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.
However, a sharp drop in China new loans put a bit of a dampener in risk and seen risk currencies along with equities in China struggle. Japan’s Nikkei is well in the lead after USD/JPY regained some ground in a move triggered by US dollar strength. The dip into ¥103 was taken advantage of and the pair is holding its ground well above ¥104 in Asia today.
The Nikkei has surged over 1.5% after having dropped around 2% yesterday. USD strength has remained a dominant theme in Asian trade with the greenback extending its gains from US trade. Treasuries finally halted their run and it certainly seems market participants are getting comfortable with tapering, as long as US economic data continues to show some strong signs. While the retail sales reading didn’t shoot the lights out, it was enough to restore some confidence to the market.
Fedspeak since the payrolls release has also been overwhelmingly in favour of tapering with Fisher and Plosser being the latest to voice their opinion. Out of the US today we have PPI, the Empire State manufacturing index and the Beige Book due. Fed member Charles Evans is also set to speak and he might balance out some of the more hawkish Fed comments we’ve hear this week.
US earnings in focus
Some real tests lie ahead for US equities in particular as earnings hit the wires. Many analysts feel earnings will really have to impress to help justify the big share price gains we have seen in the US recently. Earnings also got off to a fairly good start with gains for Wells Fargo. This raised expectations heading into the Bank of America earnings, which carry significant weight given the bank’s large retail offering and mortgage exposure. Bank of America (BAC) is expected to report adjusted EPS of 27c, on revenue of $21.1 billion. There will be a focus on legal reserve build, operating efficiency and capital levels. Fundamentally the stock is not expensive relative to its peers or against its long-term average.
Technically the daily chart is about as healthy as it gets. The 21-, 50-, 100- and 200-day moving averages are in alignment and headed higher and there are no signs of divergence in the oscillators, while the RSI’s are not at extreme either. The stock is trading at a reasonable premium to the consensus 12-month price target, however given the trend pullbacks should be bought by traders.
Europe set for modest gains
Looking ahead to the European session, the major bourses are in for a firmer open as they play catch-up to the gains seen in the US and Asia. It is set be a fairly quiet session on the economic calendar front therefore there will be limited leads to work off. The single currency has finally given up some ground after having maintained a fairly tight range so far this week. Given the rise we saw in the USD in US trade, it seemed inevitable EUR/USD would lose its grip at some stage. The pair now looks vulnerable and I wouldn’t be surprised to see it pushed lower through European trade.
OZ Minerals outperforms miners
The local market got off to a good start but has not quite maintained the strength many would have expected to see. I suspect this is partly due to the disappointing numbers out of China and mixed performance in the commodity space. OZ Minerals has been a standout today after positing double digit gains on the back of its 4Q output report. The release of OZ Minerals fourth quarter numbers has been met with glee by the market after production numbers came in on the upper end of the company’s forecasts. C1 cash cost are certainly at bright spot at $1.796 per pound and that is well below the forecasted range of $1.90 to $2.05 per pound. However the cash balance of $363 million is well below the company’s expectations at this point in the investment cycle.