IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

The US dollar continued to edge higher against most of the majors, despite data suggesting the US economy isn’t quite where the Fed would want it to be before starting to taper off on asset purchases. On the other hand, US equities benefited from the fact that the latest round of economic data could see the Fed happy to push on with its asset purchases. Industrial production showed a 0.5% contraction versus expectations for a -0.2% result, while the Empire State manufacturing reading also came in below expectations. This helped US markets make another record high, with the S&P posting a ninth record high in ten days. The data over in Europe was even worse, with GDP showing a 0.2% contraction, while the German GDP reading also disappointed. As a result, EUR/USD dropped to a low of $1.284 and looks like it has finally lost its grip on the $1.300 handle. Concerns about the Eurozone are likely to keep the single currency under pressure and at the same time should support European equities on anticipation this might force the ECB to act. In sharp contrast, we heard some fairly bullish comments from the BoE, with data including the claimant count change and unemployment rate impressing. This resulted in a temporary pop higher in GBP/USD, but it was short lived as the USD remained fairly resilient. AUD/USD just managing to hold on and is currently relatively sidelined at 0.99. However, the relentless bearishness in the commodity space is likely to continue to hurt the local currency this week. European session lows at around $0.985 will be the level to look out for, but we remain of the opinion that selling into strength is the more feasible strategy. USD/JPY is in for a big day it seems after a whippy US session which saw it print a new cycle high of 102.76. We have Japan’s GDP numbers due out, expected to show a 0.7% rise and will be sure to draw some attention given officials will be looking for signs that yen weakness is starting to pay dividends. So far the Nikkei is pointing to a 0.5% rise at the open and remains above 15,000.

Ahead of the open, we are calling the ASX 200 up 0.2% at 5200. Yesterday’s steep slide triggered by weakness in resource names and related stocks was quite alarming. With the big miners signalling significant cost-cutting initiatives over the next few years, it will be a tough year for mining services companies like Monadelphous, UGL, Bradken and Boart Longyear. The downgrades have already started rolling in for the sector, with UGL being lowered to neutral (from outperform) by Credit Suisse following its earnings downgrade yesterday. We are likely to see some cycle lows tested by these companies in the near term. Commodities remained under pressure overnight with notable weakness in gold. The precious metal has now broken key near-term support in the $1425 region and dropped back below 1400. We expect gold names to struggle today led by Newcrest Mining which is headed for its lowest level since June 2006 of $15.64. Keep an eye on peers like Medusa Mining, OceanaGold and Kingsgate. USD-exposed stocks, particularly in the healthcare space, will remain in focus after some decent moves over the past few weeks. These stocks have been benefitting from a resurgent US economy and the trend is likely to continue. Graincorp has its first-half results today and there will be greater focus due to any developments on its takeover. Virgin shares will also be in focus on the back of a profit warning.

Market Price at 7:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9893 0.0002 0.03%
USD/JPY 102.2900 0.0700 0.07%
ASX (cash) 5200 8 0.16%
US DOW (cash) 15259 67 0.44%
US S&P (cash) 1658.4 10.3 0.63%
UK FTSE (cash) 6701 15 0.23%
German DAX (cash) 8360 18 0.21%
Japan 225 (cash) 15170 74 0.49%
Rio Tinto Plc (London) 29.14 -0.53 -1.79%
BHP Billiton Plc (London) 19.05 -0.15 -0.77%
BHP Billiton Ltd. ADR (US) (AUD) 33.91 -0.12 -0.34%
US Light Crude Oil (June) 94.43 0.31 0.33%
Gold (spot) 1394.45 -28.3 -1.99%
Aluminium (London) 1840 -18 -0.97%
Copper (London) 7198 -52 -0.72%
Nickel (London) 14892 -274 -1.81%
Zinc (London) 1832 -20 -1.07%

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.

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