IG Markets - Morning Thoughts
IG Markets - Morning Thoughts
The US market came back online overnight after having Monday off for Presidents’ Day and it has come back with a bang. The S&P 500 climbed to a five-year high after trading in a tight band around 1520 for several days. Heading into the close the index was trading at 1529 (+0.61%) as the US markets jumped on German optimism.
Europe was again the focus for most investors overnight as Germany released its much-watched ZEW economic sentiment figures, and just like the Westpac (Australia) and University of Michigan (US) figures - sentiment is through the roof. German investor sentiment jumped to 48.2 on the scale versus a forecasted 35.3 and the previous month’s 31.2; its highest level since April 2010 (pre-euro mess). This is a very interesting result; sentiment is not a tangible figure but it is a leading indicator. If the largest economy in the eurozone (a country that tends to be cautious by nature) is optimistic about future investment and growth, the ‘euro mess’ of the last two and a half years may finally be put on the backburner as the exporting giant that is Germany takes over the headlines for all the right reasons. Europe might then actually see it leading the markets every now and then, rather than dragging on them.
Yesterday also saw the market blink at the Bank of Japan minutes. On release people read into the line ‘no new stimulus required at this time’ and saw the yen appreciate for about thirty minutes after the fact. This quickly corrected itself as the headline sentence was digested. What the sentence really seemed to be about was that Masaaki Shirakawa is not changing his policy stance before he leaves in March. The event we are all watching for is the rumour that Prime Minister Shinzo Abe is expected to announce the new governor before Friday’s meeting with President Barack Obama. Whoever takes over will have an effect on USD/JPY and EUR/JPY and at last take, Toshiro Muto, a former financial bureaucrat, is the leading candidate.
Global leads aside; today we will be governed by the resource stocks reporting. We note that the last half of 2012 was a tricky period for the likes of BHP and WPL as commodity and energy prices fell away. Their results will be governed by three main factors: 1) capex, 2) underlying earning and 3) impairments; both are looking to strip out costs and both have sold out of some projects that will make the actual earnings look slightly larger than they are. Impairment is the big one - BHP has been given a free kick with RIO’s write off in its aluminium and coal projects, while for WPL its Browse project will be the main focus of impairments after selling off parts of the project last year.
Moving to the open, we are calling the ASX 200 up this morning to 5096 (+0.28%). 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, however, it will be affected by the results out of BHP and WPL particularly. We would expect the high-yield play switch that was been going on in the banks, Telstra and the supermarket chains to continue today, and they may either be propping up our market or will be supporting the leads from the results.
BHP’s ADR is suggesting the stock will move lower this morning, pointing to a 0.4% drop to $38.84, however the result and FY13 guidance could change all that. The BHP result will dominate the headlines for the day, but there are at least another twenty stocks also reporting today, namely Fortescue Metals, Fletcher Building, Toll Holdings, Suncorp, Seek, Seven West Media, APA group, Sydney Airport and Aristocrat. So it will be a very busy day on the local market as investors weigh up whether these stock are ahead or lagging the market.
Price at 8:00am AEST
Australian Market Close
Rio Tinto Plc
Billiton Ltd. ADR (US)
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