IG Markets - Morning Thoughts and Opening Calls

IG Markets - Morning Thoughts and Opening Calls

The eagerly-watched China data from the weekend would have sent shudders down the spines of the AUD long investors.

The CPI print is now 140 basis points lower than the official year-end estimates of 3.5%, and heading lower. The PPI data backed this, contracting by more than forecast at 2.9% versus 2.5% (another read for inflation).

The trade balance showed exports hit a 10-month low as demand for Chinese goods slowed, while imports also fell, showing the demand from China is also slowing. Industrial production was also weaker than expected at 9.2%. as factories face closures.

China is the world’s largest consumer of industrial metals and energy, as the commodities-driven Australian economy will feel the pressure of this result, and the AUD will be the first to wear these results today; estimates are for $0.935 in the interim.

However, the interesting point out of the weekend’s data was fixed asset investment. This is one area the centralised government has been actively targeting. Soaring house prices have been a major concern for China, particularly in Beijing and Shanghai. The data on Sunday shows this is finally slowing and may redirect the attention of the central government to other areas of the economy that are slowing faster than expected, which may actually need assistance to stop China landing with a thud.

However, the data as a whole has led to is a fall in commodities prices. Iron ore has dived back to the year-to-date low of US$110.90 an tonne. Gold slid 1.88% to be back below US$1400 an ounce (more pressure for NCM), and industrial metals have all been shed as well. Not the kind of lead the ASX needs, having lost over 520 points since May 20.

The market is now only 89 points from where it started the year, meaning the ASX is only up 1.91% year-to-date. There is a real possibility of sliding into the red for the year considering the uncertainty domestically and internationally.

Ahead of the open, we are calling the ASX 200 up 41 points to 4779. There are several reasons for this call. Japan jumped up over 5% yesterday, and is heading for a similar gain today as the BoJ takes centre stage.

Prime Minster Abe’s speech last Thursday failed to calm the markets with his ‘third arrow’ initiative programme. The BoJ’s press conference and monetary policy today has a chance to add stability to a currency and a market that has been in free-fall. Watch for comments about JGBs, and any further support the central bank can give to the bond market. If there is good news out of Tokyo, the ASX will benefit.

The market is also due for a bounce. Since 4:00pm AEST on Friday, the SPI futures are up 40 points on the back of moves from the US and Europe. The move higher is likely to come from support to high-yielding stocks which are now at major support levels. Yields are becoming highly attractive again on a yield basis, with ANZ, NAB, TLS and even WOW moving into oversold territory.

All this downward pressure is actually making the ASX a stock-pickers market. Macro data has sent the whole market lower and is giving investors a chance to jump into quality stocks at prices at which they are happy to buy. No one will pick the bottom or the top for that matter, but right now, the bottom is nigh, which is a stock-pickers dream.

Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9460 -0.0056 -0.58%
USD/JPY 98.8400 2.3250 2.41%
ASX (cash) 4779 41 0.86%
US DOW (cash) 15233 219 1.46%
US S&P (cash) 1645.9 22.6 1.39%
UK FTSE (cash) 6389 57 0.89%
German DAX (cash) 8289 162 1.99%
Japan 225 (cash) 13560 682 5.30%
Rio Tinto Plc (London) 27.75 0.27 1.00%
BHP Billiton Plc (London) 18.80 0.59 3.24%
BHP Billiton Ltd. ADR (US) (AUD) 33.63 0.54 1.64%
US Light Crude Oil (June) 95.77 0.84 0.88%
Gold (spot) 1386.90 -26.6 -1.88%
Aluminium (London) 1924 -35 -1.79%
Copper (London) 7167 -204 -2.77%
Nickel (London) 14890 -177 -1.17%
Zinc (London) 1887 -42 -2.17%
Iron Ore 110.9 -5.3 -4.56%

IG 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 if you require market commentary or the latest dealing price.

www.igmarkets.com

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