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ASX edges higher: The ASX200 edged higher yesterday, as what is a technically overbought market recovered some of its Friday losses. Upside momentum has clearly cooled for the local stock market, ahead of a week heavily geared towards positioning for this weekend’s G20 meeting. Overall, it must be said it was a low impact and low activity day’s trade yesterday. Consumer stocks were most responsible for the day’s losses, sapping around 4 points from the ASX200, while Real Estate and bank stocks lead the market’ gains, following signs of improvements in clearance rates over the weekend in the Melbourne and Sydney housing markets. Aussie Dollar pops on RBA comments: The Australian Dollar experienced a little lift to kick-off the trading week. A short-term phenomenon, for sure, the local unit climbed following comments made by RBA Governor Philip Lowe at a panel discussion yesterday morning, that “… it’s legitimate to ask how effective more [monetary policy] easing would be”. Though certainly not a statement about future policy, the comments did have the small effect of leading traders to briefly unwind their bets for future rate-cuts from the RBA, boosting the AUD. Currently, the market is pricing in a 77 per cent chance of another interest rate cut next week. Dr. Lowe’s policy prescriptions: Perhaps only for the econo-nerds: Governor Lowe did make some interesting statements about Australia’s future economic management, the role of monetary policy in the economy, and what might be required (the world-over) to support long-term economic health, yesterday. Reiterating what he’s implored in several of the RBA’s recent communications, Governor Lowe suggested that government should be “full of ideas” for large-scale fiscal and structural reforms, as a means of underwriting economic growth moving into the future. And the strong implication was that, with long-term borrowing rates at historically low levels, the time for such reform is now. The (true) dead hand of government? It makes for a pertinent debate: what and/or who is best at managing and growing the wealth of a nation? Demonstrably, the onus, since the Global Financial Crisis, has fallen disproportionately upon central banks to manage the economic fortunes of society. Though flawed, the historical process behind this quasi-system is explicable. Years of fiscal profligacy in Europe and the United States, particularly leading into the GFC, has rendered governments in those economic regions more-and-more impotent. This has created an over-reliance on central bankers to compensate for the noteworthy lack of fiscal firepower possessed by these governments, and sustain global economic wellbeing. Australia’s fortunate position: Central bankers, most pertinently at the Fed, ECB and BOJ, have thus (arguably) gone beyond their traditional mandate of price stability and full employment to ensure they achieve the tacit objectives outsourced to them by government. But, going back to Governor Lowe’s commentary yesterday, herein lies the rub of this for the Australian economy: owing mostly to good fortune, Australia’s fiscal position is relatively strong. That means that the RBA shouldn’t and needn’t be relied upon the same way other nations rely upon their central banks. Our government can do some of the heavy lifting – provided it can spend the money in productive ways. Another night of subdued trade: In overnight trade, markets were characterized by a small case of Monday-it is. Perhaps one could call it the hangover from such a big-week last week. Wall Street has traded on low activity, with the S&P500 continuing to dance around its all-time highs. Sovereign bond yield in North America and US fell once again, as markets maintain their move to price rate-cuts around the globe. The USD has remained offered. Falling yields and the weaker Dollar has pushed gold to fresh highs around $1420. And what it all implies for the ASX200 today: SPI Futures are pointing to a roughly 14-point drop this morning. Crypto’s spark-up: Crypto-currencies are experiencing a new lease-on life, with Bitcoin climbing above the $US11,000-mark for the first time in 15-months. Bitcoin has apparently benefitted from a handful of factors in the past month-or-so. For one, the prospect of imminent rate-cuts from central bankers across the globe is fostering both greater risk-taking, as well as a desire to diversify exposures to traditional, fiat currencies. On top of that, and perhaps more importantly, the re-escalation of the US-China trade-war, plus heightening geopolitical tensions across the globe – especially in the middle-east – is boosting the appeal of methods of payment and exchanges that skirt economic sanctions, and other regulations. Written by Kyle Rodda-IG Australia

Other central bankers throw their weight around: After the US Fed exited the ring yesterday, some of the world’s other heavyweight central-bankers weighed-in on the global race-to-the-bottom for global interest rates. The BOJ met yesterday, and though they kept their policy entirely untouched, it Governor Haruhiko Kuroda affirmed his commitment to monetary stimulus if necessary. RBA Governor Philip Lowe also delivered a speech, in which he was explicit in his belief that lower interest rates were necessary to absorb “spare capacity” in the labour market”. And the Bank of England met last night, left interest rates on hold, but downgraded its forward-outlook, prompting increased bets of a rate-cut from the BOE this year. Notable price action: Risk assets rallied, while sovereign bond yields fell, the USD tumbled, and gold spiked as a result of the dynamic. The S&P500 touched all-time highs, and the ASX200 registered its own 11-year highs, as the prospect of easy-money the world-over whet investors risk-appetite – though SPI futures this morning a suggesting that enthusiasm will cool on the ASX, with ASX200 looking at a flat open. It wasn’t all smooth sailing it must be said. Nerves were rattled on news that Iran had shot down a US drone over the Straight Hormuz, causing a spike in oil prices on fears of conflict in the region. Rio saps some of the positivity from the market: The materials sector failed to capitalize fully on yesterday’s Fed induced bullishness. The responsibility for this laid at the feet of Rio Tinto, after the heavily-weighted mining-giant announced a paring-back of its iron ore output forecasts, owing to “mine operational challenges” being experienced by the company at a key mine in the Pilbara region. The news sent Rio shares down by over 4 per cent at stages yesterday; and, perhaps ironically, gave a little lift to iron ore prices, which had been showing signs of potential weakness, following the announcement by miner Vale that it would be re-opening one of its largest Brazilian mines. Australian rates keep falling: The increasing prospect of looser global monetary conditions, as well the dovish commentary from our own central bank Governor, worked its way into Australian rates markets yesterday. Bets for rate cuts from the RBA lifted modestly, with the implied probability of rate cuts for next month jumping to around 70 per cent, with 2-full cuts from the RBA before year-end priced in their entirety, right now. This sparked significant moves at the front end of the AGB yield curve: the rate-sensitive three-year note fell by another 4 basis points, to clock a fresh all-time low of 0.91 per cent. AUD pops courtesy of weaker USD: Despite this, the AUD tested life above the 0.6900-handle yesterday, as an even hastier fall in US Treasury yields enervated the US Dollar. An ominous milestone: the yield on the benchmark US 10 Year note fell below 2 per cent for the first time in more than two-and-a-half years, while the yield on the US 2 Year note dipped to around 1.73 percent. The fall in US yields at the front end of the curve narrowed the spread between US Treasuries and it Australian equivalent to around 78-basis points (briefly), and has underpinned the little rally witnessed in the Aussie Dollar in the last 24 hours. Gold hits new highs: Arguably, the greatest beneficiary of this week’s concertedly dovish stance from global central bankers has been gold. The price of the yellow-metal hit a 5-and-a-half year high yesterday, as the USD tipped-over, and global interest rates fell. Importantly, too, from a technical basis, the gold price punctured resistance around $US1360, and came close to hitting the key psychological level of $US1400.00. Though the broader narrative is supportive for gold, the price action is looking somewhat exuberant now: the daily RSI is giving an overbought signal, and the price is divorcing itself from fixed-income markets slightly, suggesting that speculative flow has seized control of the price. The latest readings on global growth: Attention will turn back to the global growth outlook today, ahead of tonight’s release of European Manufacturing PMI data. Markets are expecting another contractionary print in the key German and Europe-wide readings of the data, as the US-China trade-war, along with the continents ongoing structural issues, weigh on Europe’s economic activity. The Euro will be in focus around tonight’s data: markets are warming towards the prospect of rate-cuts from the ECB. A deteriorating outlook for the German and European economies could increase these bets, and sap the shared currency; while a better than expected print would likely fuel its recent pop higher. Written by Kyle Rodda - IG Australia

US Retail Sales capped-off last week: The climax of last week’s trade was Friday night’s US Retail Sales data release. As is well known, sentiment in the market centres around concern for the state of the global economy. As the biggest component, of the world’s biggest economy, US consumption data was hotly awaited to test the thesis that the global economy is winding down for another cycle. As it turns out: right now, those fears are very slightly exaggerated, if the US Retail Sales data was anything to go-by. Core Retail Sales came-in bang on expectations at 0.5%, taking the annualized figure to around 3.2 per cent. Fed-cut expectations unwound slightly: Solid-enough US Retail Sales data numbers tempered some of the enthusiasm for rate cuts from the US Fed. To be clear: imminent US rate cuts are still in the market. In fact, 25 basis-points of cuts remain implied for July’s Fed-meeting. However, as it pertains to this week’s meeting, as well as the aggressiveness of future policy intervention from the Fed, traders unwound some of their rate-cut bets in the market. US Treasury yields climbed as a consequence on Friday, stifling the rally in global sovereign debt, with the yield on 2 Year US Treasuries, in particular, jumping by as much as 7 points. Bond yields climb, and stocks dip: The marginal pricing-out of Fed-intervention in the US economy was a negative for US stocks during Friday’s trade. Seemingly, this was particularly true for high-multiple stocks in the S&P500, like US-tech, which lead the overall market lower. As is widely known, US equities’ strong performance year-to-date has been largely attributable to a progressive increase in rate-cut expectations from the Fed. Though the overall trend remains intact – that is, rate-cuts are coming from the Fed in the near-enough future – Friday’s US Retail Sales numbers somewhat curbed the excitement for imminent, easier monetary policy-conditions, and its consequent benefit for US risk assets. US Dollar rallies across the board: A shift higher in US rates markets catalysed a spike in the US Dollar. The Dollar Index climbed 0.64 per cent on Friday, underpinned primarily by a tumble in the EUR/USD, which fell into the low 112.00 handle following the release. The Sterling also felt the pinch, plunging into the 1.25 handle for the first time since December last year, unaided by the ongoing uncertainty associated with the UK’s ruling Tory party’s leadership contest. While the Japanese Yen, as the final piece of the global currency market’s big-quartet, also softened against the Greenback – though it’s still finding buyers amidst continued global economic uncertainty. Australian Dollar tests new lows: This dynamic in global currency markets weighed heavily on the Australian Dollar, in particular. The AUD/USD touched a new-low on Friday, trading at levels not experienced since January’s notorious FX-market “flash-crash”. The all-important yield differentials between US Treasuries and Australian Commonwealth Government bonds crept wider, with the spread between the comparable 2-year bonds expanding to 85 points. The local unit now hangs precariously above a level of price-support in the market around 0.6865, which has been tested on 4 separate occasions in the last month. It sets-up a big week for the currency, ahead of the release of tomorrow’ RBA minutes release, and Thursday’s Fed-meeting. Chinese data disappoints: Of course, the Australian Dollar remain sensitive to the global growth outlook, on top of these two events – especially as it pertains to the Chinese economic narrative. Traders were handed a touch of information on the subject Friday, with the release of the Middle Kingdom’s monthly data-dump. What was revealed was, at best, a mixed picture: Fixed Asset Investment numbers missed, as did Industrial Production data; but Retail Sales beat, and joblessness held steady. For markets, the data was vapid – not good enough to ameliorate the economic outlook, but not bad enough to warrant more economic stimulus – resulting in a dip in Chinese indices.

Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 17 June 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 AS51 DLX AU 21/06/2019 Special Div 40 HSI 857 HK 20/06/2019 Special Div 2.729 HSCEI 857 HK 20/06/2019 Special Div 2.729 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.

Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 10 June 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 RTY TPCO US 11.06.19 Special Div 150 RTY CFFN US 13.06.19 Special Div 25 RTY CWH US 13.06.19 Special Div 7.32 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.

Aussie growth underwhelms: Australian GDP data was the highlight of the economic calendar yesterday. All-in-all, the data was of minimal impact, though it did for make big headlines: the growth rate came-in at 1.8 per cent on an annualized basis, as expected – the slowest rate of economic growth since the GFC. A poor print undoubtedly, but one that had been priced into the market well in advance. Hence, markets were little moved upon the release. The ASX200 hardly budged. The Australian Dollar lifted very slightly, and temporarily tussled with the 0.7000 handle. And interest rate markets increased very marginally the probabilities of more RBA cuts by year-end. Where the weakness is: The data was more of interest for economists and other pedants. And there were some interesting takeaways from the release. As is well known, one of the major headwinds for domestic growth is private consumption, which continued to show signs of slowing. The savings ratio also lifted, as consumers seemingly opted to defer spending and pocket their modest pay rises. More than just demand side concerns, there was also a noteworthy drag on growth from the supply side. Dwelling investment also contracted in the last year, in line with what has been a well-publicised slowdown in construction activity, and sustained falls in the property market. Where growth is coming from: The GDP data wasn’t without its silver linings, of course. A series of factors leapt-out as the primary drivers of growth in the Australian economy in the past 12 months. It was largely improvements in the nation’s terms of trade, courtesy of the major multi-month rally in iron ore, followed by big government spending measures, mostly in form of the NDIS and other health services, that proved the greatest contributors to growth. Though welcomed, to be sure, the areas of Australia’s economy sustaining growth speaks of a country currently working below its capacity, and in need of some sort of a boost. Why the RBA is cutting rates: It’s this dynamic that explains, and perhaps even vindicates, the RBA’s decision to lower interest rates on Tuesday. Domestic economic conditions are weak (and likely softening), and requires a little policy support, from central bankers and government alike, to stimulate ongoing employment and GDP growth. Based on such a logic, the pricing-in of interest rate cuts into the back end of the year appear highly rational. And this seems especially so when considering that (as was alluded to by the RBA on Tuesday afternoon), international economic growth is likely to slow, if not falter, due to the pernicious consequences of an escalating global trade-war. Risk-appetite lifts overnight: Which leads to the overnight price action in North America, and to a somewhat lesser extent, Europe. Risk appetite has been piqued by news that US President Donald Trump stated his belief that Mexico wants a trade-deal to happen, as well as comments from Trump trade-advisor Peter Navarro that the tariffs on Mexico may not have to go ahead. The headlines (and really, for now that’s all they are) stoked a rally in US equity indices; catalysed a fall in the VIX; lead to a narrowing of corporate credit spreads; and provided room for a bounce in the US Dollar, Sentiment improves, fundamentals haven’t: The question becomes now whether we’ve put-in a new low in global equities, or whether this is just a little fake-out. There is lingering suspicion that it may be closer to the latter, given the fact that although friendly words are being passed between the Americans and Mexicans, nothing has truly changed yet. Even more to the point, the Americans and Chinese have in no way thawed their present animosity towards one another. It suggests that although market sentiment has clearly improved in the last few days, the fundamentals haven’t changed. They could, by all means: but signs of that aren’t here yet. The better measures of fundamentals: Probably the more pertinent facts here, too, is US stocks’ rally is very “defensive” in nature, and has been ignited mostly by an ostensibly dovish pivot from the Fed. Despite all the confidence that markets have reached a fresh turning point, US Treasuries are still rallying, especially at the front end of the curve. It suggests that the market is assuming the Fed will cut aggressively, and soon, to try to engineer a “soft-landing” for the US economy. The sectors in the S&P500 that have outperformed overnight are safe, yield-generating stocks – not those typically tied to greatest optimism about fundamental economic growth. Written by Kyle Rodda - IG Australia

Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 3 June 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 TW/ LN 6/06/2019 Special Div 10.7 MEXBOL ASURB MM 4/06/2019 Special Div 254 RYT PBIP US 6/06/2019 Special Div 45 RYT TPCO US 11/06/2019 Special Div 150 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.

Risk-assets up, but trade was tepid: The overnight session was, on balance, positive for risk assets, though the conviction behind market-moves was missing. The S&P500 – the natural barometer for market-mood currently – experienced a middling day. It’s closed more-or-less flat, having made a failed foray higher throughout Wall Street trade, to have sold off right-below crucial resistance at 2800. For the bulls in the market, circumstances didn’t fundamentally change last night. The short-term trend is pointing to the downside, with momentum clearly holding in that direction, too. The 200-day moving average is acting as a magnet for the index now, seemingly keeping the market neutralized until the next market-moving catalyst. News-flow thin, ahead of a busy week next week: And at that, this week has very much been characterized by that general theme: for all the risks, and generally bad news, in the world, a thin data week has deprived market participants of fresh-trading fodder. There has been high impact news and events, it must be said. But much of it doesn’t relate to the news that markets are watching for to either driver the present trend further, or inspire something of a trend-reversal. A lot of that is due to the time of the month, but even still, given the heightened tensions in markets, one might have expected a little more substantial news-flow. Fears building still in the market: Indeed, there are trade-war headlines floating around the traps, and of course it’s that subject that’s responsible for equity markets’ global pullback. However, for better or worse, US President Trump – the man whose words (or Tweets) matter most – has been conspicuously quiet about trade this week. So as-a-result, the prevailing trend of the last 3 weeks has continued unabated. Market participants are betting on a global economic slowdown, and feel little inclined to take risks. Stocks are selling-off accordingly, while bonds are going on a tear, as traders position for a deterioration in global growth conditions, and a subsequent need for central bankers to cut interest-rates. The counterbalancing factors: This general assessment of the state-of-play ought not to be considered catastrophic – at a minimum: not yet. There are reasons to be somewhat upbeat: earnings on Wall Street haven’t been revised aggressively lower in response to the perceived threat of the US-China trade war. Furthermore, the sell-off in global equities might just as much be due to a reversal in momentum chasing, after a time when stocks markets got bid very high. And at that, volatility could be chalked-up to uncertainty rather than a tangible change in fundamentals. No doubt, the chance that things could get worse from here is elevated, but not a certainty. Markets betting on rate cuts: There is also reason to believe global policymakers will cushion the blow of any material economic slowdown. And probably, this variable is where things could really shift. Markets are pricing that indeed the Fed, as well as many other global central banks, like the RBA, will cut interest rates aggressively in response to slower growth. The view point has certainly kept stock valuations attractive, and given hope to market-bulls that the global economy could perform a soft landing. This isn’t manifesting in price action now, but if earnings growth remains positive, lower rate expectations will keep underpinning equity market strength. Might the Fed save the day? And last night, optimism was massaged slightly that the Fed may be willing to support this attitude. US Fed Vice-Chair delivered a speech, in which he affirmed the bank’s view that the economy is in “a very good place”, but that the Fed is on standby to consider downside economic risks. That message, though moderate in its delivery, does mark a creeping dovishness in “Fed-speak”, which has thus far been absent throughout this market slow down. It can’t save the day forever, but for markets in the short term, knowing the Fed is on standby is a soothing notion. ASX to open higher, with China data in focus: The culmination of last trade’s trade will see the ASX200, according to SPI Futures, open 20 points higher this morning. It will only be a modest recovery, following a day where the market shed 47 points, on the back of some broad-based, trade-war fear related panic-selling. The ASX will be quite attuned, indirectly, to the trade-war narrative today. The major data release in the Asian session will be Chinese Manufacturing PMI data. What goes for the Chinese economy, goes for Australia’s. If the trade-war is seen to be weighing on Chinese manufacturing activity, expect fears to be ratcheted up about a worse-than-expect global economic slow-down. Written by Kyle Rodda - IG Australia

Markets returning to normal trade: Traders in the US and UK returned to their desks overnight, and if price action is any guide, their verdict of the weekend news flow is “not much has really changed”. This isn’t to say the movements in financial markets in the past 12-18 hours have been ones of major conviction. Afterall, volumes are still light and the extent of the moves in price witnessed were modest. Nevertheless, despite what was notionally a tranquil weekend for financial market news, market participants have seen it fit to continue to take risk off the table, as if nothing has really changed at all. Risk-off still the bias: An assessment of risk-conditions finds merit in this notion. Yes, several risk events have been traversed since Friday, but none really provided the market with any reason to change existing biases. Fundamentally, the trade-war is still a growing problem, with sentiment finding itself sapped by the apparent intractability of that issue. Practically, no economic data has been released from any of the major economic powers since last week too, so markets remain mired in the perception that the global economy is on a soft footing. Perhaps a level of uncertainty is gone for now, however the balance of risks have seemingly remained the same. Indicators for global growth flashing amber: That’s resulted in some classic risk-off behaviour. Not that the moves were overly frightening, but they were stark enough to take notice. The conspicuous activity was in the bond market – especially US Treasuries. The yield on the 10 Year note fell 5 basis points to 2.26 per cent, which marks its lowest point in almost 18 months. The significance of that milestone is noteworthy, too, and perhaps a small marker of where markets are in the current cycle: the last time yields on 10 Year US Treasuries were this low, it was smack-bang around the time of President Trump’s famous tax-reform package in December 2017. An end of a cycle? Recall, it was the implementation of this massive cutting of corporate taxes that ignited the US economy, and by extension the US equity market. The dynamic fuelled market sentiment, and was a major catalyst behind the several record highs achieved by the S&P500 in 2018. Though only a crude measure, the fact the US 10 Year bond yield is back at where it was at that stage of history speaks volumes of current market perceptions. Markets are anticipating a global economic slowdown – an end to some small cycle – that will weigh on US growth, and probably force the US Federal Reserve to cut interest rates. A split between the market and policymakers: In fact, such an attitude is being baked into rates-market pricing – an 80 per cent chance of a rate-cut from the US Federal Reserve is priced-in before year end. This view is deeply at odds with what the Fed has flagged to the market in all its communications so far this year. Regardless, perhaps somewhat like the beginning of this year, whereby a breakdown in financial conditions more-or-less halted the Fed’s rate-hiking cycle, markets are assuming the Fed will again be bent to its will. And this is where the risk lies: if markets have got this wrong, heightened volatility is the (almost) certain outcome. Bullishness is absent right now: The problem right now, as it relates to risk assets, is that rather than solid earnings that’s propelled US stocks to its most recent record high, it’s been a lowering of interest rate expectations that’s really been responsible for bring about that phenomenon. Perhaps, this is what’s making the current pullback in the S&P500 so worrisome. Discount rates keep falling, just as they have been all year, however US equities remain in a short-term downtrend. The signal is that markets are positioning for an economic slowdown, at least just right now, brought about by the deterioration in trade-relations between the US and Chinese governments. Stock market softness persisting: As such, the S&P500 sold off in the final hours of US trade, pushing that index to psychological support around 2800, and bringing closer the completion of a much-watched head-and-shoulders pattern for that index. A caveat here: the action could be something of a manifestation of end of month flows. But judging by market activity in Europe too, where stocks also dipped, the lion’s share of this price dynamic does look attributable to a significant risk-off sentiment. It’s something that will apparently plague the ASX200 today, too: SPI Futures are pointing to a 44-point drop at this morning’s open. Written by Kyle Rodda - IG Australia

Global political economy in focus: International diplomacy, politics and global trade are at centre of attention to begin the new week. Indeed, that’s in part due to the corporate and economic calendar appearing relatively lighter, being the final week of the month; as well as the fact the UK and US are off on public holidays on Monday. But even in the absence of other hard-hitting, high impact news, the confluence of politics-related headlines merits attention in their own right. And it spans the globe: Trump is talking trade in Japan, the Europeans are voting in their Parliamentary elections, and the UK is now searching for a new Prime Minister. Markets watching for surprises: The overarching narrative hasn’t fundamentally changed. Generally speaking, a level of bearishness characterizes market activity, as the US-China trade war continues to rattle nerves. Nevertheless, global politics and international relations is bringing-about some shifting gears within the broader economic machine. On balance, there’s been little fall-out from the handful of political events unfolding across the globe. If anything, though not game-changing, they’ve collectively proven to be a net-positive for market sentiment. Of course, this could turn-around rapidly: traders ought to be used to expecting the unexpected by now. Hence, the least that can be said is “so-far”, so good. The future of Europe in question: European Parliamentary elections was where most interest lay over the week. For market participants, the vote is being viewed, and has been positioned for, through the lens that this election is a measure of public-sentiment towards the European Union as a political structure. Voting is in the process of wrapping-up currently, but from the available early indicators, the outcome of the poll looks to be in favour of pro-European parties. It must be said, there seems to be a sustained growth in Euro-sceptic parties. However, for the time being, such anti-establishment forces remain in the minority, and look broadly contained. Euro-sceptic parties grow, but stay in minority: Whether that proves to be a good thing or not is a value judgement. Of even greater import: whether, in the long-term, the continuation of the status quo is desirable is a more profound issue. In the here and now though, fewer uncertainties within the European political system will inevitably be welcomed by investment markets. This is especially so given Europe’s precarious economic position. European growth is anaemic, in the truest possible way, with policymakers possessing very few options in terms of monetary and fiscal policy. Europe’s problems won’t disappear with this election result, but at least it keeps one risk at bay for now. Leadership tussle begins in the UK: Across the English Channel, and the UK is facing its own political challenges. UK Prime Minister Theresa May has tended her resignation, and the jostling now begins for the Conservative Party leadership. In what will probably be another little test of liberal internationalism, market participants are watching the Tory leadership contest closely, in order to judge every candidates credentials and positions on Brexit. It’s very early days, however Boris Johnson is emerging as the favourite to achieve his long-held ambition to wrest the party’s leadership. And markets aren’t taking kindly too that, given the man’s “hard-Brexit” sympathies, and general populist-streak. Trump in Japan: For the next 24 hours, the interest of market participants will turn to US President Trump’s visit to Japan, as he chats trade and regional security. Japanese Prime Minister Abe and his team are apparently on the charm-offensive with Trump – treating him to games of golf, and all the other spoils of high-diplomacy. At-the-moment, risk-appetite is dwindling in financial markets, as the trade-war escalates and the White House hurls threats to its trading partners about imposing higher trade barriers. Market action will be in some-way determined by what commentary comes from Trump after this little summit, and whether he cools his anti-trade rhetoric. The lead-in for Australian markets: Despite the heightened nervousness brought about geopolitics, price action was relatively limited, and market activity was quite low, on Friday. The S&P500 edged modestly higher, while US bond yields lifted slightly. SPI Futures are indicating a follow through of this sentiment, pointing to a narrow, two-point drop in the ASX200 this morning. The AUD is back into the 0.6900 handle too, courtesy of a weaker greenback, after US Cored Durable Goods orders data disappointed on Friday – and comes despite a major drop in Australian bond yields, which saw the 10 Year note’s yield fall to par with the current cash rate of 1.50 per cent. Written by Kyle Rodda - IG Australia

Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 27 May 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 RTY WMS US 31/05/2019 Special Div 1 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.

Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 20 May 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 MRW LN 23/05/2019 Special Div 4 AS51 FMG AU 22/05/2019 Special Div 85.7143 HSI 1299 HK 21/05/2019 Special Div 9.5 SX5E ENGI FP 21/05/2019 Special Div 38 CAC ENGI FP 21/05/2019 Special Div 38 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.

A choppy week ends generally flat for Wall Street: Global stocks ended the week on softer footing. But if one narrows their attention to just the S&P500 as the bellwether, the past 5-days culminated in only a 0.76 per cent fall. Trade continues to dominate sentiment on a macro-scale. The US-China trade-war has deteriorated considerably, with positivity in the market currently being sustained by some vague hope that US President Trump and Chinese President Xi will meet on the sidelines of June’s G20 meeting to discuss trade. A total reversal of tariffs between the US and China looks increasingly unlikely however, so markets wait now for the new trade-barriers detrimental consequences to manifest in market fundamentals. Risk appetite is waning: Intraday price action on Wall Street somewhat reflected the loosening control buyers have on this market. After a spill at the open, the S&P500 grinded higher throughout trade to turn positive on headlines that the US would be removing steel and aluminium tariffs on Canada and Mexico. It proved to be cold comfort for market participants, however. Volatility edged-up throughout the session, US Treasuries gained very slightly, and the S&P500 shed 0.58 per cent, capping off a day which witnessed a marked flow out of risk-assets, and into safe-haven assets, wherever they could be found. Price-action looks ominous for the S&P500: The set up for US stocks is beginning to look quite interesting – and relatively ominous. The general view is that Wall Street equities have remained quite resilient, even somewhat calm, in the face of greater trade-tensions. However, given the possible impacts of slower global trade, maybe this is simply the calm before the storm: the quiet, underground evacuation of smart money from the market, before the herd attempts hastily to catch-up. The S&P500 looks to be taking something of a head-and-shoulders shape after Friday night’s trade, portending that another new-low may be in the making for the market in the short-term. How do market participants react to more ScoMo? Turning to the ASX200, and markets with an Australian focus, and despite Friday night’s weak end for European and North American stocks, the ASX200 ought to open 5 points higher today. The interest today, of course, will be on picking up what effect the weekend’s election has on local markets. Financial markets move on surprises: things that weren’t prepared for in advance. Such was the favouritism of the Australian Labor Party to take Saturday’s election, market participants, overall, had positioned their expectations for that party’s victory. As is well known, that outcome has not materialized, so interest turns to how market-pricing repositions from here. Australian Dollar gaps higher this morning: Looking at the Australian Dollar as the first cab off the rank, it has gapped higher this morning, to have climbed by as much as 1 per cent, in early trade. While ostensibly a tacit endorsement of the Coalition and their economic agenda, the trading dynamic is probably more a reflection of a “buy-the-rumour-sell-the-fact” situation. That is: one small unknown is removed from the market, and price has adjusted to reflect this, in something of a knee-**** reaction. The phenomenon, therefore, would probably have been observed even in the event of a Labour Party victory, and is probably not representative of a shift in fundamentals. ASX200 to begin week on shaky footing: Watching Aussie bonds and rate markets today will be a better barometer for how markets view the economy as-a-result of the Coalition’s election victory. However, given the big issues driving the macro-economy currently, most of which originate from beyond Australia’s shores, the ultimate consequence will be probably be tantamount to short-term noise. Given the lift in the Australian Dollar, and dwindling global-market confidence, the ASX200 may find itself stifled at the outset of this week’s trade – especially after a hot day’s action on Friday, which saw roaring iron ore prices ignite buying activity in mining stocks, and temporarily drove the ASX200 to new 11-year highs. All interest in the reaction of bank shares: The key to today’s trade will probably rest on the banks. As a sector, the financials arguably have most to gain from a Coalition government, given that policies like capital gains tax reform, negative-gearing reform, and (to a lesser extent) changes to dividend imputation will no longer be forthcoming. Rightly or wrongly, the banks had suffered from the expected implementation of these policies. To illustrate: the financial sector’s 12-month high came a day before last year’s Coalition leadership coup, after which market participants generally shied from buying banks on the expectation (at the time) that that event had handed government to the Labor Party . Written by Kyle Rodda - IG Australia

Stock markets continue to recover: Global stocks have maintained their bounce. It’s looking more like a market that is searching for it’s next high now, as price action, from a technical perspective, suggests the recent wave-lower is over. Hence, from here, considering trade-war risks, and therefore anxiety in the market, remains high, the matter becomes whether stock indices are preparing to pop in a new higher-high, or whether what we will see is a new lower-high. The result of that simple binary will inform market participants what the broader trend is in the market: are we still trending higher, or are we seeing the start of a trend reversal? The litmus test to come: This commentary pertains primarily to the S&P500, which has been the bellwether for global equities, recently. But it could equally be said of the ASX200, too, which demonstrated its resilience yesterday. Just sticking to the S&P500, the price set-up offers some potentially interesting insights about the world, in the weeks to come. Another high for US stocks is another record high and a clear continuation of that market’s bull run – defying, really, what is a deteriorating global backdrop. If this fails to occur, then talk will certainly emerge whether stocks are beginning a prolonged period of weakness, in line with clearly softer fundamentals. The signs of nervousness: Time will tell, of course, and all manner of things can change this underlying dynamic, in the long term. However, as it relates to the here-and-now: though the tension eased in Wall Street and European trade, safe havens are still in vogue for investors, currently. US Treasuries have pulled back overnight, but yields have kept close to their recent lows, and traders have flooded into the US Dollar. German and Japanese bonds are still in negative yield territory, removing some of their haven appeal, however the Euro, Yen, and (at that) the Swiss Franc are still broadly catching a bid. Trade-war keeps escalating: Conspicuously, gold prices are lower, but that’s a function of the much stronger greenback, while commodity prices have generally rallied across the board. That behaviour probably belies yesterday’s news flow, which was preoccupied with another small escalation in the US-China trade-war, after US President Donald Trump paved the way for sanctions on Chinese mega-company Huawei. The dynamic probably manifested in global-growth sensitive currencies more than anywhere else. The Nordic Currencies, the Canadian Dollar, the Kiwi Dollar, and our own Australian Dollar continued to sell-off overnight, on the presumption that Chinese economic growth will be further stifled by US trade-aggression. Australian jobs data disappoints: Speaking of the Australian Dollar: it registered a new low in the last 24 hours, and is now cosying up with the 0.6800 handle. The driver was yesterday’s local employment numbers, which was probably, on balance, a negative one overall. On the plus side: jobs growth exceeded expectations and the participation rate moved a little higher. But crucially, the unemployment rate climbed, and the jobs added to the economy last month (according to the data) were predominantly part-time jobs. Also underquoted, but perhaps more importantly, was a big tick-up in the underemployment rate, which rose from 8.2 to 8.5 per cent. The problem with the jobs data: So: this is the kicker, as it applies to the jobs data: the problem the market sees in the numbers doesn’t directly stem from the unemployment rate or jobs change numbers per se. The ****’s in the detail, and the details suggest that considerable spare labour capacity exists in the Australian economy, at-the-moment. Crucially, for financial markets, this means one thing: that the long pined-for lift in wages growth is unlikely to be forthcoming. By extension, this likely means further weakness in inflation, and probably consumption too, which, if left unmanaged, will drag on economic activity moving forward. The need for economic stimulus: Hence, it’s this general perception that has driven traders to price in a fifty-fifty chance of an RBA interest rate cut next month; and also, price in a full cut by July, as well as more than another full cut on top of that by year end. This development comes at a fortuitous time, too. The election is upon the Australian electorate, and promises from both sides of politics to adopt stimulatory measures, by way of income tax cuts and major infrastructure spending, is giving hope that the government can juice the economy just enough to guide it through this current soft patch. Written by Kyle Rodda - IG Australia

Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 13 May 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 RTY TSBK US 14/05/2019 Special Div 10 RTY RILY US 14/05/2019 Special Div 18 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.