IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

The storm clouds are building: the Dow has just suffered its first three-day losing streak for the year (wouldn’t that be a nice issue to have); the Chicago VIX index has climbed further; Europe is sliding off its highs; China is slowing down faster than expected, and the BoJ is holding the line on additional stimulus action.

All this international uncertainty is having a major effect on the ASX, which relies on a huge amount of foreign direct investment; repatriation remains a major pressure point.

The ASX 200 VIX index again moved through a large range (8.1%) yesterday, to close at 19.6, which saw the XVI up 57.6% since May 20. This indicates we are heading for the eye of the storm.

The feeling of déjà vu right now is enormous; the last four winters (April/May through to August/September) have been dire for the local index. Having seen a move higher of a massive 601 points this year, there was hope it may have finally broken free of the last three years of circular movements, but alas we are now in the middle of another winter blizzard.

Just reminder of the last three winters the ASX has suffered:

2010 saw a flare-up in the hangover of the GFC - credit issues and poor consumer sentiment saw investors heading for the hills, which pushed the ASX well into the red.

In March 2011, Japan suffer a devastating tsunami, causing jitters in the Nikkei, as it dropped well below the psychological 10,000 mark; this environmental event was then coupled with the start of the euro-crisis and the formation of acronym PIIGS. Portugal, Ireland, Italy, Greece and Spain hit the headlines as debt to GDP exploded, which sent global markets back down the rabbit hole.

The start of winter last year saw the euro-crisis coming to a head, as ‘contagion’ saw markets spiking in every direction and volatility was again on the rise. This sent the ASX back to 4000 points, after having moved up 4450 over the previous four months; the 450-point loss happened in the space of four weeks.

The winter of 2013 is now repeating history for the fourth time. The ASX is staring down the barrel of a fifth consecutive down week, something that hasn’t happened since July 2008 when the GFC was in full flight when the market suffered nine consecutive down weeks. The root cause of the sell-off this time is not Europe but Japan, and the US and the stimulus-dependant markets it has developed.

Next week sees the June FOMC meeting, (the six month economic forum meeting in fact). This could finally be the trigger point for some stability in the markets; like Mario Draghi in July last year with his ‘whatever it takes’ speech, Ben Bernanke could be the white knight for the markets in 2013 with his comments next week.

Ahead of the open, we are calling the ASX 200 down 35 points to 4690, which is a mere 42 points from where the market started the year. BHP’s ADR is suggesting the security will shed a further 27 cents to $32.70 (-0.83%), despite the fact commodities actually bounced overnight. However, today is all about employment.

The data drop today could be flash point for the Australian economy; the unemployment rate and employment change are forecasted to correct themselves after several rogue months. The unemployment rate is expected to climb to 5.6%, while the employment change is anticipated see 10,000 jobs lost.

Goldman Sachs sees this as major reason for the RBA to cut rates next month as time constraints associated with the election ties its hands post the July meeting. Goldman Sachs sees time is running out to halt the bleeding in the domestic economy and ensure the country doesn’t slide into its first major recession since ‘the recession we had to have’. Will the RBA act in July? Time will tell.

Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9480 0.0042 0.45%
USD/JPY 95.9900 -0.7350 -0.76%
ASX (cash) 4690 -35 -0.74%
US DOW (cash) 14989 -187 -1.23%
US S&P (cash) 1614.9 -19.6 -1.20%
UK FTSE (cash) 6262 -48 -0.77%
German DAX (cash) 8093 -101 -1.23%
Japan 225 (cash) 12982 -307 -2.31%
Rio Tinto Plc (London) 26.90 -0.13 -0.46%
BHP Billiton Plc (London) 17.62 -0.17 -0.93%
BHP Billiton Ltd. ADR (US) (AUD) 32.70 -0.27 -0.83%
US Light Crude Oil (June) 95.83 1.36 1.44%
Gold (spot) 1388.55 13.6 0.99%
Aluminium (London) 1871 -18 -0.95%
Copper (London) 7134 77 1.10%
Nickel (London) 14265 -178 -1.23%
Zinc (London) 1868 15 0.82%
Iron Ore 110.9 0.0 0.00%

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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