IG Markets: Morning Prices

Good morning,

On Wall Street overnight, US markets took another hammering as US jobless claims came in much weaker than expected and commodities plunged on fears over Chinese growth and a sharp rally in the US dollar.

The Dow Jones industrial Average was the worst performer, down 1.1% while the S&P 500 and NASDAQ lost 0.9% and 0.5% respectively.

Locally, the ASX 200 is called to open the session 0.7% weaker at 4721 following the very bearish overnight leads. Once again, the selling is going to be focussed on the energy and materials sectors, which were down 2.1% and 1.2% as investors ran for the exit door and unwound their short US dollar, long commodities trades.

Local energy names will likely be hit very hard as crude oil prices collapsed on fears of ailing demand and the jump in the US dollar. Since our 4.30pm close yesterday, Crude oil futures are down 8.3% to US$99.83/bbl, with Chevron, ExxonMobil and ConocoPhillips all falling more than 1.6%.

The materials sector didn’t fare much better as base metals on the LME got hammered, all down between 3% and 4.6%. In London equities trade, Rio Tinto and BHP lost 1.6% and 1.5% respectively while BHP’s ADR is calling the Australian stock to open 2.8% weaker at $44.19.

Precious metals names will probably be belted again after silver continued its huge slide, losing another 8% to US$34.80/oz. The sellers also moved in on gold, pushing it down 2.9% from our 4.30pm close to US$1474.70/oz.

Elsewhere, there’s likely to be further weakness as well after US financials fell 1.3% and industrials 0.5%. In summary, it looks like we’re set for a rough end to a fairly bleak trading week ahead of tonight’s US nonfarm payrolls report.

In the currency market, the moves overnight were staggering and perhaps pivotal to the downside seen in commodities. Traders had been buying euros in anticipation of a hawkish rhetoric from ECB president Jean Claude Trichet, with the EURUSD pushing up to 1.49 prior to his statement. However, these traders were soon forced to square and reverse positions as Trichet’s comments disappointed the market.

The market had been heavily positioned for a June hike by the ECB but the fact he left out ‘strong vigilance’ from the statement , only noting that the ECB ‘would closely monitor’ developments and that risks were ‘balanced’ saw traders aggressively re-position themselves for a hike in July instead. The result of this was simply astonishing, with the euro collapsing against all currencies but most notably the USD, with the pair dropping to a session low of 1.4510, a 2.6% move from the session high.

The AUDUSD also came under significant selling pressure, with some traders starting to aggressively short the pair. With significant selling in silver, gold and copper the commodity currency reacted and the AUDUSD dropped over 200 points from the session high. The aussie has had a nice retracement from recent highs of 1.1012 and whilst this could be seen as a buying opportunity, one gets a sense that if commodity prices continue to fall so will the AUD. In economic news, traders will be keeping an eye on the RBA policy statement at 11:30 for further signs of when the RBA are likely to hike.

It’s certainly too early to call an end to the ‘short dollar, long commodities’ trade but there’s certainly plenty of traders calling for it. In the short term, however all eyes now fall on tonight’s nonfarm payrolls jobs report. All the lead indicators have been poor so expectations have been lowered, however a number south of 200,000 could see a further leg down in risk appetite.

Market Price at 6:30am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0586 -0.0152 -1.42%
ASX (cash) 4721 -34 -0.70%
US DOW (cash) 12614 -148 -1.16%
US S&P (cash) 1338.1 -13 -0.93%
UK FTSE (cash) 5912 -100 -1.66%
German DAX (cash) 7366 -39 -0.53%
Japan 225 (cash) 9760 -118 -1.19%
Rio Tinto Plc (London) 40.87 -0.65 -1.57%
BHP Billiton Plc (London) 23.86 -0.36 -1.49%
BHP Billiton Ltd. ADR (US) (AUD) 44.19 -1.25 -2.76%
US Light Crude Oil (Jun) 99.83 -8.99 -8.26%
Gold (spot) 1474.7 -44.17 -2.91%
Aluminium (London) 2639.00 -91.00 -3.33%
Copper (London) 8795.00 -280.00 -3.09%
Nickel (London) 24525.00 -1175.00 -4.57%
Zinc (London) 2116.00 -64.00 -2.94%
RBA Cash Rate to be raised by 25bp (Jun) (%) 26.00 3.00 13.04%

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.

ENDS

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