IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Risk assets were mixed on Friday with the US GDP figure being the highlight of the session. US GDP showed only a 2.5% expansion while analysts were expecting a figure of around 3.2%. Although GDP disappointed, some analysts feel the figure was still quite resilient considering the bulk of the shortfall was due to less government spending.

Over in Europe, there was plenty of talk around Italian politics and whether or not a government was close to being formed. FX markets have started off what looks like a busy week on the macro front, mixed with gains for EUR/USD, while USD/JPY and AUD/USD are fairly mixed. This week we have the FOMC and ECB meetings to look out for, with recent data making the two carry a bit more weight than usual. There are a growing number of analysts calling for a 25 basis point rate cut by the ECB, particularly with European economic readings in core countries just failing to gain any traction.

Over in the US, with jobs growth losing momentum in recent times, analysts are expecting the Fed to approach policy more cautiously and perhaps we’ll hear less rhetoric of an abrupt end to QE. As a result, it could be a big week for the greenback and the single currency with plenty of positioning in the EUR/USD cross. The pair has gotten off to a strong start this morning, charging to a high of $1.307. This is in response to news that Italy formed a coalition government over the weekend.

However, some are concerned that a close ally of Berlusconi’s (Alfano) was appointed Deputy Prime Minister. Anti-austerity remains a pretty big theme for Italy. Last week’s high of $1.309 is the level to watch in the near-term. A lot about how the pair will trade this week will be whether analysts see an ECB rate cut as a positive or negative for the single currency. There will also be a camp that feels an ECB rate cut is already priced in and therefore the press conference or a potential change to the deposit rate is what will make the difference.

USD/JPY never managed to recover from Friday’s fall, with the BoJ not making any changes to its tone or language. The pair printed a low of ¥97.56 in Friday’s US trade and remains subdued on some profit taking. With Japan and China both out of action today, it’ll be interesting to see if we have enough leads to significantly move the FX space.

Ahead of the open, we are calling the ASX 200 up 0.2% at 5109. Friday’s reversal for the local market is quite concerning and leaves us in a vulnerable position to start off the week. After printing a high of 5135, the market came back to close at 5098. Such a move generally results in a pin-bar reversal pattern which could trigger near-term weakness. Commodities struggled on the back of disappointing US GDP data, and this will likely weigh on the resource names which had a stellar run at the end of last week.

BHP’s ADR is pointing to a 1.3% drop to $32.17 after iron ore fell 2.1%. With cyclicals likely to come under pressure, it’ll be all about the defensive plays and whether it can keep us in positive territory today. Of course there will be a strong focus on the banks and positioning ahead of earnings reports. ANZ will kick off proceedings with its 1H results tomorrow, and there will be significant focus on dividend growth. Resmed disappointed on Friday but might come back to life today after its impressive earnings. A break above $4.50 could see the stock rally in the near term.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0289 -0.0023 -0.22%
ASX (cash) 5107 9 0.17%
US DOW (cash) 14705 6 0.04%
US S&P (cash) 1579.8 -5.4 -0.34%
UK FTSE (cash) 6421 -3 -0.04%
German DAX (cash) 7823 -4 -0.05%
Japan 225 (cash) 13772 -112 -0.81%
Rio Tinto Plc (London) 29.59 -0.83 -2.72%
BHP Billiton Plc (London) 18.15 -0.28 -1.51%
BHP Billiton Ltd. ADR (US) (AUD) 32.17 -0.41 -1.25%
US Light Crude Oil (June) 92.82 -0.24 -0.26%
Gold (spot) 1467.35 -8.7 -0.59%
Aluminium (London) 1878 -63 -3.25%
Copper (London) 7030 -150 -2.09%
Nickel (London) 15205 -210 -1.36%
Zinc (London) 1897 -39 -2.01%
Iron Ore 134.10 -0.5 -0.37%

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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