IG Markets - Morning Thoughts And Opening Calls
IG Markets - Morning Thoughts And Opening Calls
Economic risk managed to take back the stage last night, after political risk stole the headlines the night before with the hung Italian elections.
The current advantage with economic risk is that it is skewed to the upside, as it is coming from a low base after several years in the doldrums, and last night didn’t disappoint. Heading into the close the S&P 500 was up 8 points (+0.55%) to 1496.
The major pieces of data showed that US consumer confidence is rising, with the figure shooting the lights out coming at 69.6 versus a forecasted view of 60.8 and January’s number of 58.4. Once again a leading indicator shows people are more optimistic than the official (retrospective) figures illustrate. German, Australian and US numbers have all confirmed this over the last two weeks. The more exciting data from the US were new home sales jumping 59,000 to 437,000 in January. The results had a massive flow-on effect to the US homebuilding sector. Names like PulteGroup, Home Depot and KB Home all jumped up in the order of five per cent or more on the back of the figures, and it really bodes well for US-exposed Australian home builders and suppliers with the likes of Boral and James Hardie well poised to take advantage of the flow-on effects.
Fed Reserve chairman Ben Bernanke started his two days of testimony in Washington on the front foot, defending his board decision on asset purchases stating that it supported expansion with little risk to inflation or price bubbles. ‘In the current economic environment, the benefits of asset purchases… are clear.’ This should curb the fear selling we saw last Thursday when the Fed minutes showed some on the board wish to cut purchases sooner, rather than later. The ‘liquidity dependent’ fund managers took this as a sign to get out, and Bernanke’s testimony should put this idea to bed - for now.
Currencies calmed down last night after trading in ranges not seen in months, with the yen the biggest beneficially. After EUR/JPY had a 455-point trading range and USD/JPY had a 378-point range, both pairs relaxed and saw the yen deprecate in both pairs. EUR/JPY was up 0.18% to 120.15, while USD/JPY was higher by 0.25% to 92.05 as investors took stock of what the Italian elections will really mean.
On current numbers, Beppe Grillo and Silvio Berlusconi have won 55% of the popular vote in the senate (upper house), while Pier Luigi Bersani’s narrow victory in the lower house will see a hung parliament. However, all sides are now looking at ways to form a collation government to avoid a second round of elections. President Giorgio Napolitano however may see the result as unworkable and could install an interim government to write a new election law as a prelude to another vote. Conclusion: volatility in the region will remain for some time.
Moving to our region, and today is pretty quiet on the macro-economic front. Japanese retail sales figures are out, and having seen the earnings reports from Sony and the like over the past few weeks, we are not expecting too much from these results. Australia has a prelude result to GDP today with the release of construction work done. The results will give insight as to how employment and spending are currently tracking and may have flow-on effects for the construction and building supply stocks. (i.e. Adelaide Brighton Cement).
The results are unlikely to move AUD/USD much at all, with several media outlets latching on to Assistant Governor Guy Debelle’s comment yesterday that eluded to the fact the dollar was ‘somewhat on the high side’ and that ‘there’s no limit on our ability to supply Australian dollars’. However, don’t forget that just last Friday Governor Stevens stated that current interest rate cuts were starting to work and that he was happy with the levels at the moment. The likelihood of a move in the next six weeks looks sim.
Gold found itself back above $1600 last night on Italian fears; this should continue to help Australian goldminers with the likes of Newcrest, Perseus and Kingsgate all in the top ten leaders yesterday. Watch for another round of support today on the back of the gold price.
On another note, UBS has come out with an interesting call regarding iron ore pricing. It is calling iron ore down 54% to around $70 a tonne - the lowest level since 2009 - as China boosts production and global supply climbs. How this call affects the pure-plays such as FMG and AGO only time will tell. The fallout for some of the smaller cap companies in this space if this price is realised would be dire.
Moving to the open, we are calling the ASX 200 up 18
points to 5022 (0.36%). Watch the yield plays today,
particularly Telstra, Wesfarmers and Woolworths as people
scramble to pick the dips from yesterday. The materials
space looks like it may also catch a ride north, with
BHP’s ADR suggesting BHP will add nine cents to $36.44
(0.24%) today, after falling 7.6% in the last week. With two
more trading days to go in February, it looks like we may
see two out of two positive months for the
Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0235 -0.0042 -0.40%
ASX (cash) 5022 18 0.36%
US DOW (cash) 13917 103 0.74%
US S&P (cash) 1501.1 9.5 0.64%
UK FTSE (cash) 6286 24 0.38%
German DAX (cash) 7641 -7 -0.10%
Japan 225 (cash) 11390 -25 -0.22%
Rio Tinto Plc (London) 35.01 -0.28 -0.80%
BHP Billiton Plc (London) 20.83 -0.41 -1.91%
BHP Billiton Ltd. ADR (US) (AUD) 36.44 0.09 0.24%
US Light Crude Oil (April) 92.63 0.14 0.15%
Gold (spot) 1612.60 19.6 1.23%
Aluminium (London) 2034 3 0.15%
Copper (London) 7891 33 0.42%
Nickel (London) 16748 121 0.73%
Zinc (London) 2312 21 0.93%
Iron Ore 151.9 0.0 0.00%
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