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, US earnings have been largely ignored as the US market rallied and I feel some of the disappointing earnings were just an excuse for the sell-off. After four consecutive sessions of printing record highs, the S&P finally gave up ground and declined half a per cent. The main result the market concentrated on was a disappointing Q3 report from Caterpillar (CAT). CAT missed on EPS, revenue and also cut 2013 forecasts. This was enough to see its stock drop 5.4%.
Sharp reversal in AUD
There were some pretty big moves in the FX space with the main theme being a reversal in some of the hefty gains we’ve been seeing in the risk currency space. A bigger issue for the market at the moment is the concern about possible China tightening, which had a dramatic impact on Asia in yesterday’s trade. AUD/USD dropped from a high of 0.9758 and is now just above the 0.96 handle. This sharp decline came despite a strong CPI reading.
The pair experienced a bearish reversal and will be back in focus today ahead of the HSBC flash PMI print which is due out at 12.45 AEDT. The market expects the pace of expansion to pick up, with the index expected at 50.4. A weak number could confirm the reversal in AUD/USD. RBA Deputy Governor Philip Lowe is speaking today and traders will be keen to hear more on interest rates and the local currency.
Japan to lead the losses in Asia
A major concern for the region today will be Japan after it led a market rout in yesterday’s trade. USD/JPY fell sharply to lows in the 97.20 region with the pair testing the 200-day moving average at 97.28. This has been big support recently and a break could see the pair head to 96.00. The Nikkei performed a key day reversal, like many other assets, and could see follow through selling on open. As it stands we are calling the Nikkei down 1.4% at 14,298.
Local market facing relatively flat open
Ahead of the open we are calling the ASX 200 up 0.1% at 5,362. After testing 5,400 yesterday, the selling kicked in and ensured the local market experienced a nasty reversal. However, we have actually seen a mild recovery in overnight trade which has seen the local opening call stabilise.
Following CAT’s disappointing report, there will be increasing pressure on local mining services names as the outlook just remains quite dire. After a string of positive results from the miners, there had been growing optimism that perhaps these mining services names would come off their cycle lows, but this could just spell renewed selling pressure for them. BHP’s ADR is pointing to a 1.1% fall to 37.08 despite iron ore prices remaining relatively steady. I expect to see some profit taking in the mining names at the open after a stellar performance over the past week or so.
Defensives are likely to take over as the preferred investment today with healthcare names, consumer staples and telcos outperforming.