IG - Morning Thoughts and Opening Calls

IG - Morning Thoughts and Opening Calls

Overnight there was a plethora of European data, with France and Germany releasing flash manufacturing PMI data, and both are still contracting. However, the bleeding is slowing in France with its print beating expectations, Germany however contracted harder than expected and sank EUR/USD after it rose on the French data.

This did not put a dent in the European equity wave, with shares having the strongest northward print in eight months on the back of strong earnings. The wave intensified as investors saw a silver lining from the PMI print, with mounting expectations that the ECB will cut rates.

UBS was the first off the block to call for a 25 basis points (bps) cut to the refinancing rate, and a 25bps cut to the marginal lending rate as early as the May meeting. This helped the DAX and CAC punch higher, while over in London the resource-heavy FTSE looked like stumbling on China’s flash numbers, and instead jumped up 2% on speculation that stimulation is coming from the BOE. The speculation saw GBP/USD slide 0.33% to $1.5233.

The US had reasonable macro data itself, with better-than-forecasted home sales. That news, coupled with Europe’s north print and earnings beating estimates once more saw the US market erase most of last week’s losses in the early stages.

There was a major hiccup in the trading day as a rogue tweet from the Associated Press attributed to a hacker, tweeted that the White House had been attacked and President Barak Obama had been injured saw a flash crash. It caused computer traders to dump all gains inside two minutes, before rebounding completely three minutes later; estimates put the losses at $136 billion. It didn’t bother the S&P in the end though, which finished near its intraday day high at 1579.

But it was Apple (AAPL) that everyone had come to see, as it was reporting after the bell. The release made very interesting reading. AAPL reported its first profit decline in a decade, as Samsung continues to rip market share off the tech giant in the smart phone space.

Net income was down 18% to $10.09 a share. This however beat expectations with analysts expecting this figure to be in the $9 range. Guidance is also on the back foot, with sales down $3 billion on estimates, but all of that didn’t matter. AAPL played the biggest trump card around by returning $55 billion in cash through a share buyback. Just to equate how much that is – it is the equivalent to giving back Woodside’s, Santos’ and Oil Search’s entire market capitalisation combined - give or take a couple of million dollars. Dividend growth is up 15% (yes, even in America income is king), as capital management takes over at AAPL.

AAPL is basically saying, ‘buy us please’ with this announcement. In aftermarket trading, AAPL is up 3.5% was as high as 4.5% initially.

Commodities were soft overnight; gold, silver, copper and nickel all slid as the precious metal ended its five-day rally. The slide did not affect materials plays however, as the sell-out in equities over the last week has been stronger than the sell-off in the underlying commodity. We should see a bounce in the materials sector after falling on the China PMI data.

Ahead of the open, we are calling the ASX 200 up 40 points to 5056 (+0.81%), a level not seen since the March 18 when the market lost 1.8% or 92 points. The pick-up should be broad; however, the biggest moves should come from industrials with exposure to the US, banks heading into reporting season and mid-cap material plays that have been oversold. BHP’s ADR is suggesting the stock could only add seven cents today, up 0.21% to $31.43 as investors cry out for capital management at the big miners.

There is no doubt WPL fired the capital management gun yesterday. If there was ever an indicator that Australian investors want yield, then a 9.71% rise in WPL’s share price is it. BHP and RIO should take note of the prudence WPL is now taking and acknowledging that low-dated capex heavy expansion may not be the right option in the current environment.

It is ANZAC day tomorrow and you would expect trading to be very light today. Most traders and brokers will take Friday off as well, and will therefore position themselves for Monday’s session, not Friday’s. Watch for position closes and profit taking in the afternoon due to the very short trading week.

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.

ENDS

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