IG Markets: Morning Prices

On Wall Street overnight, the major US indexes finished mixed as the US dollar rallied on a slightly better-than-expected jobless claims figure and as participants positioned themselves ahead of what’s expected to be quite a strong nonfarm payrolls number this evening. Worse-than-expected December retail sales figures also sapped market confidence.

The NASDAQ was the outperformer, rising 0.3% while both the Dow Jones Industrial Average and S&P 500 slipped 0.2%.

Locally, the ASX 200 is called to open the session 0.2% weaker at 4718 following the mixed overnight session. Looking across the sectors and it doesn’t look great in terms of where some support may come from.

It looks like the energy and material sectors are going to see a fair bit of pressure after they were among the biggest detractors in US trade, declining 0.9% and 0.5% respectively. On top of the Qld flooding concerns and the effect they are having on the coal sector, Crude Oil slumped 2.2% to US$88.32 from our 4.30pm close, which will likely weigh further on the sector.

In the materials space, leads from the London Metals Exchange were mostly negative while in normal London equities trade, both Rio Tinto and BHP Billiton fell 0.9% and 0.7% respectively. It didn’t get better during US trade either, with BHP Billiton’s ADR calling the locally listed entity 1% weaker at $44.71. Gold also gave up 0.2% and is trading around the US$1371/oz level.

Elsewhere, there was significant weakness among the consumer discretionary and financial sector which are unlikely to help our local names; they both fell 0.6%. Among financials, the likes of Bank of America, JP Morgan, Wells Fargo and Citigroup were all down between 0.4% and 0.7%. As mentioned above, the disappointing retail sales figures saw most of the major retailers smashed as consumer spent their money carefully and the Northeast blizzard severely hampered post-Christmas sales. Some of the worst hit were Target, GAP and Macy’s, all down between 4% and 7%.

In summary, it doesn’t look like a great lead for our market, especially given the specific concerns the ASX is facing. With nothing in the way of local economic data, participants are going to continue to focus on the effects of the flooding as well as positioning themselves for this evening’s nonfarm payrolls number.

In currency markets, it was another night of US strength with the USD putting on gains against all G10 currencies except the Swiss franc. The big losers for the session were the Scandinavian currencies which took their cues from broadening weaker sentiment towards the Eurozone.

Price action on the Euro was key overnight and has now got quite a few currency strategists talking about some sizable downside over the next few months. With a further blow out in periphery bonds vs German Bunds traders again showed their concern that these indebted nations are going to struggle to roll over debt over the next few years. Once the 200 day moving average was taken out at 1.3081 there was a subsequent fall to 1.2996, however it was a minor positive that support held around 1.30. The key level to which traders are watching is 1.2971 (the December low), this is a level which could be defended reasonably aggressively, however a break of this level could trigger stop loss selling, exaggerating the downside.

Tonight’s Non farms payroll report will be key. What is clear though is that expectations are high and a number north of the 175,000 private sector jobs created that economists’ are expecting is probably priced in. There could easily be scope to disappoint here causing potential USD weakness; however a strong number will confirm what everyone is seeing and that the US economy is turning around, especially the labour market.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9941 -0.0026 -0.26%
ASX (cash) 4718 -7 -0.16%
US DOW (cash) 11698 -10 -0.08%
US S&P (cash) 1274.4 0 0.00%
UK FTSE (cash) 6022 -21 -0.34%
German DAX (cash) 6984 41 0.59%
Japan 225 (cash) 10485 -33 -0.31%
Rio Tinto Plc (London) 44.37 -0.40 -0.88%
BHP Billiton Plc (London) 25.17 -0.17 -0.67%
BHP Billiton Ltd. ADR (US) (AUD) 44.71 -0.43 -0.96%
US Light Crude Oil (Feb) 88.32 -1.98 -2.19%
Gold (spot) 1372.2 -2.70 -0.20%
Aluminium (London) 2515.00 44 1.78%
Copper (London) 9475.00 -143 -1.49%
Nickel (London) 24650.00 -385 -1.54%
Zinc (London) 2465.00 3 0.12%
RBA Cash Rate to be raised by 25bp (Feb) (%) 7.00 -2.0 -2.00%

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