IG Markets – Morning Thoughts

IG Markets – Morning Thoughts

On Friday, US markets finished mixed with a strong non-farm payrolls report unable to deter investors’ focus from the myriad of issues emanating out of Europe.

Among the major averages the Dow Jones Industrial Average shed 0.4% to close at 12359, the S&P eased 0.2% to 1277, while the NASDAQ edged 0.2% higher to end at 2674. Among the major S&P sectors, energy, materials and financial names were all weaker, while technology edged higher.

In European trade, economic data once again caused more concern about the outlook for the region, with European retail sales and German factory orders both contracting much more than forecast. The lack of any growth catalysts combined with the huge amount of debt that needs to be refinanced this year has many market observers projecting another very bleak year ahead for the European region. This concern was evidenced in trading of the euro, with the single currency falling below the 1.27 mark to its lowest level in over 16 months.

Once again it was US economic data that offered investors some encouragement. Following on from the ADP private sector jobs report earlier in the week, the US non-farm payrolls report came in much stronger than expected with a headline figure of 200,000, with the unemployment figure subsequently falling to a near three-year low of 8.5%. US futures soared immediately after the data release, but quickly eased back, with many suggesting the gain was mainly attributable to temporary seasonal factors. Revisions over the next 2 months will be closely watched.

Turning to the local market, the ASX 200 is set to open marginally firmer today, with the benchmark index called to unwind 9 points or 0.2% higher at 4117. US sector leads may be a bit misleading today. While the US session saw the materials, energy and financial sectors all finish lower between 0.3% and 0.5%, base metals were marginally firmer despite the USD index hitting its highest levels in over a year. BHP’s ADR is suggesting the local stock will open 17 cents or 0.5% higher at $35.41. Also likely to aid the market this morning is Chinese data seen over the weekend that showed new loans and M2 money supply rising more than expected, a sign that liquidity conditions are improving in China.

Also worth watching this morning is Australian retail sales data due out at 11.30am. Prior to Christmas we saw numerous retail downgrades (think JB Hi-Fi, Billabong and Kathmandu), despite 2 consecutive interest rate cuts. The health of the Australian retailer will be on display for all to see. Expectations are for a rise of 0.6%.

Market Price at 8:30am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0195 -0.0014 -0.14%
ASX (cash) 4118 9 0.22%
US DOW (cash) 12368 24 0.19%
US S&P (cash) 1279.0 6 0.47%
UK FTSE (cash) 5644 23 0.41%
German DAX (cash) 6049 -44 -0.72%
Japan 225 (cash) 8340 -50 -0.60%
Rio Tinto Plc (London) 33.14 -0.07 -0.21%
BHP Billiton Plc (London) 19.49 -0.02 -0.10%
BHP Billiton Ltd. ADR (US) (AUD) 35.42 0.18 0.51%
US Light Crude Oil (Feb) 101.93 0.50 0.49%
Gold (spot) 1618.0 -6 -0.37%
Aluminium (London) 2069.00 33 1.62%
Copper (London) 7580.00 40 0.53%
Nickel (London) 18750.00 75 0.40%
Zinc (London) 1853.00 20 1.09%
RBA Cash Rate to be decreased by 25bp (Feb) (%) 67.00 0 0.00%

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