IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

The rapid slide in global equities finally came to a halt in US trade, as better-than-expected retail sales and unemployment claims data triggered a rally. Retail sales came in at a better than expected 0.6% (versus 0.4% consensus), while core retail sales were in-line with estimates at 0.3%. Unemployment claims dropped to 334,000 (versus 354,000 consensus). This data pushed the US dollar higher, and instead of resulting in an equity sell-off, we saw the USD and US equities move higher in unison.

While it can be argued that the stronger-than-expected data was good for confidence, we feel the impact this had on USD/JPY was the key ingredient. Most of the moves we’ve been seeing recently have been Japan driven, and this data helped USD/JPY move back above ¥95 to a high of ¥95.48. This recovery brought out the bargain hunters who then pushed equities higher.

However, a Hilsenrath headline saying the Fed is likely to push back on market expectations of a rate increase might see some of this work undone. If the USD comes under pressure again, then things could swiftly turn sour for Asian equities. So far, we are calling the Nikkei up 4.5% at 13,000 following the recovery in USD/JPY. Japan’s monetary policy meeting minutes are due out this morning and perhaps this might offer more clarity on how the BoJ looks to stabilise its bond market and keep the economic recovery on track. Risk currencies also enjoyed a move higher, with AUD/USD at the forefront. The pair jumped to a high of $0.9658 after having endured a subdued reaction to the better-than-expected jobs numbers. There is nothing on the local economic calendar today but we will continue to react to Japan and China volatility.

Ahead of the open we are calling the Aussie market up 1% at 4742. Should we open at this level, we would actually be four points higher for the week so far, which isn’t too bad a result. While equities recovered in US trade, European equities and metals didn’t quite get a chance to react to the improvement in sentiment. As a result, it’s still a bit hard to gauge how commodities will trade in Asia, but we should see an improvement. Iron ore was a standout with a 1% gain to 112, as it finally traded with China back online. BHP’s ADR is pointing to a 2.5% rise to 32.94. We expect to see bargain hunting in overdrive at the open after the local market came within striking distance of being break-even for the year. The banks are likely to be on most investors’ wish lists, along with other yield plays, and this is likely to drive the market higher in the near term. There isn’t much on the company news front, but we will be eyeing ASX Ltd’s return to trade after a $553 million capital raising. The stock is likely to trade significantly lower today, but this might attract some buying interest at lower levels with a stronger balance sheet.

Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9655 0.0185 1.95%
USD/JPY 95.4600 1.3600 1.45%
ASX (cash) 4742 46 0.97%
US DOW (cash) 15183 289 1.94%
US S&P (cash) 1640.4 36.1 2.25%
UK FTSE (cash) 6342 133 2.14%
German DAX (cash) 8164 154 1.92%
Japan 225 (cash) 13001 556 4.46%
Rio Tinto Plc (London) 27.53 0.63 2.32%
BHP Billiton Plc (London) 18.15 0.53 3.01%
BHP Billiton Ltd. ADR (US) (AUD) 32.94 0.82 2.54%
US Light Crude Oil (June) 96.68 1.35 1.41%
Gold (spot) 1384.95 -5.5 -0.39%
Aluminium (London) 1860 -14 -0.72%
Copper (London) 7063 -91 -1.27%
Nickel (London) 14096 -235 -1.64%
Zinc (London) 1848 -25 -1.32%
Iron Ore 112.00 1.1 1.00%

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.

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