IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

On Friday night the US markets finally ended their stellar run. The Dow closed down 25 points to 14514, ending its north-moving prints at eight consecutive record highs, and ten consecutive northward moves – its longest winning streak since 1996. The S&P again found itself unable to reach its 2007 all-time high of 1576 (intraday), and closed within four points of its highest ever close of 1565, as US sentiment waned.

The University of Michigan’s consumer sentiment survey unexpectedly fell on Friday, dropping 5.8% on the previous month, and missed expectations by 6.4%, as fiscal policy concerns finally impacted US data. This was all investors needed to cash in profits, as the US has now printed gains of 10.8% (Dow) and 9.4% (S&P) for the year. This pullback was coming; over the previous two days, volumes were thinning out as investors started to assess the ability for the US markets to push even higher. A pullback in the US will be good for markets; it will provide a much needed breather after running so hard so fast.

Better news out of the US is predictions of the housing market, with Bloomberg stating that February probably saw an acceleration of sales in secondary market homes and news start homes. Bloomberg’s survey believes purchases of existing properties have now increased 5 million on an annual rate (highest level since 2009), with new home starts increasing to 915,000. Housing data is a major driver of the American dream, and it will lead to increases in employment and discretionary spending. We have already seen Australian companies with US exposure taking advantage of the US housing pick-up, with Boral adding 66% and James Hardie 37% since June last year.

This will all hopefully be confirmed this week with an abundance of US housing data due. Positive news here will drive the US housing sector higher, and could be the piece in the puzzle for the S&P to break through the 1576 level.

Australia will also be in the news this week. The RBA will be back in focus after such a ‘stellar’ jobs report which is now starting to look more and more like a rogue piece of data, after the Australian bureau of statistics stated the results were probably overstated by a factor of two.. Tomorrow, RBA assistant governor Guy Debelle will speak on trends in the Australian debt market, while deputy governor Philip Lowe will address the Australian Industry groups’ annual economic forum. Both in recent times have had some interesting comments about the Australian economy and its ‘green shoots’ outlook. Their addresses will go hand-in-hand with the release two hours later of the monetary policy minutes. Any form of neutral-view language here will continue to add support to the Aussie dollar, even in the face of eurozone flare ups, a negative for rate cuts and a further resistance point for the ASX 200.

On a stock front over the weekend, the Queensland government announced it will sell 200 million shares in Aurizon (formally QR National) at $4.03, reducing its holdings to 8.3%. This will put a lid on the stock as the shares filter through (AZJ closed at $4.04 on Friday). UBS has been charged with selling the shares to investors, and this sale will put pressure on the share price. However, once they have filtered through we expect AZJ to continue to take advantage of the coal haulage contracts it has won over the previous weeks, and if the Queensland government’s holding is reduced further, the board should have clear air to implement further development.

Moving to the open, we are calling the ASX 200 down 28 points to 5092 (-0.54%). However we note that the opening calls will be irrelevant today as forex markets come to terms with the issues around Cyprus. On the open, the euro has lost full cents against major peers EUR/USD, down 1.15% to be below $1.30. This will impact European markets tonight and will therefore make investors here nervous, coupled with losses to major leads in the US on Friday. Expect the sell-off to be hard today, barring any positive news coming out of Cyprus. All normal lead indictors such as ADRs are also irrelevant today, so I have not included them. The correction today will be positive for longer-term strength. The biggest fall this year has been 1.89% - we might match that today; it is tomorrow and Wednesday that will be very interesting. Can the dip picks we have seen over the year continue to be as strong and supportive?

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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