Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


IG - Morning Thoughts and Opening Calls

IG - Morning Thoughts and Opening Call

Good Morning

Overnight the S&P 500 climbed, sending the benchmark index to its highest level in five years. It is now only 3% away from its all-time high in October 2007 and the US earnings season has continued to top estimates as investors turn to President Barack Obama’s State of the Union address later today. Of the 354 US companies that have now reported, 74% of them have exceeded profit expectations while 66% of those have beaten sales estimates, which is above the normal average for reporting season (data from Bloomberg). The comparisons with our earnings season will be very interesting as it heats up this morning.

USD/JPY fell back below 94 as some in the G7 bock of nations showed concern over the volatility in the yen. This comes after yesterday’s comments from the US that appeared to endorse a weaker yen as long as the Abe government didn’t actively pursue devaluation. In our opinion, these conflicting statements only add to the volatility. Japan’s Finance Minister, Taro Aso, has stated that the currency can go to 100. The fact Japan is currently looking for a new BoJ Governor, with the front runner being Haruhiko Kuroda (currently the head of the Asian Development Bank), advocating for increases in stimulus and ending deflation to ‘usher in a growth spurt unseen in a generation’ means that volatility will remain in the yen and ‘currency wars’ look like being a major theme this year.

However, last night Mario Draghi addressed Spanish lawmakers, stating that he would only employ the yet-to-be-used Outright Monetary Transactions (OMT) if major problems in the transmission of its monetary policy were to arise. This shows that the ECB still has levers in its arsenal to control the debt crisis and has seen peripheral bonds yield fall with Spanish 10-year bond yields falling to 5.3%. In the same speech, he said that current talk of ‘currency wars’ was overdone. He also exaggerated and rejected setting exchange rate targets for the euro, as some in the union have suggested, namely French President François Hollande.

With the markets now this strong, most strategists are expecting a pullback. A recent Goldman Sachs note changed its outlook on global equities from a buy to neutral in the short term. In the same note, however, it stated that buying the dips should be advantageous and that only a small correction would be need to change its neutral call back into a buy. What we are asking here in Australia is; does the same call apply here?

The ASX 200 has rallied 311 points this year alone and a staggering 974 points since the June 12 low. Having reached 4981 points in the first hour of yesterday’s trade, will Australian reporting season see us breaking through our short-term target of 4986, the 50% retracement of the 2007 high compared to the GFC low in 2009? Our feeling is likely yes, however with so many companies reporting today, the likelihood of some disappointing the market is very probable. Even if CBA produces a solid result, weight of numbers could actually hold us back and possibly drag us lower. With the last six months being a vexing one in the energy, mining services, engineering and retail services domestically, and with local companies still having overhangs from previous years, do not be surprised if the likes of Leighton Holdings, Worley Parsons and even CSL get sold off today with inline results. Investors will be actually aware of return on equity (ROE) and price to earnings (PE). We saw this last week, that even inline results and solid guidance will not be enough if the stock looks over brought and/or expensive on these metrics (i.e. MQG).

Moving to the CBA results and on the headline the numbers look good and are ahead of consensus. Cash earnings came in at $3.78 billion, up 6%; Bloomberg consensus was $3.7 billion and was at the higher end of analyst views. The heavily-followed net interest margin (NIM) came in at 2.10%, up four basis points on the previous half at 2.06, however it was lower than the year before at 2.12%. The return on equity was 18.1% (a very solid number) and the biggest pressure on the bank has been how much liquid capital will be returned. CBA has confirmed an interim dividend of $1.64 fully-franked dividend; consensus had expected $1.62. This is a very solid result and with analysts expecting a low growth year in banking, CBA has delivered. It will be interesting to see how the market reacts to this result; CBA is currently trading on a 14x 12-month earnings ratio with a 15% premium to its major peers.

Moving to the open, we are calling the ASX 200 up 11 points to 4970, as investors and analysts alike digest the results from CBA, CSL Computer Share, Leighton Holdings, Oz Minerals and Worley Parsons. As stated yesterday these results will make or break the week and possibly the current rally, as our market does look slightly over-brought. Tomorrow sees RIO stepping up to the plate with its earnings and that will govern how the materials space performs in the short term. We are expecting to see BHP moving higher today, with its ADR pointing to a 0.22% gain to $37.68.

MarketPrice at 8:00am AESTChange Since Australian Market ClosePercentage Change
AUD/USD1.03040.0060 0.58%
ASX (cash)497213 0.26%
US DOW (cash)1400451 0.36%
US S&P (cash)1520.86.3 0.41%
UK FTSE (cash)631647 0.76%
German DAX (cash)766446 0.60%
Japan 225 (cash)11393-10 -0.09%
Rio Tinto Plc (London)36.700.14 0.39%
BHP Billiton Plc (London)21.50-0.09 -0.44%
BHP Billiton Ltd. ADR (US) (AUD)37.620.03 0.08%
US Light Crude Oil (March)97.470.57 0.59%
Gold (spot)1652.054.9 0.29%
Aluminium (London)211713 0.64%
Copper (London)824145 0.55%
Nickel (London)18304103 0.57%
Zinc (London)241933 1.38%
Iron Ore155.10.0 0.00%

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

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Scoop Business: Alex Swney Pleads Guilty To $2.5M Fraud Charge

Alex Swney, former chief executive of the Auckland city centre business association Heart of the City, has pleaded guilty to dishonestly using documents to obtain $2.5 million. More>>

ALSO:

Petrol Burns Prices: Second Consecutive Quarterly Fall For CPI

The consumers price index (CPI) fell 0.3 percent in the March 2015 quarter, following a 0.2 percent fall in the December 2014 quarter, Statistics New Zealand said today. The last time the CPI showed two consecutive quarterly falls was in the December 1998 and March 1999 quarters. More>>

ALSO:

Scoop Business: NZ Broadcasters Launch Battle Against Global Mode ISPs

New Zealand broadcasters have confirmed they’ve launched legal proceedings against internet service providers who give customers’ access to “global mode”, which allows customers access to offshore online content, claiming it breaches the local content providers’ copyright. More>>

ALSO:

Sanford: Closure Of Christchurch Mussel Processing Plant Confirmed

The decision comes after a period of consultation with the 232 staff employed at the Riccarton site, who were told on 9 April that Sanford was considering the future of mussel processing in Christchurch. Recent weather patterns had impacted on natural spat (offspring) supply... More>>

ALSO:

Price Of Cheese: Dairy Product Prices Fall To The Lowest This Year

Dairy product prices fell in the latest GlobalDairyTrade auction, hitting the lowest level in the 2015 auctions so far, as prices for milk powder and butter slid amid concern about the outlook for commodities. More>>

ALSO:

Houston, We Have An Air Route: Air New Zealand To Fly Direct To The Heart Of Texas

Air New Zealand will fly its completely refitted Boeing 777-200 aircraft between Auckland and Houston up to five times a week opening up the state of Texas as well as popular nearby tourist states such as Louisiana and Florida. More>>

ALSO:

Scoop Business: Reserve Bank’s Spencer Calls On Govt To Rethink Housing Tax

The Reserve Bank has urged the government to take another look at a capital gains tax on investment in housing, allow increased high-density development and cut red tape for planning consents to address an over-heated Auckland property market. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news