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IG - Morning Thoughts and Opening Calls

Good Morning

With the US closed for Martin Luther King Day, markets were left to fend for themselves. Most Asian markets ended the day lower yesterday as all eyes turned to the start of two days of meetings at the Bank of Japan. The Nikkei slid back from multi-year highs yesterday, down 1.5%, as it continues to follow in the shadow of the yen, which appreciated against all major trading pairs. Over in Europe, stocks nudged higher on the back of Germany’s Central Bank delivering an upbeat assessment of the country’s economic outlook. This helped the eurozone edge higher, however trading was subdued with US investors away from their desks. We expect the same sort of trading on the ASX today, with most investors reassessing positions as most macro events are now factored in.

USD/JPY fell further last night after finishing above the 90 resistance level over the weekend. USD/JPY corrected during the Asian session yesterday and fell another 0.52% during European and US trade as most investors see the touted ¥10 trillion stimulus package well and truly factored in. With investors expecting no real surprise from the BoJ today, watch for this trade to unwind further in the coming days.

As Japan is our biggest regional market, subdued news from the BoJ could mute our current rally. Watch for moves in other regional South East Asian markets as well today, including Malaysia, Singapore and Thailand, as they have all moved higher since Japanese stimulus talks started in earnest back in September. They also look to cash in on Japan’s desire to move out of recession.

Looking to the local currency and with the US closed last night, AUD/USD was stuck in a tight trading band. It continued to bounce off $1.049, but found resistance at $1.052 ahead of the CPI figures tomorrow. Trading volumes were low and movement was subdued; AUD/USD is currently in the middle of its band at $1.0517.
In local news, the euphoria that surrounded NAB yesterday has disappeared in a flash, with a spokesperson from Santander’s London office clearly stating it is not interested in NAB’s UK assets, and instead was looking for organic growth of its own UK businesses. Adding extra weight to this were the London-based analysts stating that Santander had a similar opportunity this time last year to buy assets from the bailed out RBS, and on comparison the RBS assets were better located and had higher quality liabilities. They also noted that Santander walked away from this opportunity as well. After rising almost 2% yesterday, expect NAB to give most of that back today. With the bank’s troubled 25-year UK investment continuing to hold back compared to its peers, one bright spot could be Moody’s who stated publicly last night that selling the UK asset would not impact NAB’s credit rating. This left investors to ask why the board isn’t hunting hard for a buyer. Removing the UK assets would allow it to concentrate on core businesses such as business banking.

Moving to the open and we are calling the ASX 200 up ever so slightly - 0.09% to 4781 points, however we expect it will be another very thin trading day and could see it turn negative as news filters out of Japan. Over the coming months if the ASX is to move higher, the bloating in defensive stocks will need to unwind and cyclical stocks will need additional macro news.

With the US closed overnight, BHP’s ADR was not open, however BHP.AX is currently matching down 0.27% to 36.44 in very early trading, as we eagerly await its fourth-quarter earnings tomorrow night. To commodities, and for a second night in a row they fell away, though it was only slightly, adding pressure to a consolidation on the market today. Iron ore is currently trading at $145.10 per tonne and gold is at $1680 an ounce. As the market looks to keep its head above water today, here’s hoping US reporting season will add an extra kick to keep the current rally going.

MarketPrice at 8:00am AESTChange Since Australian Market ClosePercentage Change
AUD/USD1.05160.0000 0.00%
ASX (cash)47815 0.09%
US DOW (cash)1365916 0.12%
US S&P (cash)1487.42.9 0.19%
UK FTSE (cash)6184-1 -0.02%
German DAX (cash)774822 0.29%
Japan 225 (cash)10806-11 -0.10%
Rio Tinto Plc (London)35.550.53 1.51%
BHP Billiton Plc (London)20.810.30 1.45%
BHP Billiton Ltd. ADR (US) (AUD)36.55--
US Light Crude Oil (March)95.890.22 0.22%
Gold (spot)1690.05-0.1 -0.01%
Aluminium (London)2043-4 -0.17%
Copper (London)8056-10 -0.12%
Nickel (London)17406-154 -0.88%
Zinc (London)2297-4 -0.16%
Iron Ore145.1-0.3 -0.21%

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.

Please contact IG Markets if you require market commentary or the latest dealing price.

EVAN LUCAS
Market Strategist
www.igmarkets.com

ENDS

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