IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Risk sentiment was mixed amid limited data releases to drive risk assets in one direction. However, there have been some contrasting reports on Spain and its bailout which have caused some confusion for investors. It just seems like market participants are searching for the next catalyst to drive markets and they feel it will come from Spain. We’ve had a Reuters report suggesting that Spain is close to requesting a bailout and this helped drive sentiment earlier this week. However, Spanish Prime Minister Mariano Rajoy was quoted as saying a bailout request is not imminent while some German officials have commented that Spain should hold off. As a result, we are likely to continue going through this will they/won’t they cycle until the eurogroup meeting, where we could get some clarification. EUR/USD jumped to a high of 1.297 before retreating to around 1.292 late in US trade. It was a different story for AUD/USD as the negative tone from Asian trade continued and the pair extended its losses below 1.03 to a low of 1.0252.

Ahead of the open, we are calling the Aussie market up 0.3% at 4448. This will be the level to watch after the market topped out at 4448.5 in May following the RBA’s 50 basis point rate cut. Investors will be hoping the local market doesn’t repeat the same feat in the aftermath of that cut as it slid to a low of 3985 in the month following that. That was around a 10% correction, but the world is certainly a different place now than it was then. In the absence of a fresh catalyst, it is difficult to see the ASX 200 rally through 4448 on the first attempt. Buying pullbacks into 4420 is likely to be the preferred strategy. On the economic front, we have trade balance figures due out at 11.30am as the main release to look out for. Elsewhere in the region, we have China non-manufacturing PMI due out. These releases could be a further source of volatility for AUD/USD. The current price action in the pair clearly reflects that the market feels another rate cut is on the way with an 80% chance of a further 25bp cut being priced in.

On a stock level, we expect a softer start for BHP Billiton with its ADR suggesting it will be down 0.2% at $33.47. No doubt focus will switch to the banks to see how much of the RBA rate cut they will pass on. This will also have an impact on the retailers as we approach the key festive trading season. Trading during that period is normally a make or break for the retailers’ annual sales targets. After a big rally into the close yesterday, there are some reports suggesting APN News has found a buyer for its New Zealand assets.

Market Price at 6:30am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0263 -0.0041 -0.40%
ASX (cash) 4448 15 0.33%
US DOW (cash) 13479 -30 -0.22%
US S&P (cash) 1444.3 4.3 0.30%
UK FTSE (cash) 5812 5 0.09%
German DAX (cash) 7322 25 0.34%
Japan 225 (cash) 8786 -1 -0.01%
Rio Tinto Plc (London) 29.15 -0.23 -0.80%
BHP Billiton Plc (London) 19.44 -0.31 -1.56%
BHP Billiton Ltd. ADR (US) (AUD) 33.47 -0.07 -0.19%
US Light Crude Oil (November) 91.65 -0.77 -0.83%
Gold (spot) 1773.9 -4.1 -0.23%
Aluminium (London) 2107 -19 -0.89%
Copper (London) 8326 -26 -0.31%
Nickel (London) 18450 -280 -1.49%
Zinc (London) 2098 -11 -0.52%

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.

www.igmarkets.com.au

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