IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

The old bell in Alcoa fired the gun last night for the start of the US earning season - it’s no longer the ‘bellwether’ stock it once was; it’s just the fire starter.

We believe the bellwether baton has been passed to JP Morgan and Wells Fargo, and they hit the news wires next week.

Alcoa is the one of worst performing stock in the Dow (down 15%) year-to-date, its little Australian brother AWC is dead flat year-to-date (AUD will have evened this out now) and will probably continue to outperform its big brother for the rest of the year.

Over the coming the weeks, bottom-up views will take more and more of the lime light. Considering the confession session of the last six weeks, particularly here in the Australia, we expect earnings season to be slightly on the upside.

EPS and production lines have been reset, bad news has been deliberately laid on the table and history trends show that most stocks see a wave of optimism into results and a slight spike post-reporting.

Next week see RIO and BHP releasing Q2 and Q4 sales and revenue releases respectively. It will give a final overview as to how both are tracking heading into the final year results that are released mid-August.

We understand that mining is slowing, however it certainly hasn’t ended, nor have the major iron ore producers been receiving spot prices as the market seems to be pricing in. Most have been hedging and received the average prices of the last six months, which is around US$135 a tonne - upside risk does look more likely.

The other major player of the upcoming earnings season is the energy sector. STO, OSH and WPL all look like having a strong season - STO particularly. STO is seeing major developments nearing completion, its flag ship program in GLNG on budget, on time and additional regional tie-up to guarantee out-takes. Finally, natural gas remains the only commodity in the green year-to-date, overnight it surged a further 3%, as Australia’s third largest producer of gas STO will be one the market will be watching very closely for a second half revival of the cyclical space.

Moving to the open, we are calling the ASX 200 up 32 points to 4842 (+0.67%), as we’ll play catch up with Europe and the US. Considering the losses the ASX saw yesterday we may overshoot this call, as the Asian region as a whole expected the solid Jobs numbers out of the US on Friday to cause jitters rather than slight optimism.

BHP saw another strong night in London; however this has not flowed through to its ADR. The deposit receipts are suggesting the stock could lose eight cents today to $30.87 as iron ore drops off a two week high to $121.90.

So after a violent and volatile start to the new financial year last week, things do seem to be continuing in the same vein, as more and more analysts turn their attention to China and Chinese growth, as Citi downgrade the China growth story to 7.1%.

Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9137 0.0077 0.85%
USD/JPY 101.0000 0.0000 0.00%
ASX (cash) 4842 32 0.67%
US DOW (cash) 15232 92 0.61%
US S&P (cash) 1640.7 9.4 0.57%
UK FTSE (cash) 6462 35 0.54%
German DAX (cash) 7983 114 1.45%
Japan 225 (cash) 14293 183 1.30%
Rio Tinto Plc (London) 26.69 0.33 1.25%
BHP Billiton Plc (London) 16.89 0.23 1.35%
BHP Billiton Ltd. ADR (US) (AUD) 30.87 -0.08 -0.26%
US Light Crude Oil (June) 102.93 -0.43 -0.42%
Gold (spot) 1236.60 13.7 1.12%
Iron Ore 121.9 -0.7 -0.57%

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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