IG Markets - Morning Prices July 16

US traders felt a touch more optimistic on Friday, deciding to focus on the positives with a ‘glass half full’ mentality, putting an end to the seven-day sell off. With the S&P rallying 1.7%, other risk assets like AUD/USD, copper and oil pushed up as well, although there wasn’t really one unique catalyst.

Clearly Friday’s Chinese GDP figure was an exercise in positioning, with expectations extremely low going into the print, and although some economists have questioned the accuracy of the result (given the industrial production numbers were more consistent with 7.0 to 7.3%), it seems the pick up in new yuan loans and fixed asset investment have the market feeling more positive that stabilisation is the name of the game and we should see growth gravitate back above 8% in the coming quarters. We will keep our eyes on the Shanghai Composite today to see if Chinese investors will have the same positive mentality as their Western counterparts. A move above the former uptrend drawn from the 2008 low at 2208 would be a positive development. Reports that China is set to cut taxes on profits that foreign companies take out of the country by up to 50% should help increase positive sentiment towards the region, given it should encourage overseas investment.

JP Morgan also hit the market with a pleasing result, with reported and core EPS coming in above expectations, while its chief investment office (CIO) announced a $4.4 billion loss in Q2, a number that was in-line with forecasts; digging a little deeper, new disclosure suggested the unit only contributed around 3% to the bottom line throughout 2007 to 2011. Importantly, it said it would potentially resume paying its dividend in Q4. US earnings ramp up this week and we will be especially keen to keep an eye on Goldman Sachs, Bank of America, American Express, IBM and General Electric given their leverage to the US consumer and general impact on the market itself.

The weekend’s news has been relatively light with the focus on Spain, where an official document showed the Spanish government will slash €56.4 billion from its public deficit in the next two years. This figure that was largely expected and given even more credence as Germany prepares to vote on the Spanish bank loans on Thursday, a fate that is not fully assured with some speculating we may see a revolt within its own centre-right party. The Spanish Treasury will try and tap the market in two-, five- and seven-year bonds later in the week. There has also been focus on comments from Atlanta Fed President Dennis Lockhart who said a new asset purchase programme could be warranted if economic weakness continues, which is a good lead into the week’s main event, with Fed Chairman Ben Bernanke testifying to congress on Wednesday. The recent FOMC failed to really inspire the QE3 hopefuls, however they didn’t reflect on a poor US payrolls print. So, while we don’t expect to hear that he is ready to pull the trigger on another round of purchase just yet, we will be keen to hear if he gives more colour on how much worse things would have to be to force the Fed to act.

So all-in-all we are expecting a positive day for the local bourse, with SPI futures gaining 33 points in the SYCOM session. There was some modest follow-through buying in risk forex in early trade today, but these gains have subsided as S&P futures have opened flat, so an open at 4115 +33 points is expected at this stage. The target for this week is 4175 (July 5 high), where a break of this level should see the 200-day moving average at 4200 come into play.

Commodity prices have pushed up nicely from Friday’s ASX 200 close, so clearly our materials and energy sub-index should see good gains, with BHP’s ADR closing at $30.83 +1.1%. The focus this week will be on production reports, notably from Rio Tinto and Fortescue metal tomorrow, ahead of BHP’s numbers on Wednesday.
Banks should also find good support given the S&P financial sector gained 2.7% on Friday, although our banking index’s correlation with the S&P financial sector has waned a bit in recent times.

Seven West Media is reportedly looking to raise $450 million (source AFR), so unless the stock goes into a halt expect downside, although a raising is largely priced in at current levels as it has been speculated on for some time.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0243 0.0088 0.87%
ASX (cash) 4115 33 0.80%
US DOW (cash) 12767 172 1.36%
US S&P (cash) 1354.8 18.8 1.40%
UK FTSE (cash) 5681 48 0.85%
German DAX (cash) 6566 115 1.78%
Japan 225 (cash) 8793 69 0.79%
Rio Tinto Plc (London) 30.21 0.95 3.24%
BHP Billiton Plc (London) 18.05 0.54 3.10%
BHP Billiton Ltd. ADR (US) (AUD) 30.86 0.38 1.25%
US Light Crude Oil (August) 87.17 1.18 1.37%
Gold (spot) 1591.4 21.3 1.36%
Aluminium (London) 1910 22 1.14%
Copper (London) 7700 120 1.59%
Nickel (London) 16155 233 1.46%
Zinc (London) 1874 10 0.54%

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.

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