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MaxIG

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  1. Market action proves it again: this market hinges on the Fed: The US Fed has proven itself as the most important game in town for traders. The FOMC met this morning, and lo-and-behold: the dovish Fed has proven more dovish than previously thought; the patient Fed has proven more patient that previously thought. Interest rates have remained on hold, but everyone knew that was to be the case today. It was about the dot-plots, the neutral-rate, the economic projections, and the balance sheet run-off. On all accounts, the Fed has downgraded their views on the outlook. And boy, have markets responded. The S&P500 has proven its major-sensitivity to FOMC policy and whipsawed alongside a fall in US Treasury yields, as traders price-in rate cuts from the Fed in the future. The US Dollar sends some asset classes into a tizz: The US Dollar has tumbled across the board consequently, pushing gold prices higher. The Australian Dollar, even for all its current unattractiveness, has burst higher, to be trading back toward the 0.7150 mark. Commodity prices, especially those of thriving industrial metals, have also rallied courtesy of the weaker greenback. Emerging market currencies are collectively stronger, too. This is all coming because traders are more-or-less betting that the Fed is at the end of its hiking cycle, and financial conditions will not be constricted by policy-maker intervention. Relatively cheap money will continue to flow, as yields remain depressed, and allow for the (sometimes wonton) risk-taking conditions that markets have grown used to in the past decade. Some risk being taken again, though somewhat nervously: The play into risk-assets makes everything sound quite rosy. There are caveats to this, however. And that relates to what’s been inferred about global growth from the Fed’s meeting this morning. Implicitly, at the very least, the Fed has acknowledged that growth in the US and world economy is all but certain to slow-down. It wasn’t said outright – a central banker would never want to be anything less than cautiously optimistic – but the tone of Fed Chair Powell at his presser suggests a Fed that is sufficiently concerned about the global economy that they will definitively reverse its policy “normalization” course. Positivity was maintained by the Fed about US economic conditions, outrightly. However, the market has read between the lines, and it doesn’t like what it sees. Interest rates are now expected to be on hold for this cycle: So: although swung around post release, the more important bond market is telling a clearer story. The yield on the US 10 Year Treasuries have tumbled nearly 8 points to 2.53 percent, and the yield on US 2 Year Treasuries has fallen 7 points to 2.39 per cent. More remarkably, the yield on Treasuries with 3, 5- and 7-year maturities have dropped over nine points, creating a yield curve with a very flat belly. Of most concern here is that all of these securities are trading just at, or well below, the Fed’s current effective overnight-cash-rate of 2.40 per cent. Traders are now pricing in a greater than 50 per cent chance the Fed will cut rates by early next year, on the basis of deteriorating economic conditions. It’s getting harder for the Fed to get the right balance: The tight rope is getting narrower. For market participants, as always: on one side of it sits the need for accommodative financial conditions, on the other the need for robust growth conditions. It’s the rudimentary in principle, though complicated in practice, interplay between the credit cycle and the business cycle. Out of this Fed meeting, the proverbial tight rope walker is nervously shifting her gaze down towards the economic growth outlook. Powell and his team have apparently not struck the necessary equilibrium in its approach to its policy and communications to the market. Yes (again), risk assets have rallied, but right now, not in such a way that suggests the bulls are significantly more confident in the investment environment being planted before them. Other stories also important, though not as much as the Fed: Some of this could be attributed to the overhang coming from some of the other significant economic stories yesterday. Sentiment has been dented by news that key EU figure Donald Tusk may demand that no Brexit extension is granted for the UK; it has also been liver-punched by a story suggesting US President Trump does not necessarily see a lifting of tariffs on China occurring in any US-Sino trade deal. Once more: it does appear that markets have seen the greatest gravitas in the Fed meeting, though. And traders’ nervousness is being betrayed by this: despite a dovish tact, corporate credit spreads have rallied, the VIX is off its multi-year lows, and US Break-evens are revealing greater inflation risk in the US economy. Australian markets to be defined by Fed and employment numbers: Fittingly, SPI Futures are suggesting the ASX200 will open somewhere between 5-and-10 points lower this morning. Speaking of markets and the growth outlook, not only will Australian trade be impacted by the fall-out from the Fed’s nervously dovish tilt, we also get some highly anticipated employment figures out this morning. The currency and rates markets will be what to watch for: the themes driving the ASX200 this week is the renewed push in iron ore prices, along with the rotation into yield-driven defensive sectors as Australian ACGB yields tumble. The RBA have hitched their hopes for the Australian economy on a tightening labour market and subsequent lift in wages growth and inflation. Watch therefore today for any major downside miss in employment numbers. Written by Kyle Rodda - IG Australia
  2. MaxIG

    APAC brief 20 Mar

    Another trade-war headline downs sentiment: There’s some news floating through the wires that sentiment has taken a hit overnight courtesy of some unfavourable trade-war headlines. It’s been reported that Chinese officials aren’t co-operating with their US counterparts, as it applies to certain sensitive elements of trade-negotiations. The S&P500, which had been developing some intraday momentum prior to the release, has retraced throughout trade, consequent to the news. It’s closed flat for the day, but despite this fall, moves in rates and bond markets suggest the fundamentals currently remain the same. The all-important balance between financial conditions and growth expectations is still there, ultimately supporting the bullishly inclined, as markets now prepare for tomorrow morning’s meeting of the US Federal Reserve. The unresolvable issues: It’s perhaps an assumption alone, but the (very vague) report leaked to the market about trade negotiations surely pertains to one of the well-understood, seemingly intractable issues embroiling the US and China. Those, at its core, unrelated to economics, but to strategic, and somewhat philosophical differences. These are intellectual property theft, currency manipulation, and Chinese military posturing in the Asian region – especially the South China Sea. These differences are relevant because they boil down to brutal power-politics, and an essential clash of ideologies. This isn’t to suggest a trade-deal, and future bilateral cooperation can’t exist between both parties; but that whatever deal is struck, it’s unlikely to put an end to geopolitical tensions. A trade-deal is still expected: Overall, the short-term economic stress placed on the US and (especially) China will probably force both countries to arrive at some sort of deal, eventually. Markets will benefit from that – and in a sense, they have already priced that outcome in. Industrial metals are the possibly the best harbinger of this: Dr. Copper, amongst others, still looks poised for upside. Assuming this to be so, the question likely to be asked is something like: “what’s next after a trade deal?”. This is where a degree of doubt creeps into analysts minds. It appears unlikely a satisfactory, elegant agreement will be struck between the US and China on this front. There’s too many zero-sum games; with rudimentary differences in world-view making co-operation complicated. Power-politics won’t stop with a deal: The desire of one state to take a greater share of a finite amount of power is quite comprehensible to most. The behaviour is primal – an instinct everyone and everything seemingly possesses in some way. It manifests between individuals, just as much as it does between groups and nation states. Market participants generally understand this, and factor this in to their views. What seems to be missed sometimes is how inherently different perceptions of the world, when analysing the outward expression of power-politics, exacerbates conflict between nation-states. As market participants, though justifiably not the greatest priority, an appreciation of this dynamic is required, if nothing else to build an accurate view on how market activity may evolve. A fundamental difference in philosophy: In the instance of the US-China conflict, some liberal, America ideals disagree with some collectivist, Chinese ideals. In the West, we tend to project our cultural motives onto China, and infer meaning from their behaviour from there. This leads to false conclusions and confusion. The best example of this is the way intellectual property is viewed. Although Communist only in name – State-Capitalist, quasi-Stalinism is probably more accurate – the Chinese assessment of intellectual property, and how intellectual property should be treated, betrays the difference in belief between the US and China. Accusations of intellectual property theft, and the subsequent denials thereof, are met with moral objections, resulting in a situation where necessary presuppositions to start productive negotiations struggle to be established. China’s bid for supremacy in the information age: How can one privatize an idea? Isn’t a communicable idea itself a common good? Probably too crudely put, this (perceived) issue with American capitalism can be articulated. As an aside, these questions go well beyond the US-China trade negotiations and can be found in the way businesses have struggled to monetize ideas in the age of free, sharable information. As it relates to the trade-war though, notice the conspicuous absence of talk about the China 2025 plan from China’s political-elite. It was founded on the objective of becoming the world’s leading tech-powerhouse in a decade’s time. While still clearly the goal of policymakers, the sensitivity of IP issues has meant that document, in a public sense, has been quietly shelved. ASX probably needs a trade-resolution: Australia is in an invidious position, as is well known, when it comes to the trade-war. We are stuck balancing the interests of our military and ideological bedfellow on one hand; and the manufacturer of our warm economic safety blanket on the other. Australian market participants keenly wait for a trade-deal and hope for a de-escalation in the strategic tensions. This morning, last night’s trade war noise has reduced the gains implied by the SPI Futures contract to 7 points. We await some substantial develops in trade negotiations and the Chinese economic story before the bulls reclaim control of the market. The ASX has tracked sideways recently after all, only supported by a lucky run higher in iron ore prices, and a fall in interest rate expectations. Written by Kyle Rodda - IG Australia
  3. MaxIG

    APAC brief 19 Mar

    Markets trade thin ahead of central bank risks: It’s said that money makes the world go around. And given central bankers control the money of the world, it is they who decide when the turning starts and stops. Described this way, central bankers role in the economy sounds Bond-villain-esque. That’s entirely unfair of course – only fringe-dwellers would suggest they are so malevolent. But recent history, based on experiential evidence, suggests that when it comes to financial markets, the actions of central bankers take primacy over all other considerations. This phenomenon must be a transient thing – a part of some other historical process. All high priests eventually lose their power. For now, though, it feels the age of the central-banker has reached its epoch, with markets dutifully obeying their rule. Markets pace the margins: The reason for the foregoing expatiation is that financial markets, owing to a dearth of economic and corporate data, have traded quietly in anticipation of several key central bank meetings this week. Naturally, the biggest of them all is Thursday morning’s US Federal Reserve meeting. In preparation for the event, traders are pacing the markets’ fringes. Risk appetite on Wall Street is still rather well supported. Volumes are below average but having broken key-resistance at 2815 on Friday, the clearing of that technical level has invited in some buyers. Rates markets are largely unchanged, although US bond yields have ticked slightly higher across the board, while the US Dollar is relatively steady, albeit well off its recent highs. RBA-Minutes released today: An expounding of the internal dynamics of US financial markets ahead of this week’s US Fed meeting is for another day. For the moment, it’s simply handy to know that it’s market participants’ major mental block. Localizing the focus, Australian traders and market-watchers are preparing for their own dose of central bank news. This afternoon welcomes the release of the RBA’s Monetary Policy Minutes for its March meeting. Few surprises are expected out of today’s release, it must be stated (what’s new when it comes to the RBA?) The market impact, consequently, may prove negligible, aside from a move of a few pips here and there on the Aussie-Dollar crosses, and maybe a shift in the yield of ACGBs. Themes to watch from the RBA: Nevertheless, for econo-watchers, some familiar themes will be searched-for as today’s minutes are perused. Probably given we are coming up to an election, several economic pressure points have become of greater relevance. House prices are the perennial favourite, especially as it relates to their fall and the so-called “wealth effect” on consumer behaviour. The other to watch-out for pertains to the latest political hot-topic: wages growth. Namely: when (and perhaps, more appropriately, if) adequate growth in wages will materialize. The final key theme to which analysts will be centring their attention on is the labour market outlook, considering a further tightening in it has become the RBA’s proposed panacea to the two other issues, and all their insidious knock-on effects. Negligible reaction to RBA Minutes is expected: Whatever the RBA's chosen tact in their minutes, it's probable that few answers will be handed from up high today. In an act of what might be considered economic blasphemy, markets participants have grown increasingly cynical of the RBA's outright, "neutral” stance on the Australian economy. Markets are still pricing in approximately 34 basis points of cuts from the RBA this year – with the first cut fully implied by August. Despite this, and although yields on Australian Dollar denominated assets are trending firmly lower, the local currency, courtesy of a lift in the price of key commodity exports, is trading resiliently, clinging onto the 0.7100 handle at present. Can commodity rallying prices save the day again? Ever the lucky country, policy makers and politicians alike will be praying this dynamic in the commodity complex lasts. Indirectly, the lift in Australia's terms of trade may be what drives the economy through its current "crosswinds” and keeps the RBA from having to cut interest rates in an already unstable and debt-laden environment. The simple logic is this: the greater tax revenues drawn from a lift in commodity prices will help build a war-chest for the Pollies to play-with, in a bid to win over the electorate with greater tax cuts and spending programs. Undoubtedly, this state of affairs comes with the risk of profligacy. Nonetheless, sensible, stimulatory policy could yet save the economy from the next recession. ASX searching for a lead to move higher: In the narrow context of today's trade, the ASX200 ought not be affected by this broader hope of future fiscal stimulus for the Australian economy. Wall Street has rallied into its close: the S&P500 has climbed 0.37 per cent for the session. SPI Futures have lifted by virtue of this, indicating a 20-point jump for the ASX200 this morning. That’s proven an unreliable indicator of late, however. For the last week has a rally in SPI futures contract translated into meaningful gains in the cash market. As alluded to Australian-macro currently is all about commodity prices. Materials stocks led the charge yesterday, and the same may go today, with iron ore prices in particular making a fresh run higher. Written by Kyle Rodda - IG Australia
  4. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 18 Mar 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends Index Bloomberg Code Effective Date Summary Dividend Amount UKX RBS LN 21/03/2019 Special Div 7.5 AS51 FLT AU 21/03/2019 Special Div 212.8571 HSI 27 HK 25/03/2019 Special Div 45 RTY JILL US 18/03/2019 Special Div 115 RTY WSBF US 20/03/2019 Special Div 50 As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements. How do dividend adjustments work? 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.
  5. A flowless rally: It’s being dubbed the “flowless rally”. Equities are ticking higher, but without the fundamental buying-support one might assume. This is especially so when considering the milestone achieved on Wall Street on Friday. Finally, the 2815 resistance level has tumbled, and the bulls have cautiously, quietly rejoiced. There are yellow flags popping up here and there, however, and that is making participants wary. It goes back to this “flowless rally” business: the latest leg of global stocks big recovery isn’t being supported by investor flows. In fact, investor flows look to have diminished somewhat. The reasoning behind this move is somewhat speculative. The impact of share buybacks is one popular argument. Whatever the cause, confidence isn’t accompanying this rally. Economic conditions deteriorating: Maybe market participants are still scorned from the market correction in 2018. A bitterness and cynicism stemming from that is understandable. Much of the frustration comes, it would seem, from a widespread recognition that this rally has come in the absence of solid fundamentals. On the contrary, if looking at the macro-outlook, there are more reasons to be bearish than bullish right now. Global growth is (almost) irrefutably slowing, and some of the geopolitical sore-points dictating sentiment, like Brexit and the US-China trade war, are showing little new signs of progress. A major factor keeping this rally alive in riskier assets, perhaps concerningly, is a little case of “fear of missing out”. Markets betting on policy support: Policy makers are igniting this behaviour: market participants are hoping-big that they can turn the economic ship around. Such policy intervention if for good cause, and with good intentions, of course: economic growth the world over is wheezing, and those whose job it is to address this affliction are experimenting with ways to cure it. The concern now relates to the unintended consequences, of course. Just on Friday, two more stories relating to stimulatory economic policy galvanized markets. The first came from the board of the Bank of Japan, who as expected downgraded their economic outlook and hinted at sustained monetary stimulus. The second came from Chinese Premier Li Keqiang, who announced more fiscal measures to tackle China’s economic slowdown. Premier Li stokes optimism: The latter of the two stories carried most weight. It betrays what financial markets’ biggest concern is now: the health of the Chinese (and therefore global) economy. The move into stocks and growth-tied markets on Friday was catalysed by Premier Li’s boldness, especially. In a bid to quell concern about a deterioration in China’s labour market, he stated the Communist Party leadership would look to lower the Reserve Ratio Requirement, cut taxes, and lower interest rates if necessary. Risk and growth assets across the region rallied on the news. The CSI300 added 1.26 per cent for the day and the Australian Dollar climbed back towards the 0.7100 handle – the latter despite little move in yield spreads. The more accurate indicators: Although there were signs of optimism in speculative assets because of the prospect of further stimulatory fiscal and financial conditions, better barometers of the growth outlook were unmoved. Bond yields generally fell, as traders continued to price in a world of lower growth and falling interest rates. The US 10 Year Treasury Note closed at 2.58 per cent over the weekend; and bets were increased that the US Fed, ECB and our own RBA would have to cut rates at some stage before the end of 2019. Granted, this dynamic has supported equites, and risk assets like corporate credit. However, if economic growth is to slow like expected, the question is: how long is it before slower growth manifests in the earnings outlook? Measures of fear stay subdued: Only the shiniest and clearest crystal ball can predict that one. Market participants may prove emboldened in the short term irrespective, as a hunt for yield, some technical drivers, and a touch of momentum spur the herd to push the market higher. Naturally, this comes with risk, although the areas one might expected to see hedging against this aren’t finding love either. Gold is up but remains closely wedded to the $US1300 pivot point. The US Dollar isn’t attracting safe haven flows in the short term, either. Perhaps most tellingly, the VIX has continued to creep lower, closing last week at 12.88; and poetically, finds itself at lows not registered since Jerome Powell’s notorious “a long way from neutral” speech. ASX200 to leap out of the gates: It hasn’t been the most reliable indicator of the intraday fortunes of the ASX200 of late, but the last traded price on the SPI futures contract is indicating a 35-point jump at the open today. A part of this ought to occur by virtue of a small bounce back following Friday’s index rebalancing, which saw heightened activity in heavily weighted stocks at Friday’s close. Last week for the ASX200, when contrasted with the world’s other major equity indices, was underwhelming. It was one of the few to close lower for the week. Wall Street traders are mumbling about the potential for US indices to clock new all-time highs currently. For us, the ASX200 is now 2.76 per from its decade-long high. Written by Kyle Rodda - IG Australia
  6. Delaying the pain of uncertainty: The pain of uncertainty, when it comes to two of the world’s big macroeconomic issues, looks likely to persist for a little while yet. Two stories, to be elaborated on in a moment, defined market-headlines overnight: a meeting between US President Donald Trump and Chinese President Xi Jinping won’t happen until at least April; while the UK House of Commons has voted overwhelmingly to extend the Brexit-deadline, though with no clear path forward from here. The frustration is palpable, and its apparently resulted in a level of exhaustion for financial markets. After a bit of chop, Wall Street is trading in a cold-fashion, only slightly down for the day, handing the Asian region little inspiration for the day ahead. No march meeting between Trump and Xi: On the trade-war, market participants were a touch confused. No imminent meeting, as had been hoped, between the top-brass of the US and Chinese governments, has sapped confidence. But the conclusion reached, apparently, as the news has been digested through the North American session has been “well, what did we really expect?”. It’s been the problem with chasing sentiment lately when it comes to the trade-war. Tensions have clearly de-escalated, and markets have reflected that in pricing. However, no path has been put forward, no real solutions offered, and never, at any stage, have the deep structural concerns underpinning the US-China stand-off – which may well persist for years – been adequately addressed. Anything to relieve the pressure: It’s been one of those “lipstick on a dead-pig” situations: the conflict is quite fundamentally intractable. But that’s been well understood, and it would be wrong to say markets don’t realize that. All market participants are looking for is a superficial solution that will release the pressure valve a little and ensure that things don’t get worse – a loosening of the shackles, if you will. It pertains mostly to Chinese economic growth, this desire, and it was reaffirmed yesterday. The Middle Kingdom, already mired in its own structural and cyclical issues, is still showing signs of an economic slowdown. The economic data dump yesterday, though not a categorical disaster, revealed an economy suffering from diminishing activity. The latest Brexit can-kicking exercise: So not to become too preoccupied the trade-war: the other big case of can-kicking transpired in the Brexit debacle last night. In round three-of-three of this week’s Brexit-battle in the UK House of Commons, UK MPs voted overwhelmingly to extend the March 29 Brexit-deadline. Coming into this week, this was the expected, and perhaps hoped-for, outcome from market participants. Judging by market activity, the formal approval of a Brexit-delay hasn’t diminished totally the risks Brexit presents to financial markets. A no-deal hasn’t been taken off the table entirely, and a path forward for Brexit hasn’t been outlined, let alone agreed to. It’s a prolonging of uncertainty and chaos: the Pound’s pullback today from its weekly highs tells us so. An unremarkable, and unreliable lead: Out of last night's trade, the ASX200, just like markets at large, will be grasping for a lead. This goes equally for the bears as it does the bulls -- right now, there's just as little reason to sell as there is to buy. Wall Street's stall below 2815 again demonstrates this overriding attitude: with what we know, maybe stocks are just where they ought to be. SPI Futures suggest that the ASX200 will jump 10 points or so at the open, though given the split in behaviour between Asian and North American traders this week, maybe this isn't a strong indicator of the morning's sentiment. As such, absent a lead, the interest could be in some major risks coming-up, instead. Are we turning Japanese? There's plenty on the calendar in the next 7 days. The Asian session will concern itself primarily with the Bank of Japan meeting today. No surprises: little policy change is expected from the meeting. A theme in markets across the globe recently has been a pivot by central bankers to dovish biases, if not downgrades to their economic outlook. By some, it's being said that developed markets are "turning Japanese". That is: a looming global growth slow down means Western monetary policy will resemble that of the ultra-interventionist, negative rate inducing BOJ. Through this lens, the BOJ meeting will be viewed today: what can they tell us about how the world's other major central banks will adjust policy in the future? Next week’s pressure-points: We may not have to wait too long to gather hints. Next week is big, and centres around several central bank related events. At home, the RBA's Minutes are released. The Bank of England, still in the shadows of Brexit, will also meet. But, as it always is, the major event will be the US Federal Reserve’s meeting, at which the Fed will keep rates on hold. Overlaying this, several European PMI figures, a swathe of UK data, and local employment figures are released. It will be a week that offers to break markets’ current holding pattern and address its long-existing fundamental dyad: the interplay between international financial conditions, and the global economic outlook.
  7. MaxIG

    APAC brief 14 Mar

    Traders see “goldilocks” conditions in US: Both European and US shares rallied overnight. For the latter, the term “goldilocks” has been bandied around. That is: growth in the US, though not as strong as it has been in the recent past, is still solid, while inflation risk is presently low, meaning the US Fed will likely remain in a neutral position. A reminder of this dynamic came in the second of two major inflation releases out of the US this week. PPI data showed a weaker than expected print, following the night prior’s soft CPI numbers. The effect has been static bond yields, a slight lift in the prospects of a US rate cut this year, and a US Dollar that has pulled-back from its highs. US stocks fail to jump significant hurdle again: Perhaps most significantly for those with a bullish disposition, US equities have responded to the “goldilocks” dynamic in the most enthusiastic way. Once again, the S&P500 has challenged crucial resistance at 2815 – that notorious level at which the market has broken down on nearly four-or-five occasions in the past. Promisingly, as it applies to last night’s trade, the sector responsible for driving the S&P500’s gains is information technology – primarily Microsoft and Apple Inc. Recall, it was the en masse dumping of the tech-giants that led US stocks lower in Q4 last year. It’s hope that their continued recovery may be a bellwether, for the bulls, of further upside to come. Green-shoots in commodities? It wasn’t only equites engendering a sense of hope for the global growth outlook in the last 24 hours. Arguably a more reliable indicator, global commodity prices registered noteworthy gains. The weaker US Dollar undoubtedly supported this, but it alone does not explain the broad-based strength across the commodities complex. Perhaps it’s just another part of the small snap back we’ve seen in markets since the de-escalation in trade-war tensions. An edging higher in the price of oil, after a contraction in US inventories last night, has been supportive too. Nevertheless, although a major break-out in commodity prices are yet to occur, the reversal in its downward trend has some suggesting these are green-shoots for the global economy. Asian markets had a soggy day: To localize the focus, the ASX200, in line with the other major regional equity indices, closed well into the red during yesterday’s Asian session. It seemed it was one of those days where the market’s behaviour was a trifle inexplicable. The lead handed to Asian markets was solid enough, nor were there were any major tier-1 economic announces to undermine sentiment. Some indicated that it might have been comments from the night prior by US trade representative Robert Lighthizer that US tariffs on China remain a possibility. This answer isn’t satisfactory, however: the comments were made in the US session and caused little reaction then. Maybe yesterday’s weakness could be chalked-up to the market simply having a soggy day. ASX200 to open higher this morning: Regardless, the tide looks likely to turn again this morning. SPI futures are indicating a 20-point jump at the open for the ASX200. What appetite there is for risk will be curious today. As mentioned, despite ample fodder a little upside yesterday, especially in growth and cyclical stocks, trade was defined by a languid rotation into defensive sectors. The phenomenon may well be attributed to the morning’s Westpac Consumer Sentiment reading. It showed a major fall in sentiment, resulting in a major tumble in Australian Commonwealth Government Bond yields. Though certainly a positive for yield-stocks, the fall in 10 Year ACGBs portends a meaningful slow down in domestic economic, and the likely necessity for RBA cuts as soon as August. The monthly Chinese data-dump: Traders will get another opportunity to refine their views on global growth today: it's that time of the month when markets receive the big Chinese economic data dump. The bar was set last week during China's National People's Congress, as Chinese policymakers downgraded their growth targets, and announced a slew of fiscal and monetary measures aimed at supporting their economy. As it relates to Australian markets, two of today's prints stand-out as being most relevant: the industrial production, and retails sales numbers. They may prove significant for the AUD: as yields fall in AUD denominated assets, the yield disadvantage the AUD has against the USD grows, making the currency more vulnerable to data surprises and downside risk. Brexit: Round to 2 of 3: The headline story today has been round 2 of 3 in this week’s Brexit-battle in the UK House of Commons. This morning’s vote was to decide whether to move ahead with a “no-deal” Brexit. By a narrow margin, the House voted against “no-deal”, setting up another vote tomorrow on whether to extend Article 50 and delay the March 29 deadline. There has been a lot of drama this morning, and the **** is certainly in the detail, especially as it pertains to Theresa May’s authority. But as far as financial markets go, the simple fact is this: the Pound has rallied, equally against the EUR as the USD, as traders bet on a delay, if not a reversal, of Brexit. Written by Kyle Rodda - IG Australia
  8. Financials drag on the ASX: The ASX200 was legged in the final stages of trade yesterday. It was led by a sell-off in major financial stocks, after a media address made by Australian Treasurer, Josh Frydenberg, during which he announced the Liberal government would not pursue the eradication of trailing commissions for financial advisors and mortgage brokers, as prescribed by Kenneth Hayne QC in the final Banking Royal Commission report. It turned what was an otherwise solid day for the ASX200 on its head. Naturally, given their substantial weighting in the index, a bad day for the banks more-often than not leads to a pull-back in the market. That notion certainly proved to yesterday and looks to prove true again this morning. A good lead, but a weak start: Thus, at time of writing, SPI Futures are pointing a 7-point drop at the open. With half-an-hour left in Wall Street trade, it won’t be for a lack of a positive lead that this will be so. It’s been a reasonable day for US stocks, rallying just over 0.3 per cent, according to the S&P500. Market participants, it would seem, have had hurled back at them, when it comes to the banks, the political risk to the industry, they’d thought, had disappeared following the final report handed down by the Royal Commission. This being the case, the simplest answer for the ASX’s likely sluggish start today is this returning shadow of regulatory uncertainty over the financial sector. Banks back into the spotlight: Numerous specific explanations could be offered regarding the exact rationale for trader’s sell-off in financial-stocks. Many of them are politically-charged and filled with bias. For some inclined to one way of thinking, it might be because the Government’s new-position invites the Labor opposition to go harder on their “bank-bashing” (as it has become colloquially known) and raised the prospect of harsher regulations on the banks. The overarching explanation, no matter the specific reasoning, however, can be summed up in a cliché about markets: the only thing worse than bad news in markets, is uncertainty. Yesterday’s proclamations from the Government reintroduce uncertainty to the banking industry and create reason to avoid long positions in the banking stocks. Some of the bullish stories: Hence, despite some reasons to climb further today, the ASX200 may struggle to stay out of the red. It will come in the face of other macro-factors that ought to support stocks in Australia – and across the region. For one, industrial metals elegantly bounced from trendline support to sustain its recent run higher, which augurs well for the materials sector today. Oil is edging higher once more, so another day of gains for the energy sector could be in store. And a further play into health care and information technology stocks on Wall Street last night suggests an appetite for growth and risk in the market, pointing to positive conditions for highly weighted biotechnology firms on the ASX200. US CPI and global yields: Even more fundamentally, risk appetite was galvanized by a general fall in bond yields overnight. While still well within their broad range, US 10 Year Treasury yields fell 4 basis points to 2.60 per cent, after US CPI numbers missed expectations. The headline core CPI figure printed a lukewarm 2.1 per cent – effectively affirming, for now, that the US Fed is under very little pressure to hike interest rates. The knock-on effect was tangible throughout fixed-income and currency markets: 10 Year German Bunds clocked another multiyear low around at around 0.05 per cent; and the USD gave up ground, as it lost some of the yield advantage that has fuelled its recent rally. A higher chance of a Fed cut: Inflation expectations for the US economy have been tempered after last night’s CPI miss. The US 2 Year Breakeven rate slipped below 1.90 per cent – revealing a market that believes that inflation in the US will continue to languish below the Fed’s 2 per cent “symmetrical” target. The dynamic has manifested in the implied probabilities US interest rate markets. A rate cut from the Fed is now considered a roughly 36 per cent chance before the end of 2019. It’s taken market positioning to levels not witnessed since the start of January – that being a time, of course, when the market was still being shaped by the massive market correction experienced in the last quarter of 2018. Brexit update: For everything else going on in markets, Brexit and the unfolding drama in that issue was the headline issue for traders overnight. There were many swings in the story yesterday, but ultimately, the simple fact this morning is this: UK Prime Minister Theresa May’s Brexit deal has been voted down again. It was by a smaller a margin this time – a 149 vote deficit. But nevertheless, the defeat was resounding, and ensures that the toxic effect of Brexit on markets lingers. The Sterling has whipped around in a 2.4 per cent range in the last 48 hours. Similar volatility is expected as the House votes tomorrow morning on whether to exit the EU with “no deal” at all. Written by Kyle Rodda - IG Australia
  9. Up, down, turnaround: It’s been a bipolar market of late. Global stocks are moving in unison, and have swung from broad-based losses on Friday, to broad-based gains overnight. US equities are naturally the exemplar and are a responsible for driving overall risk appetite. With an hour left in trade (and as a quick aside, Wall Street closes at 7am AEDT for the next few weeks) the S&P500 is up well over 1 per cent. It’s been a day of relatively low activity. However, breadth is expansive: over 90 per cent of stocks are higher for the session. After last week’s losses, the S&P500 is some way from the key resistance at 2815. The fundamental strength of the market will be assessed by its ability to rechallenge that level. ASX to hit the ground running: It was topsy-turvy yesterday, as far as the ASX’s behaviour went within the context of the global rally in equities. Unlike during stages of last week, the ASX200 was a thin-cut of red in an otherwise sea of green, when looking at the global equity index map. Australian stocks will join the party this morning, and according to the SPI Futures contract, will bust out of the gate at today’s open with a 34-point rally. Inducing from European and North American trade what we might see today: materials stocks may follow their international counterparts, energy stocks may track a lift in oil, and Australia’s growth stocks in the biotechnology industry should follow US tech’s run higher. US economic fundamentals: US economic data is dense this week, and what it suggest about the US economy will be a theme to watch in the week ahead. After all: growth in the US economy is what many are hanging their hat on to keep global economic activity supported. Retail Sales data last night was the first high-impact event for the week, and it surprised to the upside. Although January’s woeful figure was revised down again, sales growth in February beat expectations. The result didn’t change fundamentals, though they did shift slightly. US Treasury yields lifted modestly, on reduced bets that the US Fed will have to cut interest rates at some stage in 2019 to support the US economy. US inflation risk: The far more important US CPI figure is released tonight – and will probably amount to highlight for the week in US data. Inflation concerns have become less-of-a-priority for traders recently, owing to the volatility in financial markets, relatively low oil prices, the dimming prospects for global growth, and the US Fed’s assurances that it does not mind overshooting its 2 per cent inflation target. Nevertheless, inflation risk always reigns – and, if realized, would be quick to quash equity market bullishness. In saying this, the implied probability of this materializing ought still to be considered low. US 5 Year break evens are implying a US inflation outlook of only about 1.85 per cent. 3-days of Brexit drama: Though US data is an overarching theme this week, the eyes of the world will probably be on the UK for the next 3 days. It’s more-or-less crunch time for UK Prime Minister Theresa May and her wildly unpopular Brexit bill. A series of votes before the House of Commons to decide on what the UK will do come the March 29 Brexit deadline will transpire over the coming days. Crudely put, they’ll determine whether to leave the Eurozone according to Prime Minister May’s deal (unlikely); crash-out of the Eurozone without a deal (a possibility); or extend the Brexit deadline and kick-the-can further down the road (likeliest). The Sterling will be the barometer: short-term moves between the 1.28 and 1.34 handle is conceivable. Mixed growth signals: For financial markets, Brexit’s macro-economic impact will probably be contained to UK and European assets. Rightly or wrongly, the view is that the matter concerns regional markets, primarily. Fears about slowing global growth will remain a theme overlayed in the market, nevertheless. And judging from last night’s trade, despite the bullishness in equities, fixed income and currencies, pockets of pessimism still prevail. Growth sensitive commodities, primarily industrial metals, were down overnight, even in the face of a weaker US Dollar. From a technical standpoint, industrial metals prices are reaching technical trend-line support. If broken below, it may indicate that the market’s flirtation with improved global growth conditions was a mere folly. China’s got the gold-bug: The always contentious outlook for gold prices was of interest overnight, amid the sell-off in commodities and the confused global growth outlook. Gold pulled away from the $1300 pivot point once more, courtesy of the rise in global yields. An arguably more interesting and significant variable in gold's broader price action was a highlight yesterday: data that revealed China once again increased its reserves of the metal last month. The most parsimonious explanation here for this phenomenon is that, like the Russians, China is looking to reduce its dependence on the United States by diversifying away from USD denominated assets. It's a direct challenge to the post-Bretton Woods global monetary system, and one that may support gold prices into the future. Written by Kyle Rodda - IG Australia
  10. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 11 Mar 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange. Index Bloomberg Code Effective Date Summary Dividend Amount RTY BTU US 11/03/2019 Special Div 185 RTY FFG US 14/03/2019 Special Div 150 RTY CWH US 14/03/2019 Special Div 7.32 RTY GSHD US 15/03/2019 Special Div 41 RTY JILL US 18/03/2019 Special Div 115 As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements. How do dividend adjustments work? 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.
  11. US NFPs: The final bastion of global economic growth is showing cracks in it walls. Arguably last week’s key-release, US Non-Farm Payrolls disappointed market participants over the weekend, printing well below expectations. It wasn’t a clear-cut, poor print. The unemployment rate dropped to 3.8 per cent and wage-growth climbed to 3.4 per cent. The shocker was the headline number: forecast to reveal a jobs-gain of 180,000, the US economy only added 20,000 last month. It’s given rise to concerns that, given how low the unemployment rate is in the US, and that wages are finally picking-up, the long-thriving US labour market has finally reached full capacity for this economic cycle. US stocks fall, but losses were limited: That would be bad news for the US and global economy. Despite this gloomy picture painted by NFPs, and an initial knee-**** reaction, traders sought to see through the data. It was a bad day, ending a bad week, for risk assets on Friday – that’s no question. But given that the weak US jobs figures punctuated a series of weak global economic data, which solidified the fear the global economy is sharply slowing, the reaction in markets was fairly contained. Global stocks certainly put in their worst weekly performance for the year. However, Wall Street’s daily losses were contained to a relatively modest 0.21 per cent, if judged by the S&P500’s performance on Friday. Central banks to the rescue? Could traders be betting that central bankers, in the event of a marked slow-down, will come valiantly to save markets from any economic malaise? Quite possibly. Interwoven between underwhelming economic data out of Asia, Europe and North America have been speeches and meetings from the world’s most powerful central bankers urging calm. Even more importantly, at least as it applies to market participants, central bankers have worked hard to deliver assurances that they’ll deliver policy support, if necessary, to curb any economic slow-down. Market pricing has reacted accordingly: global bond markets continue to rally, as traders price in that the next move from likes of the ECB, Fed and PBOC will be to ease policy. Interest rate markets: The most noteworthy move in the implied probability of rate cuts has been in US interest rate markets. Following Friday’s disappointing US Non-Farm Payrolls release, bets of a cut from the Fed before the end of 2019 leapt from practically zero, to about 20 per cent. US Treasury yields tumbled consequently, taking the US 10 Year note to 2.62 per cent and US 2 Year note to 2.46 per cent, -- taking yields on European and Asian bonds with it. Gold rallied back to just shy of $US1300 on this basis, and growth-sensitive commodities like oil, copper and iron ore tumbled. Credit spreads also expanded, with junk bond spreads touching levels not registered since the start of February. Higher geopolitical risk: This "risk-off" off dynamic, as one might label it, is finding itself compounded by the return of geopolitical risks. Over the weekend -- and this will likely carry into the week ahead -- critical impasses have apparently been reached in both Brexit and US-Sino trade-war negotiations. Regarding the former, the Pound tumbled ahead of this week's historic Brexit vote, after UK Prime Minister Theresa May threatened that Brexit may not eventuate if MPs don't back her deal with the European Union. As far as the latter goes, assertions from top-Chinese trade officials that any trade-war deal would need to be "two-way, fair and equal" slightly dented hopes that a resolution to the trade-war was imminent. ASX comes under pressure: The overall bearishness that coloured market-sentiment on Friday, and over the weekend at that, will translate, according to the last traded price of the SPI Futures contract, in a 14-point fall for the ASX200 at this morning’s open. This follows a day on Friday of broad-based losses on the ASX, as Aussie shares succumbed to the pressures that had already enervated their global counterparts, to fall nearly 1 per cent for the session. Granted, it was a day of low activity in the market, as volumes traded slightly below average. But the breadth of losses were noteworthy, with 83.5 per cent of stocks lower for the day, and every sector in the market finishing in the red. Banks and miners lead losses: Non-cyclical stocks put up a fight in early trade, which benefitted from a degree of sectoral rotation, combined with a continued fall in discount rates. The bearish tide eventually washed buyers out of those sectors, too, however. Financials were by-far the worst performing, subtracting 31 points from the index on Friday, as a parliamentary standing committee grilled the heads of CBA and Westpac, and reminded markets that political risk hasn’t yet disappeared for the banking sector. Finally, the big pull back in industrial metal prices and oil, which had recently rallied courtesy of a de-escalation in trade-tensions, dragged mining and energy stocks lower, sucking a combined 17 points from the ASX200. Written by Kyle Rodda - IG Australia
  12. Australian data draws global interest: Australia’s remarkably weak growth figures captured attention, both locally and abroad. The numbers conveyed in yesterday’s GDP were truly disappointing. Growth in the final quarter of 2018 was a paltry 0.2 per cent, and after another set of revisions to previous data, the annualized growth rate fell to 2.3 per cent. Each figure was quite an undershoot of expectations: for one, economists were expecting the quarterly number to come-in-at 0.3 per cent in seasonally adjusted terms. Now, on the face of it, this may not seem too bad. However, this estimate had been revised down several times in the week preceding yesterday’s GDP release, from around 0.6 per cent, in response to other underwhelming Australian economic data. RBA’s dissolving logic: As it stands, the picture the GDP print painted of the Australian economy blows the RBA’s base case out of the water. Recently, the RBA had become candid in its assessment of the (let’s say) “crosswinds” in the domestic economy. So cognizant of the risks, they’d adopted a “neutral” stance to monetary policy moving forward into 2019. But still, their optimism remained: growth would remain strong enough to lead to an even tighter labour market, which would eventually feed into a pick-up in wages growth, and subsequently the inflation and consumption growth long-missing in the Australian economy. It was this view that fundamentally created the bedrock for the RBA’s policy bias and supported their hope for improved local economic conditions. A further slowdown expected: It’s seems impossible that the RBA could maintain this base case anymore. Simply put: a growth rate where it is now cannot sustain the necessary tightening of the labour market to put the aforementioned process into motion. Historically, GDP has had to grow at a rate at least above 2.5 per cent to see adequate growth in employment. A growth-rate below this market has traditionally led to an increase in the unemployment rate – a phenomenon that, given we are (arguably) at nominally full-employment now, may well manifest quickly in future labour market data. With that credible assumption made, the elusive growth in wages is terribly unlikely to materialize, meaning the Australian economy is unlikely to meet the RBA’s expectations. 2 RBA rate cuts possible in 2019: The logic hasn’t been missed by market participants. Immediately following yesterday’s news, traders swiftly priced in the new, less-optimistic outlook for the Australian economy. Bets on a rate cut from the RBA before year’s end spiked. Implied probabilities are now suggesting at least 1 cut from the central bank in 2019. The chances of another cut after this also showed for the first time in pricing – at implied odds of about 25 per cent. Naturally, the bears swarmed the AUD/USD as a consequence. Support at 0.7050 broke, after being tested a handful of times during the day, as the spread between 2 Year ACGBs and 2 Year US Treasuries widened to as far as 88 basis points. Lower yields, lower currency, higher ASX: Not that the ASX was overly perturbed by what was happening in the currency and bond markets in response to the GDP figures. If anything, it was a welcomed development, just in the short-term, for stocks. The depreciation of the AUD, coupled with the tumble in bond yields, bolstered equities, leading the ASX200 above 6230 resistance, to close 0.75 per cent higher for the day. It was a broad a based rally too: every major sector was in the green, led by the cyclical materials, energy and industrials stocks, which have also been given a boost by the run up in oil and industrial metals prices. The next conspicuous level to watch from here likely becomes 6310. Wall Street struggles: For the day ahead, SPI Futures are currently indicating an 8-point jump at the open for the ASX200. If realized, it’ll be no thanks to the lead Wall Street is likely to hand us. With less than hour to go in trade, the S&P500 has pulled further away from its formidable resistance level at 2815, to be trading 0.5 per cent lower on the session. Momentum is building to the downside for US equities still: the MACD and RSI are both pointing to a market that’s lost its drive. Also, of slight concern is breadth and conviction of Wall Street’s overnight falls. Volumes are above average, while only 20 per cent of stocks are higher for the session. The currency complex: The anti-risk, anti-growth bent to trade overnight has brought out some of the typical doomsayers. The result has been a modest lift to the US Dollar, and at that, the Japanese Yen, while gold keeps grinding lower. Across the currency complex, commodity currencies have been the worst performing. The AUD, for the reasons earlier described; but also, the Kiwi and CAD, too – the latter in part due to a dovish Bank of Canada last night, and a dip in oil prices. The Euro is steady as it treads water ahead of tonight’s ECB meeting, at which that central bank is expected to cut its growth outlook. The Pound is ambling as further Brexit developments are awaited. Written by Kyle Rodda - IG Australia
  13. American stocks fall: Wall Street looks poised to register its worst daily performance since the start of the year. The technical action was sweet: another early challenge of 2815 – the price ran slightly above that – before the bears swooned, and traders “pulled the trigger”. It’s been a day of selling since, with the S&P500 down 0.6 - 0.8 per cent, at time of writing. It’s nothing to be too concerned about, of course. This is nothing like the behaviour witness at the end of last year. It’s just that the price action has the commentariat ready to call the long-awaited reversal in US, and global equities. The closing price will be crucial today, but a bearish engulfing candle already signals looming weakness. Bulls fail to break technical resistance: It’s the considerable lack of upside momentum, coupled with the breadth of the sell-off, that is noteworthy. After all, again, the S&P500 is only down 0.6 per cent on the day. The RSI is pointing its head downwards, though, clearly breaking with its recent upward trend. Intraday breadth is very poor: only around 20 per cent of stocks are higher for the session, and every sector is presently in the red. Right now, the triple top at 2815 – the formidable level that saw the bulls bail-out on as many occasions in Q4 2018 – has proven its might. The discourse might once again shift from here to where the next low could be registered. Asian and Europe market activity was solid: The activity in US markets comes at the end of 24 hours that was rather friendly to Asian and European equities. Volume was low in European trade – a touch of Mondayitis perhaps. But Chinese and Hong Kong traders were voracious: volumes were 216 per cent higher than the 100-day average in China’s equity markets. Traders in Japan and here in Australia were more settled. However, the appetite for risk was still present: the Nikkei was up over 1 per cent on the day; and though the ASX200 failed to hold its break above 6230 resistance, a 0.40 percent gain for Australian stocks amounted to a respectable session for the bulls. Possible trade-war resolution stoked sentiment: As would be well known to anyone in markets, the logic for yesterday’s upside in Asia and Europe was that a true resolution in the US-China trade-war is upon us. The news broke before Australian market-open, and the positivity carried through the day. As alluded to, the ASX200 fed on the sentiment, clocked most its gains in early trade, before admittedly grinding lower throughout the day. Some of the cyclical sectors, along with growth stocks led the intraday leaders in nominal terms. Consumer discretionary, materials and industrials stocks were all up, while the information technology sector, as well as the biotechnology stocks in the healthcare sector, also put-in significant rallies. ASX to follow Wall Street’s lead: Alas, with Wall Street’s bearish day, the ASX200 looks poised to adopt the negative sentiment. According to SPI Futures, the index ought to fall approximately 40 points at this morning’s open. The ASX200 is flashing its own signals that momentum is slowing, brandishing a break in its RSI. But up until yesterday, the bulls were dogged in their conviction to keep the market above the trendline established from the Christmas Eve low. A technical “golden cross”, whereby the index’s 50-day EMA crosses above its 200-day EMA, transpired out of yesterday’s trade – generally considered a good indication of the prevailing bullishness, and therefore further upside, in the market into the medium term. Australian economic to grab attention: Nevertheless, many of the buy signals may well break down this morning, as traders mull the prospect of a general, short-term retracement in global equities. The next level to watch for the AX200 might be previous resistance at 6105. Although this will be a curious narrative to watch unfold, from a local perspective, and maybe just for the next day or two, the news flow might be more preoccupied with matters relating to core-macroeconomic concerns in Australia. Backing on from yesterday’s mixed Building Approvals and historically weak Corporate Profits data, today will see the release of local Current Account figures, before attention turns to the RBA’s monthly meeting this afternoon. The RBA and the range-trading AUD: It’s well known that the RBA will not move interest rates today. Instead, as storm clouds build on the Australian economic horizon, traders will be surveying the bank’s commentary, especially as it relates to their recent adoption of a “neutral” bias. The market presently thinks that the probability of a rate cut from the RBA before the end of the year is around 80 per cent. The concerns centre on the dimming global economic outlook, coupled with the growing pressure falling property prices will have on already strained domestic demand. The Australian Dollar has proven resilient recently and will come in focus today around the RBA release: analyst’s will continue to watch the 0.7050 – 0.7200 range moving forward. Written by Kyle Rodda - IG Australia
  14. Are things not so bad after all? It appears there’s emerged a self-reinforcing belief that economic fundamentals aren’t as bad as once thought. There’s not a simple binary that can be reduce out of this – a clear “risk-off” or “risk-on” signal. It’s clear there remains a general sense that the global economy is entering a soft-patch. But in that, is the key: slower growth is taken as granted, however the extent of such a slowdown is ostensibly being revised. There isn’t quite (just for the moment) the same level of catastrophism filling the news wires in financial markets right now. It raises the question whether the fundamentals have changed at all, or whether its actually market participants’ perception of the fundamentals that’s changed. Improved perceptions towards fundamentals: An answer to that one is very difficult to grasp just looking at the price-action. To rattle-off one of the stalest of undergraduate clichés: perception is reality. In the case of traders, the rosier perception of economic fundamentals has inspired the emergence of a virtuous cycle in financial market bullishness. Very often, a break from fundamentals, and a movement towards some imagined state of affairs, gives birth to a sufficient enough divergence between sentiment and hard-data that a relatively small catalyst can spark a jolting correction in market-pricing. That may well be the situation market participants are operating. A blithe optimism or not, some key markets are approaching now key inflection points. The will to end the trade-war: The big stories that are making this dynamic possible can still be rooted in a dovish US Federal Reserve (and dovish central banks across the world, at that) and a compounding hope that global trade skirmishes are reaching a resolution. Sharing that hope, or maybe trying to fan it, US President Trump is demanding freer trade. Tweeting on the weekend, Trump claimed to have “asked China to immediately remove all Tariffs on our agricultural products… based on the fact that we are moving along nicely with Trade discussions”. Such a statement is to be expected and will be of negligible consequence in the short term. The demand is indicative of where markets see the trade dispute: political will shall drive a breakthrough. The (President) Donald Trump Show: Speaking of the US President, and he captured the attention of markets again over the weekend. In a 2-hour monologue at the CPAC conference, he addressed many of the concerns, controversies and crises enveloping his Presidency. Speaking “off the cuff”, as he phrased it, the spectacle could be considered comical, evening entertaining, if it weren’t for the stark reality that the man is the world’s most powerful person. Of financial market import, President Trump fired-up his belligerence towards the US Fed and Jerome Powell: “we have a gentleman that likes raising interest rates in the Fed, we have a gentleman that loves quantitative tightening in the Fed, we have a gentlemen that likes a very strong dollar in the Fed”. Higher Treasury yields; stronger USD: It will be interesting to see today how markets react to the President's tirade. Unfortunately for him, his crass words will prove of marginal significance in the bigger picture. The US Dollar is finding plenty of advocates, driven by a renewed belief in the strength of the US economy. Chances of a rate cut from the Fed this year have been unwound. Treasury yields climbed markedly on Friday, despite weaker than expected ISM Manufacturing figures, and a PCE inflation reading that revealed price growth continues to amble below target at 1.9 per cent. The higher yield environment and stronger greenback has wiped the shine off gold (and really, most commodities) falling below $1300 per ounce. US markets show risk appetite: The risk is that markets will end up in the position that assets, like equities, will lose their appeal again amidst the higher yield environment. A pertinent and high-impact concern, but seemingly one some way from materialising. Though at a multi-month highs at 2.75 per cent, the 10 Year US Treasury is some way from the 3.26 per cent yield that stifled global markets last year and precipitated the Q4 sell-off. Riskier growth stocks in US tech are seemingly attracting buyers, indicating an underlying bullish moment in the US equity market. Having closed at 2803 on Friday, the S&P500 eyes the 2815 resistance level now as the crucial test for US stock market strength. ASX to follow the US lead: For the first time in several sessions, the ASX200 appears poised to follow the US lead this morning. The last traded price on the SPI Futures contract is indicating an 18 point jump this morning, on top of Friday’s closing price of 6192. The market experienced robust trade on Friday, despite soft (but above forecast) Caixin PMI numbers, and CoreLogic data that showed another monthly fall in domestic property prices. In fact: the latter, and its implications for monetary policy, was apparently seen as supportive of Real Estate stocks, which rallied 2.22 per cent on 95 per cent breadth. As far as milestones go, the ASX200 will eye 6230 resistance, ahead of what is a jam-packed week for Australian markets. Written by Kyle Rodda - IG Australia
  15. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 4 Mar 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends this week UKX RIO LN 7/03/2019 Special Div 183.55 AS51 QUB AU 6/03/2019 Special Div 1.4286 AS51 RIO AU 7/03/2019 Special Div 483.8571 AS51 S32 AU 7/03/2019 Special Div 2.4286 RTY NHTC US 4/03/2019 Special Div 8 RTY BTU US 11/03/2019 Special Div 185 As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements. How do dividend adjustments work? 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.
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