Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets
It’s been risk-on through Asian trade today with some of the major markets breaking key levels after a solid lead from US trade. A combination of US earnings optimism, positive US economic data and a slight downgrade to Russia risk has ignited markets today. While we were expecting to see gains for Asia at the open this morning, very few would have expected the magnitude of the gains we’re seeing now.
While US markets rallied into the Apple result, the result itself was a bit underwhelming as we’ve come to expect big things from the tech giant. In post-market trade, Apple shares actually retreated with the revenue miss being a slight concern. iPhone sales were up 13% and this drove revenue up 6% to $37.4 billion. This revenue was a slight miss to the market’s expected $37.95 billion but the EPS was bang in line at $1.23 a share. While sales of the iPhone and Mac were strong, iPads have lagged and there will continue to be questions around innovation without Steve Jobs.
Later today attention will switch to Facebook which reports Q2 earnings post-market as well. The stock has staged a strong rally since April and traders will be eyeing the all-time high of $72.59. Investors expect to see Q2 EPS of 32c on revenue of $2.81 billion. Q2 mobile ad revenue is expected to be around 62% of the total advertising revenue, which would be a three percentage point increase from Q1. It is worth highlighting FB has beaten adjusted EPS seven of the past eight quarters and beaten revenue all of the last eight quarters.
BHP results impress
In the Asian region, the ASX 200 has been a standout after rallying to fresh six year highs. The ASX 200 breached a significant barrier in the 5560 region and has managed to trade within touching distance of 5600. Focus has mainly been on the materials play today with BHP Billiton leading after reporting impressive Q4 numbers.
BHP managed to beat guidance in iron ore, petroleum and met coal while copper was in line with guidance. The miner also forecast increased production from all these four commodities for FY15. Today’s report set up BHP for a solid financial report on August 19 and no doubt expectations will be running high. Traders will be eyeing a retest of 39.79 (February highs) in coming weeks. The other key event in local trade was the Q2 CPI release this morning.
While the headline numbers were in line with estimates, the trimmed mean reading, which the RBA looks at, came in well ahead of estimates at 0.8% (vs 0.6% exp) quarter on quarter and 2.9% (vs 2.7% exp) year on year. While the number was still within the RBA’s target band, the market was increasingly hoping to see inflation taper off as some were already starting to price in the possibility of further RBA easing.
As a result the net effect was a modestly firmer AUD and some profit taking on the ASX 200. However, given the strong trend in domestic equities at the moment, buying the dips might actually be a preferred strategy.
Euro breaches key level
Looking ahead to European trade, we are calling the major bourses mildly weaker. While Russian equities and the ruble enjoyed some reprieve in yesterday’s trade, the repercussions from recent events are far from over.
The EU is still threatening to introduce a package of further significant restrictive measures against Russia while bond markets are still shaky. This perhaps warrants some caution for some investors. EUR/USD’s slip below 1.3500 was also a significant move and this pair will be one to watch in the near term.
On the weekly chart, EUR/USD has also broken below the 2012 uptrend and no doubt pressure will be mounting. Traders will now be trying to figure out how much lower it has to run. Trailing stops are always the best way to go in this situation as the move is still difficult to judge if it’s sustainable or we’ll see a bounce before fresh selling.
While data is limited in the US and Europe today, traders can keep an eye on Bank of England minutes and Mark Carney’s speech. This might have some bearing on the sterling.