IG Markets - Morning Thoughts
IG Markets - Morning Thoughts
With the US market closed for Presidents’ Day overnight, all investor focus turned to European markets, and for a third day in a row the markets fell as major companies such as Carlsberg missed guidance and Mario Draghi stated he ‘did see risks in the eurozone’. The German bund rose on Mr Draghi’s commentary; as all eyes turned to what will be a major test for the political stability of the eurozone with Italy going to the polls on Saturday.
I reiterate my call in past notes; Europe will continue to be a distraction this year and the first of many distractions will start on Saturday. It does look highly likely that a coalition government will be formed and this will heap pressure on the already heavily-indebted nation. Italy is the eight largest global economy and third biggest in the common currency bloc, and as we know from our current political situation, ‘colourful’ political coalitions are hard to manage and will cause destabilisation.
EUR/USD will be the one to watch heading into the election result and with Mr Draghi continuing to hold the line that ‘currency wars’ are not something he is willing to enter into, the pair will continue to fluctuate. However Mr Draghi will jump into the treasuries market if economic stability in the eurozone looks like it is either cracking or if it continues to stagnate; this will ‘unintentional’ affect the euro.
USD/JPY was let off the leash again as G20 leaders stopped short of censuring Japan over its current currency policy, USD/JPY jumped 0.7% yesterday and is now back above 93 after dropping to 92.5 heading into the summit. The other major gossip around the market is that Shinzo Abe is expected to announce the new Bank of Japan Governor before he meets President Obama on February 22. Make no mistake; this appointment (whoever it is) will have a very big impact on USD/JPY and EUR/JPY. It will also affect the Nikkei. The devaluing yen/appreciating Nikkei correlation is holding true and is one area that our market should have a clear focus on. If Japanese investors start returning to the markets, high-yielding, well-managed Australian companies will be in their sights. We believe Japanese investors will be a major player in our market over the coming 18 months.
This all bodes well for the current rally and what makes it more exciting is that 2013 looks like being the biggest IPO year since 2010. At least four major companies are in talks with investment firms to list this coming year. Most notably are Ingham Enterprises (the biggest poultry produce in Australia), in-vitro firm Virtus Health, iSelect Insurance (rumoured) and the big one, Channel Nine. These would see the first real major list on the ASX since QR National back in late 2010. A buoyant IPO market tends to correlate with a buoyant market; if just two of these firms list this year, it will provide an added boost to market morale.
Moving to the open, we are again calling the ASX 200 flat this morning at 5063; this call includes the 4.25 points coming out for the dividends of Wesfarmers, Computershare and Boral. It is hard to really call the direction of this market at the moment; we do expect it to continue to move up and today should be no different with most screens fixed on BHP heading into their first half profit results. With the US closed for Presidents’ Day, BHP ADR market was shut and will not provide a lead. However, overnight iron ore moved up to $157.20 per tonne and after RIO jumped 2.5% ahead of its result, we would be surprised to see the same thing occurring in BHP today. The local earnings season continues today with the likes of Arrium, Coke-Cola Amatil, Cardno, Monadelphous and Sonic Healthcare all releasing results. This should provide leads for the market as a whole.
Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0298 0.0008 0.07%
ASX (cash) 5064 1 0.02%
US DOW (cash) 13985 10 0.07%
US S&P (cash) 1521.9 0.4 0.02%
UK FTSE (cash) 6321 -4 -0.07%
German DAX (cash) 7630 36 0.47%
Japan 225 (cash) 11409 13 0.11%
Rio Tinto Plc (London) 37.10 -0.23 -0.62%
BHP Billiton Plc (London) 22.21 -0.10 -0.43%
BHP Billiton Ltd. ADR (US) (AUD) 38.63 - -
US Light Crude Oil (April) 96.01 -0.13 -0.14%
Gold (spot) 1610.05 -2.3 -0.14%
Aluminium (London) 2123 -27 -1.27%
Copper (London) 8132 -41 -0.50%
Nickel (London) 17915 -229 -1.26%
Zinc (London) 2400 -33 -1.36%
Iron Ore 157.2 2.1 1.35%
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