European bourses and commodity markets came under heavy selling pressure overnight following the Yuan devaluation inspired rout in the Asia Pacific region yesterday. However, US shares rallied back from early weakness to post modest gains, and copper and oil rebounded. This may spur a positive start to trading locally, particularly in light of in-line corporate reporting so far, but all eyes will turn to the Yuan rate set this morning to set the tone.
The Yuan rallied yesterday afternoon after reports of state bank buying and comments from authorities that the changes to the fix were about attaining IMF reserve currency status rather than an expression of concern about the economy. A broader acceptance of this proposition, and a fix that reflects current levels of USD/CNY around 6.44, could calm nerves and see shares rally. On the other hand, an aggressively higher fix may prompt further weakness.
Local trading may also see support based on company reports so far. While Fairfax missed badly, and Telstra reported in line, Tabcorp, News Corp, Sirtex, Mirvac and Goodman Group have all exceeded expectations. Although only about 20% of companies have reported annual results so far, both sales and earnings growth are ahead of forecasts.
Crown and Whitehaven Coal will round out today’s major reports. Yesterday’s strong start to trading in the three major banks while CBA was in trading halt suggests the much anticipated share issue was already factored. While CBA remains suspended, and is unlikely to resume today, it may add pressure on the market when it returns.
For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.