Australian Market Leads - 04/23/2012

The Australian dollar and equity markets are seen riding the crest of weekend highs in the early morning trade. The positive leads from the U.S. and Europe will cascade into the markets early on Monday, analyts said.

According to Morrison Securities and IG Markets, in US and European trade, markets were mostly higher on yet another positive round of corporate earnings. European markets were lifted by stronger-than-expected UK retail sales and a better-than-anticipated German IFO survey.

Among the major averages, the Dow Jones Industrial Average was up 0.5% at 13029. The S&P was 0.1% higher at 1379, while the NASDAQ shed 0.2% to finish at 3000. This optimism on Europe amidst the French elections and the broad fall of the U.S. dollar pushed commodity prices higher.

However, IG Markets strategist Stan Shamu warns that "despite the gains seen in the commodity space, we are likely to see some caution ahead of today's China PMI numbers."

"These numbers tend to have a significant bearing on how commodities and related stocks trade. BHP's ADR is pointing to a 0.4% fall at the open to $35.37. The mining giant's price action is currently testing a downtrend resistance line from April last year's highs. As a result, we might see some key levels tested yet again today. Gold stocks are likely to underperform as the precious metal continues to struggle due to a drop in physical demand from China," Shamu notes.

The Aussie market is seen inching up a couple of points at 4368. We expect a slightly negative bias to this call after risk assets retreated slightly this morning.

Mr. Shamu points out that as the month draws into a close this week, expect the week as a huge event risk, with plenty of significant economic releases due out. On the local economic front, the PPI data is due out today.

The markets are also expecting the release of HSBC's China flash manufacturing PMI number.

"This is normally a pretty significant event risk, particularly at a time when China growth concerns continue to be a hot topic," says Mr. Shamu. "The previous reading was 48.3 and any major moves north of this figure could result in some big moves in the Aussie dollar. Tomorrow we have the much anticipated CPI data due out. The RBA has already flagged the CPI as the key ingredient for a May rate cut, which is now widely expected. As a result, the data will have a pretty strong bearing on how local equities and the Aussie dollar trade this week."

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