Asia struggles after US equities retreat

Asia got off to a disappointing start after comments from Carl Icahn saw US markets lose ground into the close.

Icahn feels many companies’ earnings, are a mirage and earnings may be fuelled more by low interest rates than strong management. The Dow and S&P both managed to print record highs before retreating into the close. While Icahn’s comments were mainly blamed for the sell-off, at such elevated levels investors are always looking for excuses to take some profits off the table.

There are no fresh catalysts to keep pushing equities higher at the moment and Fedspeak continues to throw some mixed signals into the mix. Fed member Dudley said he’s getting more hopeful the US economy is gaining strength as the drag from fiscal policy wanes. Economic growth isn’t yet sufficient to ensure the substantial labour market gains that the Fed has said are a prerequisite to any reduction in its $85 billion in monthly bond purchases. Meanwhile, Plosser stated the central bank needs to set the final size for QE and end the program once that amount is reached. He also reiterated that the Fed missed an excellent opportunity to start tapering in September. Later today, dovish Fed members Kocherlakota and Evans will be speaking and we might see further weakness in the US dollar index on their comments.

RBA not as dovish as expected

The AUD has been an interesting one to watch in Asia today with the RBA monetary policy meeting minutes being the highlight. AUD/USD was losing ground into the release only to reverse higher post the release. The RBA minutes released this morning turned out to be less dovish than what the market was positioned for.

While reinforcing its scope to ease further, the RBA said there is mounting evidence the current monetary policy setting is supporting interest rate sensitive sectors and asset values. While the RBA would want to see a lower AUD, it is clear that this is out of its control. While the RBA would love to ease to help some struggling sectors, it is also sceptical about creating asset bubbles, particularly in the property market. The RBA said it will continue to gauge effects of policy stimulus on the housing market.

Looking at the equities around the region, the Shanghai Composite and Hang Seng are outperforming although the momentum from yesterday’s trade has dropped off. Analysts generally feel the details from the Third Plenum are more aggressive than what many expected, and paves the way to significant growth potential with more sustainable economic growth. The ASX 200 and Nikkei are lagging the region today.

Euro holds on to 1.35 against the greenback

European markets are in for a weaker open as they play catch-up to moves at the end of US trade and for Asia today. The MIB (+2.2%) was a standout yesterday as the Italian government announced a spending review and an imminent debt cutting privatisation plan. Lower bond yields also helped support the single currency and EUR/USD pushed through 1.35 to a high of 1.354. EUR/USD has since pulled back into the 1.35 region and will be in focus later today with some sentiment readings due out. At 21.00 AEDT we get the ZEW economic sentiment for Germany and the region.

Tough day for the ASX 200

The ASX 200 hasn’t done much today, opening lower and staying that way for most of the session. Only the healthcare sector is in positive territory as investors take a defensive position with caution prevailing. CSL Limited, Sonic Healthcare and Primary Healthcare are all in positive territory. Iron ore miners haven’t been able to take advantage of a resilient iron ore price and China optimism. I feel this will encourage investors to buy the big iron ore miners on the dips in the near term

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. 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. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.