IG Markets - Morning Thoughts
IG Markets - Morning Thoughts
The S&P 500 suffered its second day of losses on the back of higher-than-expected unemployment claims and some disappointing earnings forecasts. Heading into the close the S&P 500 was down 0.11% but was still hanging on to the magical 1500 points mark. The fall sees the S&P finishing January with its best start to the year since 1994. The ASX was not far off, closing at 4879, its best January since 1995.
There is a general feeling in the US that markets are due for a breather, and after such a red-hot month any excuse to take profits looks likely. There is also a general consensus that following such a strong six month re-weighting into stocks, earnings need to continue to back this move up. With almost half of US companies now reported, 67% are above estimates on the revenue line and 76% are above forecasts on the EPS line, which shows the earnings are there, however analysts are being accused of being overly conservative. The question will now be whether these percentages can be maintained for the rest of the season.
Turning to our region and the biggest news to affect our market today will be the release of China’s manufacturing PMI. Forecasts see the Chinese economy continuing to expand, with the expected figure to be around 51.1. As a leading indicator of economic health, a positive result here will have several effects on global and local sentiment.
Firstly, the fear of a hard landing in China will continue to abate, after snapping a seven-quarter losing streak in January. With GDP rising to 7.9% and a stellar terms of trade result, a third piece of strong economic data will be all that is needed to see risk legging up.
Secondly, AUD/USD may finally find itself back on the winners list after siding two cents over the past week, as traders look to the Aussie market as a quasi-play on China.
Thirdly, risk will continue to switch on. With the FOMC minutes putting the brakes on global markets yesterday, our commodities-heavy market will see this result as another reason to de-couple itself from US leads and instead look to our Asian partners for guidance. Don’t forget, our two biggest trading partners are here in our region - China and Japan are looking for renewed vigour in their markets this year, which is a major positive for us.
We reiterate our house view - the ASX is on its way to 4986 points in the short to medium term (a 50% retracement of the 2007 high and the GFC low of 2009), and that mark is well and truly achievable with the current momentum. Any positive news today coupled with some solid language from the RBA meeting next Tuesday will continue to help our market move higher.
Moving to the open, we are calling the ASX 200 up
slightly to 4884 points. Overnight, iron ore surged to
$152.10 and saw both BHP and RIO trading higher in London
despite the FTSE falling 072%. We are expecting to see BHP
moving up strongly this morning with its ADR pointing up
0.68% to $37.73, and we should see the materials space move
with it. Financial names are appearing flat as investors
look to WBC and NAB’s earnings reports next week to assess
whether the sector’s current outperforming is justified.
Looking to the end of our shortened week, investors will be
watching the Chinese PMI data with baited breath; watch for
the afternoon session to be governed by the result and
whether we start February positively or
Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0431 0.0036 0.35%
ASX (cash) 4884 6 0.13%
US DOW (cash) 13870 -17 -0.12%
US S&P (cash) 1497.6 -0.5 -0.03%
UK FTSE (cash) 6281 -25 -0.39%
German DAX (cash) 7776 -12 -0.15%
Japan 225 (cash) 11113 63 0.57%
Rio Tinto Plc (London) 35.60 0.08 0.23%
BHP Billiton Plc (London) 21.58 0.09 0.40%
BHP Billiton Ltd. ADR (US) (AUD) 37.73 0.25 0.68%
US Light Crude Oil (March) 97.46 -0.41 -0.41%
Gold (spot) 1664.40 -15.0 -0.89%
Aluminium (London) 2097 -9 -0.40%
Copper (London) 8201 -26 -0.32%
Nickel (London) 18392 47 0.25%
Zinc (London) 2435 -16 -0.66%
Iron Ore 154.5 5.1 3.41%
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