IG Markets: Morning Prices

In the US on Friday, the major indices all finished the session lower as a very disappointing US Non-farm payrolls number topped off a disappointing week on the US data front. Payrolls came in at 54,000 versus forecasts of approximately 150,000.

The NASDAQ was the worst performer, losing 1.5% while the broad-based S&P 500 gave up 1% and the Dow Jones Industrial Average retreated 0.8%.

Locally, the ASX 200 is called to open the session 0.9% lower at 4544 following the negative leads from Friday’s session. Weakness is likely to be widespread as the negative sentiment from global growth concerns flows through to local stocks. The industrial, materials and consumer discretionary sectors were the biggest decliners, all down 1.3%.

The materials sector will likely lead the market lower this morning despite a pretty good session for base metals on the LME. Aluminium was the only decliner, falling a modest 0.3%. In London equities trade, Rio Tinto and BHP fell 0.8% and 0.9% respectively while locally, BHP Billiton’s ADR is calling the stock to open 0.8% lower at $42.90. Many brokers believe the diversified miner represents very good value below $43, so watch closely for signs of bargain hunting.

US financials were also weaker, losing 07% as the likes of Wells Fargo and Bank of New York Mellon fell more than 1.4%. This negative sentiment will likely flow through to our banking names.

Energy names could see some support this morning after it was the best performing sector on Friday, finishing flat for the day. Crude oil futures added 0.2% to US$100.43/bbl from Friday’s 4.30pm close. However, given the turmoil in Yemen and the threat of contagion across the region, we may see further upside in crude prices as traders see further geopolitical tensions.

In summary, it looks like a broadly weaker open for the local market as Friday evening’s negativity hits stocks on the open. Having said that, our local market is going to open in the middle of a strong support zone, so we would not be surprised to see good buying support emerge shortly after the open. In terms of economic releases, ANZ job ads data is due for release at 11.30am.

Turning to currencies and the USD was sold off across the board on Friday, most notably against the Swedish krona, which gained 1.2%. Interestingly, when the weaker-than-expected payrolls report was released, the EUR/USD rallied to 1.4530 before traders changed their mind and sold out of risk positions, with the EUR/USD dropping to 1.4450 and the AUD/USD falling to 1.0594. Traders then did another about turn and looked to buy risk after confirmation that the EU/IMF/ECB will release its next tranche of aid to Greece. This saw the EUR/USD rally through the 1.4569 level (61.8% retracement of the May fall) and close above the 1.46 mark.

Traders have started looking beyond the next tranche of aid with Eurogroup chairman Mr Juncker sounding optimistic that the Eurogroup would agree to provide ‘additional financing’ to Greece over the longer term. It seems there is speculation that a new aid package is already being discussed that would involve private bond holders wearing some of the burden. Traders will also be looking at the upcoming ECB rate statement, where we believe Mr Trichet will signal a July rate hike; therefore being long EUR/GBP and EUR/USD could be a good place to be this week.

In the short term we are looking for more USD weakness this week, with the QE3 argument now being thoroughly debated across trading floors globally. We believe the Federal Reserve are far from providing a fresh package given the Fed currently views the slowdown as temporary, interest rates are near or at yearly lows, the USD is already weak and financial conditions are accommodative.

Market Price at 6:30am AEST Change Since Australian Market Close Percentage Change

AUD/USD 1.0705 0.0040 0.38%
ASX (cash) 4544 -40 -0.86%
US DOW (cash) 12133 -101 -0.82%
US S&P (cash) 1296.7 -14 -1.09%
UK FTSE (cash) 5834 -35 -0.59%
German DAX (cash) 7102 -1 -0.02%
Japan 225 (cash) 9466 -36 -0.38%
Rio Tinto Plc (London) 41.08 -0.35 -0.84%
BHP Billiton Plc (London) 23.06 -0.22 -0.92%
BHP Billiton Ltd. ADR (US) (AUD) 42.90 -0.33 -0.76%
US Light Crude Oil (Jul) 100.57 0.23 0.23%
Gold (spot) 1542.0 9.77 0.64%
Aluminium (London) 2639.00 -9 -0.34%
Copper (London) 9100.00 170 1.90%
Nickel (London) 22850.00 225 0.99%
Zinc (London) 2271.00 10 0.44%
RBA Cash Rate to be raised by 25bp (Jun) (%) 9.00 0.00 0.00%

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