China rallies ahead of Lunar break

With US markets closed yesterday, it was up to Europe to give Asia some direction.

China
Source: Bloomberg

The latest developments from Europe have resulted in some mixed trading for Asia with the ASX 200 struggling while China is rallying ahead of the Lunar new year. While the medium-term outlook remains positive with central banks underpinning strength in equities, the near-term picture looks murky.

Greece seems to be moving further away from a compromise with Europe’s finance ministers and the fact it walked away from negotiations is not good for risk at all. Apart from Greece, the rest of the eurozone finance ministers are sounding very unified at the moment and have shown a consistent tone on Greece.

In terms of the next step now, another meeting could be held as early as Friday if Greece submits a request to extend the current programme. It seems all other options are now off the table for Greece and this will certainly put traders on high alert of an escalation of the situation. A consolation is the fact Greece’s Prime Minister has emphasised that a solution could be found in the next couple of days.

Regardless of the differences, optimists will continue to feel a solution will be reached somehow to prevent undoing all the hard work we’ve been seeing from European leaders to resuscitate the economy. The single currency has been choppy and will be on high alert this week as we head into the Friday deadline.

Banks weigh on ASX 200

As is normally the case, Chinese equities are rallying ahead of the week-long break. Investors even ignored another round of worrying property price data and focused on the seasonality of the New Year period.

There has been a bit of activity in Australia, with equities pulling back from six-year highs on a variety of factors. Earnings today have been somewhat underwhelming while an ex-dividend day for CBA also contributed to weakness for the financials. While Macquarie impressed, this was not enough to neutralise the losses from the banking heavyweights like ANZ.

Just taking a closer look at earnings season thus far: 42% of ASX 200 companies have reported and out of those 59% have beaten on EPS while 40% have beaten on revenue. However, we’ve actually seen a 10.6% aggregate decline in EPS and 6.6% aggregate decline in revenue.

In terms of sectors, the materials space has seen a 36% drop in aggregate EPS and this also seems to have impacted the industrials, which are down 21%. It’s the materials that are doing well today, though, helped by China’s tailwind as iron ore prices recover heading into the New Year break. The RBA minutes also received some attention as they saw the probability of a March cut pared back to around 55% (from close to 70%).

There was some deliberation of the timing of the rate cut, which we saw in February, but given we’ve since had Glenn Stevens’ testimony and a very poor jobs release, then perhaps the minutes didn’t carry too much weight. The AUD managed to pop a bit higher on the minutes but positioning remains fairly neutral as a number of analysts and traders still expect a March cut.

Greece to weigh on Europe

Ahead of European trade, we are calling the major bourses weaker as the latest headlines on Greece take a toll on sentiment. As a result, it’ll be a headline-risk-driven environment in coming sessions. If they don’t knock anything up by Friday, the risk-off trade could be very much alive.

On the calendar today we have the ZEW economic sentiment reading to look out for. In the UK we have CPI data and it’ll be interesting to see how this plays out, given the upbeat assessment provided by the BoE last week in its inflation hearings. The US will also return to trade today and, given data is limited, markets there are also likely to follow Europe’s lead.

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.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

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.