This is right at last Friday’s high and is also a key resistance level. As we have mentioned recently, 5012 is the 61.8% retracement of the recent sell-off from 5246 to 4632. A closing break here would be very positive.

The big miners are facing another strong start after a solid session in the UK. BHP's ADR is pointing to a 0.7% rise to 34.44 after iron ore climbed 1.2% to 131.9. We have already received fairly impressive production reports from BHP, RIO and Woodside this week and these should keep their share prices supported in the short term. Santos has had a stellar run recently with its share price popping above $14. The stock is up 18.6% since its low on 25 June and will be in focus today with its 2Q output report due out. Any slight disappointment could see this undone very quickly.

CSL Limited will be in focus today after peer Baxter posted solid earnings which came in ahead of estimates. We are likely to see the stock back above $65 today with its $67.19 high in focus.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.