IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

The S&P 500 was flat-lining heading into the close as the US market prepared for the earnings releases of Visa Inc, News Corp and Prudential Financial after-market. Heading into the finish the S&P 500 was basically unchanged from its 1% gains on Tuesday night, at 1511 points off 0.01% for the session.

Europe was again the centre of attention as the embers of the European debt crisis begin to reignite once more ahead of the EU economic summit that begins in earnest tonight. After reaching a 14 month high on February 1, the euro has started to slide as political unrest in Spain and Italy kicks off and recessionary fears begin to raise their heads. EUR/USD lost ground, dropping 0.5% in US and European trade and trending lower.

There has been growing talk of currency wars lately and some are now saying the eurozone will soon consider a fixed rate for the single currency. This will make the ECB press conference very interesting today as Mario Draghi tries to defend the region and pave the way for a sustainable recovery. USD/JPY is now establishing its footprint above 93 and will remain one of the more interesting pairs to watch as Japanese Prime Minister Shinzo Abe looks for a replacement for outgoing BoJ Governor Masaaki Shirakawa. USD/JPY is currently hanging at around 93.50.

AUD/USD has had a terrible week, which was set off by the RBA’s dovish statement on Tuesday. The pair extended its losses yesterday when retail sales data missed consensus (-0.2% versus +0.3% expected). Further signs that the local economy is still struggling will continue to see the pair come under pressure. AUD/USD slid through 1.038 (the low from last week), dropping all the way down to 1.03 in European trade where it seems to have now found near-term support. Today is another big day for the pair with jobs numbers due out. The unemployment rate is expected to tick higher to 5.5% (from 5.4%) with 5,800 jobs added (versus 5,500 lost last month). The local economy has been shedding a significant number of jobs lately and therefore it wouldn’t be surprising to see another miss in a key economic reading today. Should this happen, AUD/USD might breach this 1.03 level. At the same time, should we get a pleasant surprise from the jobs numbers, AUD/USD might recover into the 1.038 level which is now resistance. The flip side to this is if the results are poor, the rate cut everyone is expecting will come early and will continue to strengthen the yield-hunting play in the banks and defensive stocks.

Today sees the release of TLS’ first half profits. We expect the stock to continue to dominant the telco space, however, increased completion in the wireless division could come in the second half of the year, damping expectations for the second half. The results today are forecasted to be solid and should add support to the share price with the dividend yield again being a major focus of retail investors.

NAB is also reporting today although it is only a first-half updated. NAB has been tarnished over the year due to a number of negative issues and earnings surprises. However, the current discount to peers even at today’s price looks slightly overdone. If NAB can get some fresh air on core strengths in business banking we can see it continuing trend up. We understand all eyes will be on its UK assets, however we note that an analyst at Moody’s has stated that crystallising a loss here would not see a downgrading to NAB’s rating, and may see it finally legging up on its peers. The short-term argument for NAB however is the yield play, even with a poor result today a forecasted 6.4% fully-franked yield is hard to ignore.

Ahead of the open we are calling the Aussie market up 0.1% at 4927. Should we manage to hold on to these gains at the open, then this week’s high of 4950 will be key near-term resistance. Once again the banks will be in focus along with other high-yielding stocks as investors chase quasi-bond plays due to the downward pressure on interest rates. On a stock level we expect a firmer start for BHP Billiton, with its ADR pointing to a 0.4% gain to $37.52. This is probably because iron ore prices ticked higher to 155.10. Arrium might come under pressure after being downgraded to Neutral (from Outperform) by Credit Suisse as it struggles with write-downs due to weak demand and the strong Aussie dollar. Crown may also struggle today after a report in the FT stated that the Chinese government will start taking action to clamp down on junket operations that bring mainland gamblers to Macau. That report saw Wynn Resorts (CWN’s direct competitor in Macau) drop 1.45% in US trade. Although CWN has a fairly diversified portfolio across the Asia-Pacific region, Macau is a major strong-hold for base-line earnings and any form of crack-down may affect the Asian arm.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0322 -0.0027 -0.26%
ASX (cash) 4924 3 0.06%
US DOW (cash) 13969 -19 -0.14%
US S&P (cash) 1510.1 -1.8 -0.12%
UK FTSE (cash) 6298 11 0.17%
German DAX (cash) 7589 -77 -1.00%
Japan 225 (cash) 11393 -93 -0.81%
Rio Tinto Plc (London) 36.59 0.34 0.94%
BHP Billiton Plc (London) 21.83 0.20 0.90%
BHP Billiton Ltd. ADR (US) (AUD) 37.71 0.19 0.51%
US Light Crude Oil (March) 96.80 0.14 0.14%
Gold (spot) 1677.65 4.9 0.29%
Aluminium (London) 2101 -13 -0.63%
Copper (London) 8234 -60 -0.72%
Nickel (London) 18343 -379 -2.02%
Zinc (London) 2421 -33 -1.35%
Iron Ore 155.1 0.9 0.58%

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.

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