Sentiment: Global risk appetite diminished once again overnight, sparking sell-offs across equity markets. The concerns about the fragile state of the Turkish financial system and what that might mean for markets was behind the fall, as traders sought out safe havens to park their money. The US Dollar held its advance consequently, but it was the JPY that saw the most activity, with the USD/JPY falling as low as 110.43. Following Tuesday’s relief rally, it would appear investors aren’t quite prepared to let go of the risk associated with Turkey’s financial crisis, which is compounding fears about trade wars and slower global economic growth. The risk-off play may find itself fuelled today, as investors become wary of the next round of Brexit negotiations, due for kick-off in the next 24 hours.
Commodities: Commodities markets experienced some of the most volatility in the overnight session, slammed by fears of global financial risk and economic slowdown. Copper entered a technical bear market, as it tore through the $US60.00 mark and several lines of resistance to trade at $US57.92. Oil slipped too, owing to fears of lower demand due to slower global growth, and after crude oil inventories printed higher than forecast. Gold’s aggressive sell off continued, plunging through support at $US1180 an ounce, and seriously opening-up further falls towards $US1120. Of relevance to Australia, iron prices were one of the worst performers for the day, pin dropping 3.5 per cent, portending a tough day for mining stocks.
Overnight session: Stocks in Europe and on Wall Street took a plunge courtesy of the weak sentiment last night, with the FTSE and DAX giving up around 1.5 per cent, and the US benchmark S&P shedding 0.76 per cent. The shift lower was led by global tech stocks, which were rattled by news that Chinese tech giant Tencent Holdings reported its first profit drop in a decade. The NASDAQ fell 1.2 per cent throughout trade on the back of weak sentiment and the sell-off in tech shares, weighing on the rest of US shares. The poor return for US comes even though US CPI figures overnight strongly exceeded expectations, revealing that despite the risks and interferences, the US economy is fundamentally strong.
ASX: SPI futures are presently pointing to an ASX200 that will be caught in the fray of last night’s equity sell-off, indicating an open around 50 points lower. The dip will follow a day in which the local market closed at 10-year highs, as traders finally managed to push the ASX above the significant psychological barrier around 6300. Remarkably, the milestone was achieved without the collective might of the materials and financial sectors, which each fell 0.91 per cent and 0.21 per cent respectively. The hope will be now that, despite what appears to be a tough day ahead, the close above 6300 yesterday sets a precedent for the markets and can elevate to such levels with much greater ease.
Reporting season: Earnings season provided the strong fundamentals for investor activity during the local session, with several stories leaping out of the day’s trade. Shooting star CSL climbed after it beat average analyst estimates, rallying to a record high above $210 per share. Wesfarmers also posted results which, although on the surface appeared incredibly poor, showed that when stripped of one off costs associated with losses and write-downs, the net income of the company was stronger than generally expected, pushing the company’s share over 3 per cent higher. The laggard for the day was IAG, which fell over 6 per cent after the company’s net income missed even the lowest analyst estimate. The earnings season will now turn likely be dominated by the release of several of the ASX’s big hitters, including Telstra, QBE and Treasury Wine Estates.
Australian Dollar: The Australian Dollar remained one of the worst performers across currency markets overnight, falling precariously close to the 0.7200-flat mark. The Aussie currency has taken the form of the preferred global risk-off proxy this week, amid concerns first in China and now in other emerging markets. With risk unlikely to abate, Chinese economic growth faltering, a falling yield advantage and a roaring USD, it’s hard to imagine a situation in which the AUD will find support. Local wage growth data yesterday – which came in at expectations but revealed that the Australian economy is experiencing flat real wage growth presently – sets up the release of employment data today, with both data points likely to enervate the local currency.
AUD & ASX: The silver lining to the Australian Dollar’s fall has been its support for the local equity market. In what is a rather strong correlation, the over 4 cent falls in the value of the AUD/USD since the middle of June has driven funds into the local share-market, delivering a tacit endorsement from investors to our market, corporate health and economy. The reason that the weaker currency is supportive of the ASX is twofold: on one hand, Australian stocks have become relatively cheaper when compared to their global counterparts; and on the other, revenue denominated in foreign currencies can be converted at a lower exchange rate, boosting businesses earnings.
Please note: This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.