CMC Markets – Evening Update 23/11/12

By Donal Wee
Business Operations Analyst
CMC Markets Singapore

Asian equity markets had a strong performance this week as most of the regional indices posted gains. The positive returns over the week were helped by strong HSBC Flash PMI figures out of China, bringing the country out of its slump witnessed over the last 7 straight quarters. Chinese manufacturing index signalled the first expansion in 13 months with a preliminary reading of 50.4 for a purchasing manager’s index compared against the final level of 49.5 for the month of October with readings above 50 indicating expansion.

Helping boost markets earlier in the week was the growing optimism that President Obama and Congress can come to an agreement over the US “fiscal cliff” burden which has rocked investor confidences over the last few weeks. Europe was again at the forefront this week as leaders met over the ongoing saga that is the Greek bailout program.

The Eurozone finance ministers came together to consider ways of reducing Greece’s public debt, which is projected to rise to 189% of GDP by next year however the country’s bailout programme aims to get this figure down to 120% of GDP by 2020. In what has been a busy week so far in Europe, tonight we will see European Union leaders meeting in Brussels as they face a second day of gruelling negotiations in an attempt to agree on a seven-year budget which will run until 2020.

The Japanese market was closed today due to a public holiday however the Index performed well across the week as it finished up 3.7%. The solid gains were helped by the growing optimism that the Japanese opposition party will win support in next month’s election and in turn will put more pressure on the Japanese Central Bank to added more monetary stimulus.

Hitting the headlines yesterday was electronic manufacturers Sony Corp and Panasonic Corp. as both companies’ had their credit ratings cut to junk for the first time by Fitch Ratings. This came after both companies posted record losses due to slumping demand for their televisions. Sony’s rating was cut by three levels to BB-, three steps below investment grade, and Panasonic by two levels to BB, with the outlook on both companies being negative.

In Australia the ASX 200 fell 0.08 % to 4,413 today however the Index was up 1.7% for the week, its highest weekly rise in four weeks. Australian banks were in focus after the chief executive of ANZ said banks will need a small capital increase to meet Basel III global banking regulations. ANZ fell 0.59% while Commonwealth Bank of Australia gained 0.48% and Westpac finished up 0.44%. In Hong Kong the Hang Seng Index was 0.8% higher today at 21,913, its highest level since early November, the index rounded out the week up 3.4%

The local Singapore market had a strong performance this week as it finished up over 1.5%.The biggest news story during the week was allegations made by Muddy Waters over irregularities in agricultural commodities company Olam International accounting practices, these allegations were strongly refuted by the company however it wasn’t enough to stop the stock falling over 7.5% on Tuesday, however for the week, the share closed down over 6%. Today the Straits Times Index added to its weekly gains finishing up fractionally by 0.1% with warehouse operator Global logistic trading up by as much as 2.7%. The Index managed to round out the week up over 1.5%

Gold has continued to trade in a tight range again this week, managing to round out the week with a small gain. Gold has largely been supported by a weaker USD with the dollar index down over 0.5% over the course of the week. This coupled with US fiscal cliff worries, tensions in Gaza and continual disagreement between Euro leaders has kept gold supported around the 1730 level. On a technical front, a continued failure to push through 1735 has traders looking for downside.

USD/JPY has once again been the standout performer in terms of Forex, climbing to 7 month highs throughout the week, breaking through the 82.00 handle. The Yen has continued its slide, with pollsters speculating that opposition leader Shinzo Abe may win the election on December who is pushing for short term interest rates below zero and further asset purchases by the BOJ, in order to lower the yen.

Any surprise result to the election could see USD/JPY aggressively reverse the gains we have seen over the past 2 weeks. EUR/USD has also been well supported throughout the week, gaining just over 1%, with expectations that we will see an agreement next Monday in terms of releasing funds to Greece after both the German Chancellor Merkel and European Commissioner Rehn both stated they expected a deal Monday.

With next week being the last of the month there is a bit of data to wrap up the calendar month. Monday night the Eurozone finance ministers will continue their debate around the next round of loans to Greece and any more delays in resolving the issue could have traders reaching for the red sell button.

Tuesday we will have the GDP reading from the UK which is expected to return a reading of 1% for the quarter and for the year on year measure to remain unchanged at zero GDP growth. Wednesday night we will get another insight into the US housing market with the weekly mortgage application figure and New Home Sales data for October which is expected to come in marginally lower than September.

Any surprise to the upside could give markets a kick as house price growth is seen as crucial to US economic recovery. Later that session we will also get to see the latest instalment of the Fed’s Beige book which is published just before the FOMC meetings and give insight into changes in the economy since the last meeting.