IG - Morning thoughts and opening prices 18/1/13

Overnight, the US markets rallied strongly as two major pieces of US data surprised to the upside. The S&P 500 was up 0.70% to 1482 heading into the close, as both the US jobless rate and US housing starts data boosted optimism that the world’s largest economy is healing. Housing starts were the biggest surprise, rising 12.1% in December. Watch for US-exposed building stocks such as JHX and BLD pushing higher today, particularly BLD as investors pile into the company after the announced restructure on Wednesday. The better-than-expected US figures are an added bonus to BLD. Oil surged 1.2% to $95.39 a barrel as commodities pared gains on market optimism. Watch the local energy space today; WPL and STO both produced good fourth-quarter results yesterday and a rising oil price will enhance profits, though energy has been a major laggard.

USD/JPY jumped 1.66% after Japan’s Economy Minister Akira Amari’s said the currency ‘has more room to decline’. Rhetoric like this was all shorters needed to jump back into the yen-bearish trade. USD/JPY reached a high of 90.138 overnight before resistance pushed it back into the government-stated trading band of 85-90. We will continue to look to buy dips in USD/JPY leading into the January 21 BoJ meeting. It is excepted that the trade will unravel, with the board anticipated to fail to meet expectations of ‘bold policy moves’, this failure will probably see policy makers increase rhetoric further to ‘we can do more’. AUD/USD fell further overnight as the unemployment data released yesterday added to the continuing signs of weakness in the domestic economy. AUD/USD dropped below $1.049 before pulling back some losses to rest just above $1.05. AUD/USD is currently trading at $1.054 before the open of Asian trade.

To domestic news, and late last night Rio Tinto’s CEO Tom Albanese announced the company will take an approximate $14 billion worth of write-downs after his two largest acquisitions during his tenure failed to deliver, leaving him no choice but to fall on his sword. The two deals: the 2007 take-over of aluminium giant Alcan for $38 billion which was subsequently soured by China’s emergence as the biggest aluminium producer one year later, and the A$3.9 billion take-over of coal producer Riversdale Mining in 2011 has seen up to 75% of value wiped off the balance sheet. This saw RIO’s London listing fall as much as 4.6% in early trade before rallying on the news that current iron ore head Sam Walsh had been appointed as new CEO by the board. RIO Plc finished only half a per cent off at the close. We see this news as short-term pain for a long-term gain. Sam Walsh’s results speak for themselves; he has continued to hit record production levels and kept RIO’s iron ore revenue ticking over under tricky trading conditions. He will also bring a much stricter and disciplined approach to further investment and capital management. Watch for the share price to wobble today before research houses update their ratings; we would expect upgrades here.

Moving to the open and we are calling the ASX 200 up 0.5% to 4784 points as risk assets look to cash in on global news. Investors will look to US-exposed material and capital goods stocks this morning as they see medium-term value returning. One part of the local market that isn’t being discussed is Japanese-exposed stocks. Australia is Japan’s third biggest import market behind the US and China. They are particularly interested in raw materials and energy; watch for Asian-exposed stock such as STO to take advantage of this. With commodities back in the green overnight, we expect a stronger start for BHP with its ADR pointing to a 0.16% rise to 36.40. We would also expect some switching here with Rio providing additional funding in the materials space as investors reassess their positions. After a week of treading water, the market looks like it will finish on yearly highs after carrying itself yesterday. With good global leads today, we see investors going into the weekend with the market on the upside.

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday’s close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

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