IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Treasuries finally broke their seven-day losing streak overnight as the risk-on trade started to lose its shine. Equities slid, even with the Dow making its six-consecutive record-making days. At the close of the US session, the Dow finished three points higher to 14450, while the S&P 500 pulled back, down four points to 1552 after getting within eight points of the 2007 all-time high.
US 10-year bonds yields dropped four basis points (bps) to 2.02% after reaching an 11-month high yesterday at 2.06%. This mark has been a heavy resistance point with investors jumping in at this level. The bonds appear cheap, and with the US Federal Reserve as the back-stop to the trade, this makes it is almost risk free.

The fluctuations in indices across the globe are starting to gain momentum. Europe’s major players moved in and out of positive and negative territory last night, as did Asia’s major indices, suggesting the correction everyone has been calling for is on its way.

Do not expect the correction to be deep; the dip pick-ups globally have been strong and supportive. A correction of 5% to 7% is all we would expect as investors look for ‘cheap’ entry points into markets. With the Fed confirming it is in for the ‘stimulus long haul’ with both Chairman Bernanke and Professor Yellen continuing dovish rhetoric, it will assure the ‘liquidity-dependent’ markets that this rally will go further even with the impending pull-backs.
Regionally, Japan and China have been the biggest triggers for markets over the past few weeks for various reasons. The Japanese yen continues to be a lead indicator for the local market, with the Nikkei appreciating on the devaluing yen.

After yesterday’s comments by BoJ governor elect Mr Haruhiko Kuroda that the ¥14 trillion stimulus should be brought forward seeing the yen tumble against most major pairs, the opposition Democratic Party of Japan (DPJ) has put the brakes on the yen depreciation by rejecting one of Kuroda’s deputies in Mr Kikuo Iwata (an advocate for even greater stimulus). This news saw USD/JPY losing ground down 0.26% to ¥96.06, and EUR/JPY drop by 0.37% to ¥125.19. With the Nikkei/yen correlation well intact, the Nikkei looks set to drop 85 points on the open and will impact regional markets.

China data will also continue to impact regional markets over the coming days and after slightly disappointing retail sales figures (weakest start since 2009) and lower-than-expected industrial production, the official handover to Mr Xi Jinping tomorrow may see a few economic tweaks. A Bloomberg survey found 12 out of 16 analysts anticipate China to relax or remove the cap on deposit rates or the floor on lending rates. They also expect slight changes to the births and registration policies. These changes may finally alleviate slow-down fears and might see commodities and risk stocks legging up. China is the major hurdle facing the ASX materials and energy spaces right now.

Moving to the open of the Australian market, we are calling the ASX 200 flat up four points to 5121 (+0.07%) on stronger commodity prices and the global miners strengthening in London. Gold, copper and aluminium all rose in London and should bode well for the materials space after several poor performances. BHP’s ADR is suggesting it will follow the leads with the stock set to add 8 cents to $35.75 (0.22%). Gold plays should also see a slight bounce today on the back of an $11 rise in the precious metal overnight. Once more it will be the defensive stocks that will draw attention after most lost ground yesterday; watch for buying in consumer staples and telecommunications.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0321 0.0037 0.36%
ASX (cash) 5121 4 0.07%
US DOW (cash) 14452 18 0.12%
US S&P (cash) 1551.4 -1.9 -0.12%
UK FTSE (cash) 6486 -17 -0.27%
German DAX (cash) 7970 -13 -0.17%
Japan 225 (cash) 12230 -115 -0.93%
Rio Tinto Plc (London) 34.47 0.09 0.25%
BHP Billiton Plc (London) 21.35 0.08 0.40%
BHP Billiton Ltd. ADR (US) (AUD) 35.75 0.08 0.22%
US Light Crude Oil (April) 92.63 0.75 0.82%
Gold (spot) 1592.55 9.0 0.57%
Aluminium (London) 1982 29 1.50%
Copper (London) 7829 74 0.96%
Nickel (London) 17012 228 1.36%
Zinc (London) 2227 29 1.33%
Iron Ore 143.40 -0.7 -0.49%

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.

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