Equities rally into weekend

Asia is rallying into the weekend with China continuing to lead the region.

Source: Bloomberg

While the Hang Seng has cooled off from the big gains we had gotten accustomed to, the Shanghai Composite has picked up from where it left off and started to rally again after trading back above 4000.

The latest data showed China’s CPI held steady while the PPI contracted by slightly less than expected. While this data didn’t really reveal much, it was enough to keep investors believing that the PBoC will soon act to appease.

The reading also helped calm some of the deflationary fears that have been floating around. Unlike the past couple of days, the southbound quota hasn’t been exhausted today. This probably explains the gains we are seeing in mainland equities.

Home loans miss drives equities

Locally, focus was on the miss in the February home loans data which showed a 1.2% rise when the market was expecting a 3% gain. This helped calm some of the fears that strong housing demand and excessive borrowing would keep the RBA calm and delay further easing.

As a result, the yield plays took kindly to the data and banks are now enjoying some gains. However, for the ASX 200 to finally knock through the 6000 barrier we need to get a strong indication of an imminent cut.

Additionally, the lack of confidence in the mining space will keep gains somewhat capped. Energy plays are enjoying some relief after a rebound in oil prices but this could be short-lived given the choppy trade we continue to see in crude.

Local data was relatively benign this week but next week we have jobs numbers which will deserve quite a lot of attention.

Nikkei rally subsides

The Nikkei reached a milestone today, trading above 20,000 for the first time since April 2000. The profit taking was relentless at those levels, resulting in the market struggling to hold on to that level.

While the move was short-lived, I feel investors will continue to look for buying opportunities on dips. The greenback has remained firm heading into the weekend and USD/JPY looks like one of the pairs that’s gearing up to extend gains. There isn’t much on the calendar heading into the weekend but perhaps Fed member Lacker’s comments deserve some attention.

Firmer open for Europe

Ahead of European trade we are calling the major bourses firmer, with the FTSE consolidating above 7000 and the DAX above 12,000. With Greece having now paid its €450 million IMF debt, this removes some uncertainty from the market.

While it’s likely to remain a problem in the medium term, for now the risk is certainly reduced. Should EUR/USD continue to struggle in the near term, I wouldn’t be surprised to see the DAX retest record highs.

On the calendar we have French industrial production and UK manufacturing and industrial production to look out for.

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