IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Panic certainly seems to have set into investors’ minds now as uncertainty around QE and volatility from Japan. Data out of the US added to the confusion around QE as the ADP non-farm employment change came in well below consensus (135,000 versus 171,000 expected). However, the ISM non-manufacturing PMI came in quite positive and the Beige Book reported modest to moderate growth. Employment is a key metric for the Fed, and as a result we would have thought a weaker reading might weigh on the USD and potentially support risk. With mixed readings across the board and increasing rhetoric from Fed members about tapering off, caution prevailed and equities lost ground.

There were also some mixed moves in the currency space, with AUD/USD losing ground along with USD/JPY, while EUR/USD was mildly positive. AUD/USD dropped to a low of 0.9511, its lowest level since October 2011. As we highlighted yesterday, the underlying fundamentals of the AUD are weak at the moment, and any strength is likely to be used as an opportunity to sell by traders.
On the docket today we have trade balance numbers due out and the market expects a trade surplus of $0.2 billion. We really need to see a strong reading on this data to help the AUD come off these lows. USD/JPY will be in focus yet again today after the dramatic moves seen in Japan yesterday. Support for the pair is now in the 99 region, and a break below this level will only rattle the cage further. We are currently calling the Nikkei down 1.1% at 12,869.

Ahead of the open we are calling the Aussie market down 1.2% at 4780. Should it open at that level, we would be down 9% from the May 15 high of 5250. The selling today is likely to be broad based and fairly indiscriminate as confidence continues to wane. At some stage we will start seeing bargain hunters enter the market on hopes of a near-term bounce. This would probably be the case for the big banks, as the yield appeal improves on the back of lower share prices. Valuations for some of these yield plays had been looking stretched for a while, and this is probably a healthy pullback for value investors out there.

BHP’s ADR is only pointing to a 0.1% drop, with iron ore prices relatively flat at 116.2. The metals space wasn’t too bad as gold found some stable ground around 1400. This might help the gold names stabilise today after a heavy sell-off yesterday. Virgin Australia will be one to watch today after Air NZ increased its stake in the airline to 23%. Apart from that, there aren’t too many stock-specific stories today, and as a result most of the moves will be on a macro level.

Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9543 -0.0059 -0.61%
USD/JPY 99.1300 -0.4400 -0.44%
ASX (cash) 4780 -56 -1.15%
US DOW (cash) 14970 -180 -1.19%
US S&P (cash) 1612.2 -17.4 -1.07%
UK FTSE (cash) 6403 -107 -1.65%
German DAX (cash) 8164 -75 -0.91%
Japan 225 (cash) 12869 -146 -1.12%
Rio Tinto Plc (London) 28.15 -0.67 -2.32%
BHP Billiton Plc (London) 18.43 -0.51 -2.71%
BHP Billiton Ltd. ADR (US) (AUD) 33.75 -0.04 -0.11%
US Light Crude Oil (June) 93.74 0.08 0.09%
Gold (spot) 1403.30 -0.5 -0.04%
Aluminium (London) 1966 9 0.45%
Copper (London) 7441 4 0.05%
Nickel (London) 15193 -104 -0.68%
Zinc (London) 1952 2 0.12%
Iron Ore 116.2 0.0 0.00%

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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