IG Markets - Morning Thoughts
IG Markets - Morning Thoughts
The S&P 500 had a very quiet night with most of Asia offline for either Chinese New Year or Foundation Day. Volumes were lower than average and the index only moved through a four point window. Heading to the close the S&P was down one point to 1517.
Europe was again a distraction, as shares slipped and peripheral bonds gained after European finance chiefs met to discuss aid for Cyprus and Greece. Growing political unrest in Spain and Italy continues to stoke the embers of the debt crisis, with Italian 10-year bond yields increasing seven basis points to 4.62% (nearly a two-month high) as the Italian election heats up. The concern with Italy’s bonds is that they sit third behind the US and Japan for total bond on issue. Unlike Japan where most of its bonds are owned by the domestic population, Italy’s bonds are spread far and wide. We believe Europe will continue to be a distraction this year. There are signs that central Europe in particular is growing and that southern Europe is stabilising, however the political arena will continue to stoke fears of economic mismanagement. Mario Draghi has made it abundantly clear that the ECB will do whatever it takes to provide stability to the region and he looks likely to hold his word.
Moving to our region and today and we will see Japan come back online after Foundation Day. Over the weekend USD/JPY moved back below 93 before rebounding hard overnight in US trade to 93.90 (up 1.32%) and is now at the same level it finished on Friday. The correlation between the yen depreciating and the Nikkei appreciating is still holding true, however this has been accelerated by comments from Akira Amari (a candidate for the Governor role) believing the Nikkei should be around 13,000 points come the end of the financial year. That’s three months from now and is a 17% increase from the current point. The Nikkei is following the rhetoric today, pointing to a 2.2% gain to 11,400.
The race for the now-vacant Governor of the Bank of Japan igniting the yen/Nikkei correlation will heat up. The most aggressive of the front runners, Haruhiko Kuroda (currently the head of the Asian Development Bank) is advocating for increases in stimulus and ending deflation to ‘usher in a growth spurt unseen in a generation’. He also believes that a two per cent inflation target is very reachable for 2013 and for some years to come.
If we do see a BoJ Governor of Mr Kuroda’s calibre, USD/JPY could well punch through 95 and would head to 100 very quickly. It would also signal to Japanese consumers and investors alike that the government is finally taking action.
For our market this link will be vital, exports are increasing as noted by the last terms of trade figures and if our market is to ride Japan’s economic revival, Japan needs to increase its own consumption of goods. Remember, Japan is looking at using gas as its major source of energy longer-term (WPL and STO well positioned), it is looking to ramp up manufacturing of its major industries (steel and iron ore will be required) and it wants to return to sustained GDP growth. As Japan’s third major trading partner, the Aussie market is well positioned to take full advantage of this.
Moving to the
open, we are calling the ASX 200 up 15 points to 4972, as
all eyes turn to one of the largest reporting days. Tomorrow
sees the likes of CBA, CSL Computer Share, Leighton
Holdings, Oz Minerals and Worley Parsons reporting half-year
profits. This will make or break the week and possibly the
current rally, as our market does look slightly over
brought. CBA and CSL will be the main points of interest, as
the fundamentals of these companies look to match up with
the current values. Inline results are likely to see both
shares holding on to their current gains as the dividend on
offer is still a major selling point. It is expected to be
a flat day for BHP, with its ADR suggesting it will be
unchanged at $37.71 ahead of the Rio result on Thursday.
Today will be very interesting to see how much influence
Japan has on our market as the local market looks to
tomorrow’s reports for leads.
Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0273 -0.0028 -0.27%
ASX (cash) 4975 15 0.30%
US DOW (cash) 13973 -8 -0.06%
US S&P (cash) 1517.6 0.5 0.03%
UK FTSE (cash) 6278 13 0.21%
German DAX (cash) 7629 -20 -0.27%
Japan 225 (cash) 11403 249 2.24%
Rio Tinto Plc (London) 36.56 -0.02 -0.05%
BHP Billiton Plc (London) 21.59 0.03 0.12%
BHP Billiton Ltd. ADR (US) (AUD) 37.71 0.00 0.00%
US Light Crude Oil (March) 97.00 1.33 1.38%
Gold (spot) 1649.55 -18.9 -1.13%
Aluminium (London) 2103 -19 -0.88%
Copper (London) 8199 -86 -1.04%
Nickel (London) 18200 -165 -0.90%
Zinc (London) 2388 -30 -1.25%
Iron Ore 155.1 0.0 0.00%
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