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MaxIG

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  1. MaxIG

    US Fed watch: APAC brief 19 Dec

    US Fed watch: The US Fed meeting has been kickstarted and the markets are shuffling around in anticipation. US equities at time of writing are putting in a mixed performance, though al major Wall Street indices remain trading below key technical levels. It comes following a day in which Asian and European markets sold-off in sympathy with Monday night’s rout in North American shares. A desire for safety has supported a bid in US Treasuries: they are higher across the board. Interest rates traders are also grinding away, pricing out point-by-point interest rates hikes from the Fed in 2019. The US Dollar has dipped as traders take safety in other haven currencies: the US Dollar Index is below 97, mostly courtesy of a play into the EUR and the Japanese Yen. The weaker greenback has provided a lift in gold prices, with the yellow metal trading just below support at $US1250 per ounce. The Fed’s biggest critic: Everyone has an opinion on what the Fed ought to do, it seems. The most powerful voice of all, US President Donald Trump, has certainly weighed in on the subject, Tweeting: “I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!” Never mind that President Trump’s policies, from major tax cuts and his trade war have contributed to the Fed’s invidious position. The President clearly is noting his concern about one of his hitherto favourite measures of personal success: the health of the US stock market. Whether rightly or wrongly, market participants, as contained within the price action in global markets, appear to agree with President Trump. Market sentiment: Cool it with the hikes, guys! Is the message. Traders obviously can’t take much of it any more. Risk is off the table and bets are being placed that we are in for a “dovish hike”. That is: a hike tomorrow, but a very careful downgrade in the projections for future hikes. It’s an incredibly tight rope the Fed must walk. On one hand, they’ll need to assure markets that they remain accommodative of US (and the globe’s) financial and economic health; while on the other, they can’t seem so accommodative as to reveal a level of genuine fear about what could be in store for markets and the economy in the future. The problem is, markets are going deep on the notion that a dovish Fed is upon us. The possibility is that the markets have set the bar too low. The big risk: Thus, even a sprinkling of hawkishness about rates could prompt a big repositioning in markets. The first reaction would be in rates markets, but that would transfer quickly into the prices of US Treasuries. Overnight, the yield on the US 2 Year note and the US 10 Year note dropped by 4 and 3 points, respectively. The spread between those two assets has gradually widened since narrowing to about 9 point a fortnight or-so ago, to sit around 17 points now. The back end of the curve will remain mostly responsive to growth and inflation expectations, but if the Fed adopt a more hawkish line, yields on the 2 Years could rally-hard, re-narrowing spread considerably. Out would come the recessionistas in such an event and the global share market, led by Wall Street indices, could possibly convulse. Danger signs still flashing: Highly sensitive market-participants wouldn’t appreciate the shock. Again, in last night’s session, amber lights were flashing in certain segments of the market. Junk bonds suffered the most, with the spread on high yield credit widening to multi-year highs. The dynamic was fuelled by another tumble in oil prices on fears of a slow-down in economic activity will cause a supply glut. Thinner liquidity brought about by tighter financial conditions isn’t making the situation any more manageable. The price of WTI is now at $US46 per barrel at time of writing, having fallen over 7 per cent in the last 24 hours. Energy stocks the world over, not mentioned the Loonie, have dropped, and assets pricing in implied inflation have modestly dipped – portending further difficulty for the likes of the Fed to maintain price growth at targeted levels. ASX resilience: SPI futures have been whipping around a bit in late American trade. There’s an hour to go on Wall Street as this is being written, and the major share indices are gravitating back to their opening price. It could be risk is (justifiably) being taken off the table here in anticipation for the Fed. So: futures are suggesting a give-up of 8 points for the ASX200 at the outset, adding to yesterday’s pain. To the credit to the Aussie index, the 5600-level isn’t being let go without a fight. The buyers entered the market yesterday on numerous occasions to push the market above that point, only to be overwhelmed by sellers, who rammed home the overwhelming negative sentiment. Technical indicators aren’t necessarily pointing entirely to sustained downside in the ASX200, but a succession of lower-highs in the past few sessions indicate the bulls could be getting exhausted. What’ll save us? Australian equities never became quite as elevated as their US counterparts did over the last decade, perhaps implying if we are entering a bear market, ours won’t be as severe. However, given the share market self-off has been inspired by fears of slower global growth, Australia’s exposure to any wreckage is all but unavoidable. The miners haven’t demonstrated the sort of stress one might expect, but the banks are being belted (they gave up 27 points yesterday), while the health care sector is unwinding the market leading gains of the year and the energy space is falling with the oil price. Arguably the best thing that could happen is a truce in the trade war to ease burden on the Australian economy; however, after Xi Jinping’s defiant speech yesterday, plus the issues of tighter financial conditions, perhaps the benefit of any improvement in global trade relations trade will be marginal.
  2. MaxIG

    Local market brief - APAC 18 Dec

    Written by Kyle Rodda - IG Australia ASX yesterday: The ASX200 put in a very respectable day's trade yesterday. It was looking gloomy at the outset. Market participants were preoccupied with the economic struggles in China and the Friday sell-off on Wall Street. However, the 32-point drop forecast for the Australian market didn't materialise, providing scope for the index to cling-on to the 5600-mark, and forge gains throughout the day. The Australian session ended with the ASX200 1.00 per cent higher. It must be remarked that though positive, it was a day of light news and thin trade. The MYEFO release, coupled with BHP's share buyback and special dividend boosted sentiment, but volumes were quite some way below average, signalling a lack of conviction behind the day's rally. ASX today: The gains look quite certain to be unwound this morning, however. SPI futures markets are indicating a 90-point drop for the ASX200, taking us almost squarely to where we were ought to have opened yesterday morning. The Wall Street chaos appears an inescapable lead today. It'll be touched on in a moment, but US shares a copping a battering (again) to start the new week. Financials and growth-stocks might be the barometer today. The banks are receiving a belting, falling yesterday even within the market's overall rally. US tech is heading the losses on Wall Street, as are health care stocks, following a ruling by a Texas judge that Obamacare is illegal. Using recent history as a guide: this is a generally solid indicator that Australia's technology and health care space will be shorted today. Australian rates and bonds: Australian traders welcome the RBA Minutes this morning. Though probably ineffectual in the context of the day's trade, it will garner some attention from rates and currency markets, who are pricing in the prospect of a weaker Australian economy in the year ahead. Australian bonds are rallying once again on the prospect of a more accommodative RBA in 2019. The yield on 10 Year Australian Government Bond has fallen to 2.44 per cent, as break-evens in the bond market point to inflation languishing around 1.70 per cent moving forward. ASX 30 Day Interbank Cash Futures contracts have an implied probability of an RBA cut by mid next year at around 10 per cent, with any chance of a hike effectively non-existent now according to rates traders. The RBA Minutes: Markets will keep taking their cues from overseas developments to judge the macroeconomic outlook for Australia, given the concerns about a synchronised downturn in the global economy in the coming years. However, today's RBA's minutes will be perused for commentary on the strength (read: deteriorating state) of the Australian consumer. The MYEFO release yesterday forecast wages to grow at 2.5 per cent next year and 3.00 per cent the year after. Given the burden of high private debt levels, a narrowing savings rate and falling property prices, wages growth at the projected rates is unlikely to overcome such drags, meaning future slackness in domestic consumption is likely. It’s this is what is driving the bearishness towards the Australian economy, which risks being hit from both sides if weakness in domestic demand conspires with a marked slow-down in the Chinese economy. Australian macro: The problem of the Australian consumer is a medium-to-long-term matter for traders, and the RBA's Minutes will probably take a glass half full approach to the economy, as they are wont to do. The harsh realities of a weaker domestic demand will manifest over time in our markets, especially our embattled banks, which find themselves caught in the global bear market in financials stocks. The Australian Dollar ought also to remain in focus, primarily as concerns about Chinese growth raise issues about our terms of trade. The strength or weakness in the AUD rests on a combination of Fed policy and Chinese fiscal policy. If global-growth jitters persist, the A-Dollar as a risk-off growth- proxy currency should presumably suffer: the next key level of support is at 0.7150, before steep downside opens-up from there. Global indices: Coming into the last hour of Wall Street's session, things are looking bleak. If you're an investor or any other kind of equity market bull, you'd be nervous. If you're a bear, then you've experienced another day of vindication. The major European indices were down overnight: the DAX was off by 0.86 per cent and the FTSE100 by 1.05 per cent. US stocks have followed suit: after numerous failures to break-through, support on the S&P 500 and Dow Jones has been breached. The psychological barriers of 2600 and 24,000 have been cleared. Barring another miraculous final hour rally in US shares, the 2 major US indices are poised to register fresh lows at levels not clocked since early-April this year. Risk-off today: As can be assumed, it's risk-off wherever you look in global markets. US Treasuries have rallied - the US 2 Year Note is yielding 2.70 per cent and the US 10 Year note is yielding 2.85 per cent. The greenback has been sold consequently, giving the EUR a boost to 1.1350, and the Pound a lift to 1.2630. The Yen is back in the 112-handle as the carry trade unwinds, boding poorly for the Nikkei today. The Australian Dollar is steady against the greenback but weak mostly everywhere else. Gold has rallied to $1245 courtesy of the weaker USD, but oil has been smashed with WTI plunging below $50 on renewed fears of a glut. Spreads on junk bonds have blown-out subsequently, trading as wide as they have been for two-years. Ultimately, The action is culminating in an Asian session that shapes as another one for the Bears, as Santa's rally looks increasingly likely to be skipped this year.
  3. Written by Kyle Rodda - IG Australia 2018 reaches a climax this week: It’s effectively the last serious trading week of the year, and the economic calendar reflects that. Indeed, there’ll be a handful of days between Christmas and New Years to keep across, but with little news and thin trade, it’s tough to imagine anything coming out of them. The markets are still ailing, with the bears firmly in control of price action. There’s so many risk-events coming up this week, traders with a bearish bias are surely salivating. They did well to knock-off US equities in the final round of last week: the S&P500’s 1.9 per cent loss on Friday ensured another down-week for Wall Street. How this year is remembered and how next year will begin will in no small way be revealed in the next 5 days: if you’re a financial markets buff, it’s exciting stuff. Economic data: Concerns about future global economic growth tightened its grip on market participants last week. A slew of fundamental data was released across numerous geographies on Friday, and most of it was quite underwhelming. European PMIs undershot expectations, probably attributable in a big way to the impact of being caught in the middle of several domestic political crises and the US-China trade war. US Retail Sales data printed very slightly above expectations, to the relief of many, showing that the almighty US consumer is holding up well – at least for the time being. But it was a very soft set of Chinese numbers that had the pessimists tattling: the spate of economic indicators released out of China on Friday afternoon proved once more it’s an economy that is slowing down – and hardly in a negligible way. Recession chatter: Market commentary is continually focused on what prospect exists of a looming US recession. Financial markets, as distorted as they have become, do not necessarily possess strong predictive power of economic slow-downs. Nevertheless, your pundits and punters have taken a significant preoccupation with whether 2019 will contain a global recession. The signs are there, at least in some intuitive way. A google trends search on the term recession has spiked to its highest point 5 years, for one. Bond markets are still flashing amber signals: the yield curve is inverting, and US break evens are predicting lower inflation. Equities are still moving into correction mode, demonstrating early signs of a possible bear market. Credit spreads are trending wider, especially in junk bonds, as traders fret about the US corporate debt load. And commodities prices are falling overall, with even oil still suffering, on the belief that we are entering a period of lower global demand. Economic data: Concerns about future global economic growth tightened its grip on market participants last week. A slew of fundamental data was released across numerous geographies on Friday, and most of it was quite underwhelming. European PMIs undershot expectations, probably attributable in a big way to the impact of being caught in the middle of several domestic political crises and the US-China trade war. US Retail Sales data printed very slightly above expectations, to the relief of many, showing that the almighty US consumer is holding up well – at least for the time being. But it was a very soft set of Chinese numbers that had the pessimists tattling: the spate of economic indicators released out of China on Friday afternoon proved once more it’s an economy that is slowing down – and hardly in a negligible way. Recession chatter: Market commentary is continually focused on what prospect exists of a looming US recession. Financial markets, as distorted as they have become, do not necessarily possess strong predictive power of economic slow-downs. Nevertheless, your pundits and punters have taken a significant preoccupation with whether 2019 will contain a global recession. The signs are there, at least in some intuitive way. A google trends search on the term recession has spiked to its highest point 5 years, for one. Bond markets are still flashing amber signals: the yield curve is inverting, and US break evens are predicting lower inflation. Equities are still moving into correction mode, demonstrating early signs of a possible bear market. Credit spreads are trending wider, especially in junk bonds, as traders fret about the US corporate debt load. And commodities prices are falling overall, with even oil still suffering, on the belief that we are entering a period of lower global demand. ASX in the day ahead: There are signs a general risk aversion is clouding the ASX to begin the week. SPI futures are pricing a 32-point drop for the Australian market this morning, which if realized will take ASX200 index through last Tuesday’s closing price at 5576. There has been the tendency for the market to overshoot what’s been implied on the futures contract of late, as fear and volatility galvanizes the sellers in the market. This being so, a new test of last week’s low of 5549 could emerge today, opening-up the possibility for the market to register a fresh two-year low. On balance, the day ahead looks as though it may belong to the bears, with perhaps the best way to judge the session’s trade by assessing the conviction behind the selling. Although it appears the less likely outcome, a bounce today and hold above 5600 would signify demonstrable resilience in the market.
  4. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 17 Dec 2018. 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 Index Bloomberg Code Effective Date Summary Dividend Amount PSI20 COR PL 17/12/2018 Special Div 8.5 RTY PRA US 20/12/2018 Special Div 50 RTY HTLF US 20/12/2018 Special Div 5 RTY SYX US 21/12/2018 Special Div 650 RTY EVI US 24/12/2018 Special Div 13 How do dividend adjustments work? 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. 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. Written by Kyle Rodda - IG Australia A (relatively) settled session: It’s been a soft day for global equities. With almost exactly two-hours to go in the US session at time of writing, another modest rally has apparently been faded by traders. Indications are that Wall Street will close lower. If proven true, this will punctuate a mixed day for Europe, and quite a solid day for the Asian region. The former found little impetus to be bid higher, while the Asian session showed the ebullience of diminishing trade tensions. Scanning the major indices, volumes were up compared to their 100-day average, however were slightly down when compared to their 10-day and 20-day average. It reveals a market that is more settled than what it has otherwise been seen during the global share-market correction – but remains vigilant and prepared to turn at the sight of bad-news. Global growth: Given price action in last night’s trade was relatively more subdued, traders and analysts seemed able to take the clearer air to reflect on current market drivers. The theme that’s popped up consistently in the last 24 hours can be crudely articulated as “downside risks to growth”. It was a theme adopted by ECB President Mario Draghi during his press conference following last night’s ECB Meeting; and it was also referenced by PBOC last night in relation to China’s economic fortunes. It bears repeating: October, November and December in markets have been characterizes by bearishness, of course. However, the causes throughout this period have shifted. What was initially a sell-off catalysed by fears regarding higher US interest rates has transformed into one driven by fears about slower global economic growth. ECB meeting: Last night’s headline event captures this well. The ECB met and broadly met traders’ expectations: rates were of course kept on hold, and the central bank’s QE program will come to an end. As always, the commentary and press conference were where the interest lay, and ECB President Draghi delivered a cautious but stark message. The balance of risks to the EU economy have shifted to the downside. The ECB lowered its forecasts for growth and inflation, even further below what could be considered objectively strong figures. Overall, President Draghi was judged as quite dovish about the prospects for European monetary policy. Though it was not stated explicitly – central bankers rarely communicate in such a way – the subtext of the speech strongly implied that any true policy normalization from the ECB is some way off. Whatever it takes: It’s a fascinating conundrum for the ECB. After a decade of experimental monetary policy, on balance the central bank’s greatest endeavours haven’t seemed to work. President Draghi’s “whatever it takes” attitude has supported markets, but evidence for his success is scant. The counter-argument to this pessimistic take on the Eurozone and ECB always seems to go something like “yes, things aren’t good, but imagine how bad things could have if the ECB hadn’t done what it did!”. It could be a valid point – one better for the historians to take care of somewhere down the line. However, the situation is poised to be this: the global economy will eventually experience a recession, and the ECB will more-likely-than-not be at effectively negative interest rates. The whole affair engenders very little hope or confidence in the future of the European economy. The news flow: That reality considered, traders tipped their hat and gave a sympathetic nod to the ECB after its meeting, and more-or-less moved on. There wasn’t much bullishness to be found in markets last night, however it wasn’t a risk-off night either. A lot of commentary overnight has pointed to the trade-war being behind the session’s softness. China has reportedly detained another Canadian citizen on national security grounds, presumably in retaliation to Canada’s arrest of Huawei CFO Meng Wanzhou. While on the other side of the world, members of the Trump administration declared that China ought to concede more to resolve the trade dispute. Overall, there was little substantial or game-changing revealed to markets – mostly just noise relating to the familiar and ongoing concerns that have been long-rattling markets. Today’s big Chinese data dump will be now be the one to watch. Not risk-off; but not risk-on: The price action communicated this reasonably well. US Treasury yields have stayed (fairly) still: the US 10 Year note held at 2.90 per cent, and the US 2 Year note dipped 1 point to 2.75 per cent, widening the spread there to 15 points. Wall Street is heading for a flat day, though with an hour to go in trade, the Dow Jones is a skerrick higher. The DAX and FTSE were both down 0.04 per cent. The greenback pushed-higher, mostly due to a weaker EUR, which fell to 1.1364. The Pound is up a skerrick, while the Yen, reflecting the day’s sentiment, fell slightly, just like gold, which is holding support above $US1240. The Australian Dollar is practically trading sideways at 0.7220. Credit spreads narrowed on the perception of diminished risk. And in commodities markets, copper is flat, and oil and iron ore rallied. ASX200 today: This is the context for Australian trading today, and with all of that digested, SPI futures are telling us we are set for a 14-point drop at the open for the ASX200. The ASX took the momentum generated by the improved sentiment about global growth yesterday, with the cyclical mining, consumer discretionary and industrial sectors some of the best performing. The rally lost legs throughout the day, as traders seemingly opted to fade the run once again. Volumes were high, but breadth was uninspiring. The foundations are set for another lower-high for the ASX200 index, reinforcing the notion the market is in some bearish down trend. Some contrary evidence suggests the worst is behind us: the RSI is still showing bullish divergence, and downside momentum is moderating. As it currently stands, a new low, as far above 5510 as possible, and/or a rally through resistance at 5705, is broadly the challenge the market needs to overcome to demonstrate evidence of a possible bullish turn in this market.
  6. Written by Kyle Rodda - IG Australia What’s making headlines: There’s an hour and a half to go in the US session and global equities are up. Let’s assume they finish that way – there is plenty of room for clarification (and rationalization) late-on, if need be. Traders have taken the new green shoots in the trade-war and spun them into a positive narrative. Sure, the old green shots lay trampled below the new ones, but perhaps this time around the positivity will be given a chance to thrive. The other story hogging headlines in the financial press is the vote motion UK Prime Minister May’s leadership of the Tories. Market confidence has been shaken by that development, but as we wake-up this morning, the balance of opinion seems to be suggesting that May will win the day. The data side-show: Politics is driving markets still, which is always dangerous – it’s often a distortionary influence on prices rather than a revealer of fundamental facts. However, the fundamental economic data that was handed to traders overnight supported their optimism. Arguably the most significant release for the week, US CPI figures delivered a bang-on forecast number. If you’re a bull, locked in an environment where there exists fear of a global economic slowdown on one side, and fears about higher global interest rates on the other, a moderate outcome to any data-release is welcomed. Fundamental data last night was light otherwise, with US crude oil inventories the next most important release. It overshot forecasts, but still showed shrinking supplies, which boosted oil prices and (at the very least) didn’t detract from the bullish sentiment. ECB on tap: The next release on the data docket is the ECB meeting tonight. It’s that central banks last meeting for the year and ought to be watched, considering all this talk about slower growth and hawkish central bankers. Given the noise in markets and the gradual stagnation in the European economy, it’d be a might surprise if ECB President Mario Draghi and his team deliver any surprises. The situation across Europe is fraught with political, social and economic danger. No central banker is going to want to light a flame under all of that. Going into 2019, France is burning, Italy is agitating for change, the UK is still trying to bail, and the custodian of it all, Germany, is about to lose its steady hand in leader Angela Merkel. The politico-economic landscape doesn’t inspire much confidence in the grand European project, and the ECB will probably reflect that. Another faded rally? Nevertheless, as mentioned, traders are taking in their stride the ever-present risks in this market. (Stream of consciousness status update: US equities are giving up their gains with about an hour-and-a-half in trade to go, however they remain ahead for the day. Again, let’s check in on that later.) The core question at hand on bullish days is to what extent are rallies a reflection of market-reality or mere perception. US stocks have ended as of today its latest downtrend – another in a line of aggressive sell-offs and rallies within what is overall a sideways pattern since the middle of October. There must be scope for a break-out from this pattern at some point soon. The S&P500 eyes the 2800 again now: maybe we assess the strength of the bulls by their ability to return US stocks to that level again. ASX200: SPI futures are tracking Wall Street’s performance this morning, as they are wont to do, suggesting an open 5 to 10 points higher for the ASX200, at time of writing. The performance of Australian equities yesterday was solid, in line with major regional counterparts, as fears of trade-wars abated once again. Volume was ample at 15 per cent above average and breadth came-in just below 80 per cent. Each a sign of strong bullish conviction. It seems a desire to get into cyclical, economic-growth stocks constituted the essence of yesterday’s sentiment. The greatest activity was to be found in the materials, industrials and consumer discretionary stocks. Irrefutably, this is a good sign for the many who hold optimistic-enough views on global growth; the test will be whether this view can be vindicated leading into the end of the year. The seasonal kick? The success and failure of the ASX200 will be strongly correlated to what happens to US stocks for the rest of 2018. It figures: the core issues in the market relates to the ongoing strength of the US economy, and how hawkish the Fed may-or-may not be. There is probably an inherent disconnect on some scale of looking at our market through that lens. The ASX200 never truly saw the parabolic rise in prices that the major Wall Street indices did during the easy money era (Australians engineered a residential property boom instead). All the same, if seasonality is a guide, a December run higher is on the cards come the last half-of December. The measure of any run’s sustainability should roughly be assessed by the index’s ability to challenge levels at 5705, 5790 and 5880. Price-check: The North American session is nearly at its close. Time for a review on the price action. Wall Street is off its intraday high but has still managed gains over 1 per cent. The benchmark S&P500 is 1.2 percent higher. This backs-up a day in which the DAX and FTSE rallied 1.4 per cent and 1.1 per cent respectively. US 10 Year Treasury Yields are up to 2.90 per cent, and the yield on US 2 Year Note is up 2.77 per cent, widening the spread there to 13 points. Credit spreads have also narrowed. Higher risk appetite has seen the greenback sell-off. The DXY is at 97-flat, thanks in part to a Euro that’s fetching 1.1375 and a pound that’s buying above 1.26. Gold is slightly higher $US1245. The growth-optimism has boosted our AUD to just above 0.7225, while oil is up, and copper and iron ore are down.
  7. Written by Kyle Rodda - IG Australia The pattern continues: Wall Street indices have been swinging about madly again. The pattern continues: an open, a rally or fall, then a retracement or recovery. Today we’ve had an open, a rally, then retracement, then a recovery again. There were stories behind this price-action. Everything that happened overnight appeared perfectly explicable. One wonders though if the swings in trading activity are being overly attributed to headlines. Or perhaps it’s the case that higher volatility and sensitive nerves are leading to accentuated moves. Whatever the cause, fundamentally, the bears still have control of the equity market. There is a softer intensity to the selling on Wall Street this week. However, with the extremeness of last week’s moves having not been unwound yet, what we are seeing is sellers piling in on top of sellers, bit by bit. ASX200: SPI futures have turned positive, after oscillating wildly during the overnight session. That contract is indicating a 17-point jump for the ASX200 at time of writing. Yesterday was a tepid but respectable day for Australian shares, managing to muster a 0.4 per cent gain for the day. Volume was slightly above the 100-day average and breadth was okay. Growth stocks led the charge, following US tech’s gains the night prior, with the health care sector up 1.7 per cent, courtesy of a strong bid for CSL and ResMed. The materials space was the biggest points score for the index, adding 8 to the overall index’s performance. The trend is still down for the ASX200, as it is with global equity indices presently. However, yesterday’s daily candle, combined with a bullish divergence on the RSI, suggests some buyers are re-entering the market in the short-term, potentially offering temporary upside to ~5700. Headlines: Asia: Let’s look at the headlines in markets, to place what could be a mixed day for global equities into context – starting in Asia and following the turn of the globe. The Asian session was data-dry and lacking in the way of algo-shaking headlines. The resignation of India’s head central banker was meaningful but failed to move the dial outside of India’s markets. Australian business confidence was released and revealed softening sentiment in the sector. China released money supply data and that revealed stimulus from policy makers is filtering through the economy. Japan had a long-term bond auction that demonstrated how lower global yields is affecting appetite for government bonds. The major stock indices were up, in sympathy with Wall Street, except for the Nikkei, which was lower largely due to a stronger Yen. Headlines: Europe: Europe handed more information to investors; and it was a very solid day for European equity markets. European Commission President Jean Claude Juncker poured water on any notion of refining the existing Brexit deal. He started that “There is no room for negotiation, but further clarifications are possible”. UK Prime Minister Theresa May met with German Chancellor Angela Merkel to discuss massaging the deal, only (in a comical display of cosmic irony) to become briefly locked inside in her German car at the doorstep of the meeting, before (figuratively speaking) being turned away by Chancellor Merkel. The fundamental data released in the UK was positive, though. The unemployment rate was shown to have held strong at 4.1% last month; and wage growth climbed by more than forecast to 3.3 per cent. Headlines: North America: The US is where all the news and therefore volatility is being made, and last night’s session delivered on that front again. The day’s outset was defined by news the Chinese are willing to lower auto-tariffs on US cars from 40, to 15 per cent. Industrials (auto makers in particular) rallied. Sentiment turned after a combative meeting between Nancy Pelosi, Chuck Schumer and US President Donald Trump raised the prospects of a government shut-down if funding for the President’s border wall wasn’t passed through congress. US Vice-President Mike Pence was there too, but he was busy pulling his I’ll-sit-silently-and -look-like-the-next-President face. Behind the reality T.V. show that is US politics, US economic data was solid, albeit ineffectual: US PPI beat estimates, but all eyes are on tonight’s US CPI data. Snapshot of price (re)action: As of an hour to go in the US session, and with sentiment swinging back into the favour of the bulls again, the described news played out in prices like this. Risk appetite was generally higher. US Treasury yields ticked-up across the board: the US 10 Year note is yielding 2.86 per cent and the 2 Year note is yielding 2.77 per cent, narrowing the spread there to just below 10 points. As was implied earlier, the DAX and FTSE both rallied in European trade, by 1.5 and 1.3 per cent respectively. US credit spreads have narrowed. The US Dollar is flexing its muscles, rallying above 97.40 according to the DXY, as the EUR hangs onto the 1.13 handle and the Cable eyes a plunge below 1.25. Typical anti-risk assets, Gold and the Yen, are slightly lower, while the AUD holds onto 0.7200. And in commodities, copper, iron ore, and oil are higher on growth optimism. Finding some meaning: Let’s finally try to put a ribbon on things. Going out on a limb: stocks look likely to close higher on Wall Street. So now for a few cursory takeaways from what’s been gathered from the start of the week. CPI tonight will colour this view, but traders are concerning themselves less with Fed-hikes and more with long term growth prospects. Activity in the yield curve last night probably attests to this. Rightly or wrongly, the trade-war is being judged the major threat to economic growth. Breakthroughs in this story last night injected the bullish sentiment into markets. The Huawei story is being ignored for now, which perhaps reveals that US and Chinese policy makers will bite their tongues just to get a deal done. These are good signs for bulls, but as is well understood, these things can turn very quickly. The question worth considering is whether a de-escalating of the trade-war will do anything to arrest the global economic slow-down. The risk is, the damage is done; or perhaps even worse, there are even bigger forces at play stifling growth. The-trend-is-your-friend, as the cliché goes, and the trend is pointing to downward momentum in markets. Markets are a huge beast, and cycles move like turning ships. For now, the corrective and bearish price action across asset classes indicates the end of a cycle of some description. Until there are signs of definitive change – that is, a rebalancing from bearishness to bullishness – the matter for equity markets is this: is what we are seeing an uncomfortably but relatively benign retracement within the broad, post-GFC trend-channel; or are these signs that in 2019 and beyond, we are entering a true (perhaps recessionary) bear market?
  8. MaxIG

    Brexit pains - APAC brief 11 Dec

    Written by Kyle Rodda - IG Australia Day 1 of 5: Monday looks like it may be one of those days where Wall Street hesitantly pulls itself up out of the dirt in the final hours of trade. There is just under two-hours to go in the US session, and at a high level, things appear not-too-bad. Let's return to America a little later. Whichever way we happen to end the first 24 hours of trade for the week, heightened risk, growth fears and bearishness is still driving sentiment. There has been no shift in market behaviour to indicate a market turnaround is upon us yet. If anything, the headlines regarding the macro-landscape added to the negativity. The data traders received was mixed; rather it was the numerous developments in the politico-economic sphere that inflamed trader's trepidation. The Brexit tragicomedy: The big story overnight must be Brexit. This week ought to be about the state of Europe, and at its outset, it has been. If the potential consequences weren't so dire, the situation would appear comical – akin to some absurd, but all-too real life Waiting for Godot re-boot. First-up, the European Court of Justice released a ruling that the UK could unilaterally cancel Brexit and revoke its action of Article 50. UK Prime Minister Theresa May has dutifully shut down that notion. But things did get sticky when Prime Minister May announced she would delay a vote in Parliament of her Brexit bill, on the understanding she lacked anywhere near the required votes to get it passed lawmakers. European price-action: It's relatively raw news at time of writing, but Prime Minister May's decision looks as though it will drag Brexit-uncertainty into 2019. The Cable has been pummelled consequently: it has pin-dropped 1-and-a-half per cent through a few resistance levels, to familiarise itself now with the 1.25 handle. The region's share indices were unaided by the news, though of course following the Asian lead, the session was always going to be a struggle. The FTSE registered a 0.8 per cent loss, despite the plunging Pound, the DAX shed 1.5 per cent, and the Eurostoxx 50 lost 1.3 per cent. The troubles seemed also to poison the shared currency, which has pulled back into the 1.13 handle. The European bear market: The year has been a write-off for European markets. Now that the macro-narrative is dominated by fears of slower global growth, it seems any hope things can turnaround for the continent is waning. Last night's data out of the region was mixed: UK GDP printed at the 0.1 per cent forecast, but manufacturing production was shown to contract by -0.9 per cent. Data out of continental Europe is still a couple of days away; there will be little in the way of fundamentals news and information that can shift the tide for Europe, however. We are so far in a bear-market in the region, any turnaround appears unlikely. If anything, with US growth and stock market performance converging with the rest of the world, the falls could easily accelerate. Asia and the ASX yesterday: The same goes for Asian markets - and more specifically, the hitherto resilient ASX200. Major Asian indices, from China, to Hong Kong, and Japan, all gave up considerable ground in the Asian session. But it was a filthy day for Australian equities yesterday, which was at the bottom of the table in terms Asian equity market performance. Previously solid support levels were brushed aside in early trade for the ASX, as traders collectively decided the share market isn't the place to be right now. Breadth was very narrow at 10 per cent, every sector was in the red, and volume was quite high, particularly for a Monday. The financials were the main culprits, hurt most by fears of domestic economic turmoil: it contributed 57 points to the markets losses. ASX price-watch: Everything points to a bearish impulse for the overall index. SPI Futures are indicating a bounce of 30 points today, but it pales in comparison to the 128 points given up yesterday. The bottom of a decade long trend channel is exposed in the bigger picture, now: about 5380 (or so) is the level to watch. If this is the unfolding of a true bear market – a 20 per cent correction from previous highs – the stop after breaking this trend would be around 5090. Getting carried away isn't helpful here, and it's too premature to make doomsday calls on the market. However, true bear markets do often correlate with major economic slowdowns: investors could be trying to tell us something here, so if a market bull, being alert (but not yet afraid) should remain the default setting at least for the time being. Wall Street: Returning to US markets, with less than an hour to go in trade, action could be (generously) described as mixed. It’s still risk-off, however the severity of risk aversion has diminished. US Treasury Yields have climbed modestly across the curve, benefitting the US Dollar, which flexed its might again overnight. The US Dollar Index is around 0.7 per cent higher and back above the 97-mark. Credit spreads have narrowed as the session has worn-on. The S&P500 looks like it could close flat, the Dow Jones has rallied late, and the NASDAQ has added around 1 per cent. Much of this comes courtesy of a bid higher in the major, mega cap FANG stocks. A word of warning (it almost goes without saying): breadth is 40% and uninspiring, with the rally attributable to gains in a select few big-tech names. Little of what occurred on Wall Street should be considered a firm sign of an imminent turnaround.
  9. Written by Kyle Rodda - IG Australia Friday session: Friday capped off another horror week for Wall Street. It was US equities’ worst week since March. Traders are currently operating within a volatility trap – and there are few indications this will soon end. The VIX is elevated, above 23 at the last reading, but occupied time above the 25-mark at stages during the week. Volatility is an active trader’s friend, and for the most part the opportunities it has thrown have been relished. Liquidity is becoming thin though, and there is a sense that the risk-reward dynamics in certain asset classes have changed. For perennial bulls, or those who have long term investments in equities space, there is undoubtedly a lot of pain being experienced. If the activity across equity markets on Friday is any guide, this is something that is set to last. Shifting narratives: The narrative has definitively shifted. It might even be said for the bulls that it has gone from bad to worse. On the surface, since October, downside risks have manifested and grown in global equities. For many-a trader, whatever the root cause of this dynamic is secondary to being able to play the trend. But something interesting has happened recently, and it’s worth knowing to appreciate the way the market has changed. The initial stages of this market correction were precipitated by the fear an (over)active US Fed would hike rates to a point that would sink the global stocks. In some way, the effects of such a phenomenon played-out in markets just by way of virtue of the pricing in of those expectations. US Treasuries were rallying, the US Dollar trended higher, and growth-stocks plunged on the belief solid economic data would justify interest rate hikes. The “real” economy: But this isn’t the case anymore; this isn’t about shifts in intermarket behaviour, contained primarily to financial markets. The concerns now relate to the prospects for the real economy. To repeat: October and November were about adjusting to a Hawkish Fed. December has so far been about slower global economic growth. It’s a problem with Main Street, perhaps more than Wall Street, that traders are worried about. The bond market is king, no matter how much attention stock markets get. The best information comes from reading into what is occurring in bond markets – especially US Treasuries. As has been discussed a-plenty, the US Treasury Yield curve is exhibiting signs of inverting. Traders are telling us they think growth in the medium term will be soft. US Inflation expectations: There is another useful indicator to use in the fixed income market: the TIPS spread. More-or-less: the spread is a crude measure of future inflation. When traders were stressing-out about an over-zealous Fed, it was primarily due to fears that some (albeit modest) outbreak inflation was upon us. Interest rate hikes would be the necessary and mandated response. At this time, the TIPS spread (on equivalent 10-year securities) was about 2.20% -- that is, future inflation was tipped to be around 2.20%. Flash forward to its most recent reading, and that indicator has fallen to 1.95%. Inflation-risk is being priced out of the markets, along with the prospects of healthy economic growth. Ergo, interest rate traders have called-out the Fed and demanded the central bank “Say Uncle!”. US Non-Farm Payrolls: Whether this reaction proves justified will be fascinating. Markets are forward looking, so current economic data is only good as far as it can be used to extrapolate answers about the future. Nevertheless, the data coming out of the US is (generally) satisfactory. The latest Non-Farm Payrolls release came out on Friday, and the numbers were okay: the US unemployment rate is 3.7 per cent, and annualized wages growth held at 3.1 per cent. The jobs-added figure was a big miss, coming in at 155,000 – also, although respectable, the wages component did print below expectations. However, stripping-out the highly charged emotions in financial markets at-the-moment, the figures produced by Non-Farm Payrolls were objectively solid. The picture it painted of the US economy was good. Friday’s price action: But that doesn’t matter in this market. The bears are winning, and the bulls are looking for any excuse to sell. Wall Street experienced another poleaxing on Friday night, backing on from a mixed day in Europe: the NASDAQ was down over 3 per cent again, while the Dow Jones and S&P500 were down nearly 2-and-a-half per cent. Rates and bonds didn’t respond well to the Non-Farms data: the yield on the US 2 Year Treasury fell to 2.71 per cent, while the yield on the US 10 Year note fell to 2.85 percent, taking the spread there to 14 basis points. The US Dollar took a dive, breaking upward trend support, launching gold through resistance to $US1249 per ounce. The EUR and Yen naturally benefitted from the weaker greenback, but the AUD is still struggling, unaided by a fall in iron ore, which fell despite climbs in other commodities. ASX, and the week ahead: The last price on the SPI futures contract is indicating a 30-point drop for the ASX200 this Monday. This comes on the back of a relatively uneventful, but solid day for the index on Friday, which managed to eke out a 0.4 per cent gain. This week is filled with a litany of risk events. The first market to watch might be the oil market, after OPEC+ agreed over the weekend to cut production to stabilize falling prices. The trade war and the developments in it relating to the arrest of Huawei CFO Meng Wan Zhou will be curious. US CPI, PPI and Retail Sales data will be closely watched too, as traders gauge US economic health. The week may well prove to be more about Europe, though. There is a stack of event risk coming up. It may well not go ahead, but Brexit is scheduled to vote on UK Prime Minister Theresa May’s Brexit bill. The Cable is worth watching ahead of that event. ECB President Mario Draghi speaks, and the ECB meets, with his commentary to be perused for signals that the Europe’s central bank might be stepping away from its potential rate hikes. Whatever is said by Draghi will be assessed against a slew of PMI figures. And finally, the Italian fiscal crisis will probably continue to be a soap-opera, though hopes are rising that the Italians are going to play ball.
  10. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 10 Dec 2018. 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 Index Bloomberg Code Effective Date Summary Dividend Amount PSI20 RAM PL 12/12/2018 Special Div 1.15 NDX PCAR US 13/12/2018 Special Div 2 RTY AMSF US 13/12/2018 Special Div 3.5 SPX PCAR US 13/12/2018 Special Div 2 RTY CWH US 14/12/2018 Special Div 0.0732 PSI20 RAM PL 17/12/2018 Special Div 0.085 How do dividend adjustments work? 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. 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. MaxIG

    Panic stations - APAC brief 7 Dec

    Written by Kyle Rodda - IG Australia Panic stations, still: The behaviour in financial markets is resembling cats trapped in a burning room: the air is unclear, it’s unbearably hot, and people are scrambling to find an exit – or at least, somewhere appropriate to hide. The chaos is one thing, but the true issue – as is always the case, when these situations become particularly fraught – is no one can really describe why this is going on exactly. Now, we all know the stories: the Fed has equivocated and that’s confused the heck out of markets; US-China relations are hot-and-cold; future global growth expectations are being unwound; Brexit is on-again-off-again; and a breakthrough in oil markets out of the OPEC meeting hasn’t emerged. These issues are ongoing, so it’s not any sort of surprise that they’d all be weighing on markets in some form. The confusion is why they are all conspiring to create such fireworks now. Risk-off: Maybe traders have just taken too many hits in the last 3-months, and the bulls are effectively tapping out. A premature call, here, to be sure, however there seems so little motivation to hold onto riskier assets. It seems that collectively, a clear strategy to handle the volatility isn’t yet to emerge. The classic plays into safe-havens can be seen: US Treasuries are going on a tear presently, for a variety of reasons to be discussed shortly. An unwinding of the Yen carry trade has pushed the USD/JPY to 112.50. And gold is looking at a break-out above resistance at $1240. Inversely, risk proxies have also been thumped: global equities (needless to say) are getting hammered, the AUD/USD is taking a rinsing, and commodities, led by a 3 per cent tumble in oil, and a 1.1 per cent fall in copper, are plummeting. US interest rates: Interest rates traders have taken it upon themselves to signal to the market that the Fed ought not to be going anywhere in 2019 with interest rates. A December hike is still considered locked-in for all intents and purposes, but even a single hike in 2019 is progressively being priced out by markets. It’s an incredibly aggressive play ahead of key Non-Farm Payrolls, where wage growth figures will be assessed for inflation prospects. But whether rightly or wrongly, interest rate markets are calling it: hikes-off, cycle over – the share market and the economy have peaked. The dynamic is showing up right across the US yield curve: the yield on the interest rate sensitive 2 Year Treasury note is at 2.75%, above the 5 Year note, which is at 2.74%; and the benchmark 10 Year Treasury bond is yielding 2.87 per cent. Update on the yield curve: Doing the maths: the yield curve is still inverted, and the key spread between the 2 Year and 10 Year Treasuries is about 12 basis-points. For those who believe in the indicator’s efficacy: this still is flashing signs that markets are moving to price in a recession. To be sure, it’s way too early to call such a thing; but what can be inferred with more certainty is that markets believe an economic slow-down is approaching, and the global economy can’t withstand a non-stimulatory US Fed. It’s an indictment on the economic system that it can’t hold itself to together without extraordinary support. Stepping away from the disorder, though: perhaps this big-long cycle of central banks seeking to control the business cycle is seeing such diminished returns, and that the overall structure is no longer viable or sustainable. Trade War tensions: First comes the Fed, and then everything else. It has to be when assessing these markets. There are other drivers of the current climate of fear, however, that threaten market fundamentals. The US-China trade war took a nasty turn yesterday when it was reported the Huawei’s CFO has been arrested in Canada, and faced extradition to the United States, on allegations of trade violations. Though a long way from certain, some attributed the mini-flash crash on the CME Futures exchange yesterday to the shock of this news. Nevertheless, US-Sino trade relations have become highly-charged again, with the expectation now the goodwill between the US and China as each nation works towards a trade deal is disappearing. Trade sensitive areas of financial markets got smacked-down consequently: Chinese stocks were walloped, the Yuan plunged to 6.88, and industrial stocks bled. US Session: There is about an hour-and-a-half left in trade on Wall Street, and while the isn’t as bad Tuesday’s session, it’s still far from pretty. The Dow Jones is leading losses, down 1.8 per cent, followed closely by the S&P500 which is down 1.42%. The NASDAQ is holding up a trifle better, down only 0.8 per cent. This backed up a day in Europe that saw stock indices across that region shed over 3 per cent. Brexit concerns certainly aren’t helping there. The uncertainty around the day’s OPEC meeting is enervating financial markets. The price of oil is down in the realms of 3 per cent itself, sparking jitters in credit markets and therefore global equities, as traders wait-and-hope for a deal to cut oil production by OPEC. The price of Brent Crude has dived below the $US60.00 handle in the interim, while WTI is buying just above $US51.00 per barrel. ASX200: SPI futures are pointing to another down day for the ASX200. That contract is indicating a 23-point drop at the open. It must be remarked that despite the turmoil in overseas markets, Australian shares are holding up rather well. The session closed with a relatively modest 0.2% loss yesterday, clawing back the losses sustained during the US Futures mini-flash crash. Proven again was the thick support for the index in the low 5600s, which provided a solid floor for the market to bounce off yesterday. Repeated challenges of that mark can’t last forever, but it is heartening to know the buyers are there. Also positive was a clear rotation within Australian equities yesterday: unlike other parts of the world, traders were discerning enough to rotate into defensives away from cyclical stocks, rather than dumping equities whole-sale. It shows a desire to be exposed to equities at all, at a time where, in some parts of the world, going near the asset class is toxic. A grind lower may well transpire today, with the banks surely to be hurt by falling global yields, the miners to feel the pinch of falling commodity prices, and the energy sector to suffer from oil’s spill. Once again, maybe today can be assessed today on the breadth experienced by markets, and whether defensive sectors can hold it together.
  12. Written by Kyle Rodda - IG Australia Overnight bounce: A bounce in equities has finally arrived, unwinding some of the week’s heavy losses. As it currently stands, the NASDAQ – ground zero for much of the recent market correction – is leading the pack, up 1-and-a-half per cent for the day, followed by the S&P, which is up 0.8 per cent, and the Dow Jones, which is up 0.65 per cent. Volumes are down generally speaking, so the recovery today lacks bite – though the Thanksgiving holiday in the US may somewhat be behind this, meaning an apparent lack of conviction in this relief rally could be explained away. Meaningful price action in other areas of the market that gives a solid read on the current psychology of traders is absent: US Treasuries have been comparatively inactive, with yields remaining contained across the curve, and the US Dollar is slightly lower, without demonstrating remarkable activity itself. Risk assets: Certain assets have benefitted from the lull in panic-selling. To preface: the VIX has receded to a reading of 20, from highs around 23 yesterday. In currency land, the Australian Dollar and New Zealand Dollar, as risk proxies, have ticked higher to 0.7265 and 0.6795. Obviously, the reduced anxiety amongst traders has meant the converse is true for haven currencies like the Japanese Yen, which is trading above 113 today. The Euro and Pound remain in the 1.13 and 1.27 handle respectively, most unmoved by the day’s sentiment. While credit spreads, which have blown out recently as risk-sentiment evaporated, have finally come-in. To counter the notion of complete risk-off: Gold has caught a bid, to trade at $US1227, or thereabouts, with its rally attributable largely to a modestly weaker greenback. Global indices: But overall, risk appetite has been ever so slightly whetted, even if it is only temporary. European equity indices were well into the green, aided by a skerrick of positivity generated by good news relating to the Italian budget crisis. The DAX was up 1.61 per cent and the FTSE added1.47 per cent, shaking-off the mixed lead from Asia, which saw the Hang Seng up 0.51 per cent and the CSI300 up 0.25 per cent, but the Nikkei down 0.35 per cent and the ASX200 down 0.51 per cent. A bounce in commodity prices has fed into and supported the solid sentiment in equities, especially as it relates to oil, which rallied off its lows to trade just below $US54 in WTI terms and hold within the mid-$US63 handle in Brent Crude terms. Slow news day: If this all sounds dry, it’s because that in the context of the volatility experienced in the past week – if not almost 2-months – it very much is. Little has catalysed the overnight bounce. The major themes are still hovering about, and the questions implied by them have barely been answered. The big data release overnight – in fact, it’s probably the biggest for the week – was US Core Durable Goods numbers, and they disappointed. That release, very marginally, added to the chorus of pundits suggesting that the US Federal Reserve’s hiking path may be a little flatter than recently thought. As far as what can be inferred from the data, the US economy is cooling off, implying the “data dependent” Fed will lack the reason to aggressively hike interest rates. Fed-watch: A lot of these matters relating to the Fed will be clarified when a slew of board members speak next week. The markets attitude though is simpler to read: Fed Funds futures have reduced their bets on the number of rate hikes from that central bank to 2 and a bit from here. December’s telegraphed hike is being priced again at a 75 per cent chance, but after, if traders are a good barometer, rates in 2019 are looking very flat. A more dovish Fed, in the absence of developments in other issues like the Trade War or Brexit, is what is aiding the staunching of risk-off sentiment. It opens the risk now that markets could be all too wrong, and a spike in volatility will arrive if traders were to once again adjust expectations. A softer outlook: But with the volatility we’ve seen in markets, corporate earnings petering out, and economic growth cooling, the assumption of a more reserved Fed isn’t outlandish. It perhaps reflects the broader risks in the markets and economy too: the Trade War is ongoing, Brexit is falling apart, China is slowing, oil is tumbling, and Italy’s fiscal situation could blow up any day. Given such a landscape, an inevitable pull back by the Fed, timed with lower activity in financial markets, is very understandable – the game of chicken being played by markets and the Fed may have been won by the former. It could all turn on a dime very quickly of course, but as it stands now, the current environment is leading market participants to the conclusion that a period of soft growth, lower earnings growth and a more neutral Fed is upon us. ASX200: So: as it all related to the Australian share market in the here and now: our bounce today, according to SPI futures, will begin with an approximately 25 point jump at the open. Yesterday’s performance was naturally poor, but some solace can be taken in the fact the market bounced off the 5600-support level. The edging higher throughout the day’s trade was helped by a solid run from CSL, which rallied after Morningstar upgraded that company’s stock to “buy”. The banks also experienced some buying; however, breadth was very low, revealing the lack of conviction in yesterday’s modest upward swing. Today ought to see a broad pick-up, in sympathy with Wall Street’s trade: meaningful technical levels within reach on the daily chart are hard to find, but maybe the barometer is how closely a track towards the 5700 can be established.
  13. Written by Kyle Rodda - IG Australia Inverted Yield Curves: There’ll probably be a lot of talk about “inverted yield curves” and “recessions” today. For some, reading such headlines will come as a shock. Perhaps even a cause of anxiety. It’s wise to understand why such commentary has emerged – and what that may imply. The price action in US Treasuries has been quite dramatic in the past 24-hours: the (what ought to be) familiar themes regarding a looming global economic slow-down, and the prospect of softer future US inflation has seen traders cut their predictions of future rates hikes from the US Fed. The short-end of the yield curve – the end which is more exposed to the near-term actions of the Fed – has held up well; but it’s the middle-to-end of the curve – the part controlled very much by traders’ expectations about future growth and inflation – that is experiencing the greatest duress. What it all means: In short: traders are anticipating an imminent end to the Fed’s hiking cycle, and they are now trying to approximate when the Fed may cut rates again. This is where the talk of recession starts to pop-up. As is easy enough to grasp, the Fed would need to cut rates in the event that the economy requires stimulatory support from monetary policy. Such circumstances would emerge if the economy began to slip into something resembling a recession. Hence, when yields at some point in the curve invert, it’s a reflection of traders collectively estimating that in the near-enough future, interest rates will be lower than what they are (around about) now, because the economy will enter into a period of significant weakness to require a rate cut from the Fed. No reason to panic (yet): It sounds quite ominous when the mechanics are explained. It’s doubly as bad when one considers the last time the US went into recession, it was the GFC. We all have memories of how dire that stage of history was. However, any fears elicited by talks of recession and everything that comes with it must be moderated by some counterbalancing arguments. Indeed, an inverted yield curve has portended the last 9 out 11 US recessions, but the time-lag between yield-curve-inversion and a recession should be noted. After an inversion of the US 2 Year Treasury note and the 10 Year Treasury note (the spread on these two assets being the most popular barometer for the phenomenon) it’s not for another 12-18 months that a recession is realized. US growth is solid (for now): So: while financial markets will be whipped into a frenzy about what is going on – especially as safe-haven assets like US bonds are gobbled-up as risk appetite wanes – the effects on the “real” economy are unlikely to manifest in the all-too immediate future. And justifiably so: global growth is waning, and it is not as synchronized as it was in 2017, but at least in the US, economic indicators remain relatively strong. The labour market, which is in focus this week with Non-Farm Payrolls figures released on Friday, is still very tight, leading to gradual wages growth; quarter-on-quarter GDP is still around 3-and-a-half per cent; and although business conditions are cooling, Monday’s release of US Manufacturing PMI still posted a much better than forecast result. What triggered the panic: It begs the question what precipitated this bearishness overnight. In financial markets, an underlying dynamic – such as that which has been experienced in the last 24 hours – may well be present, but it requires a catalyst to ignite it into full motion. Last night’s jitters, in a macro-sense, were brought- about by a slew of disappointing news. The post-G20 rally has been faded, as traders question the longevity and substance behind the so-called deal between the US-China, after several top White House advisers failed to substantiate what outcomes have been agreed upon between the two trade-waring nations. The trade related pessimism was exacerbated by renewed concerns regarding Brexit, and the apparent inevitability of an economically disruptive “hard-Brexit” outcome. Risk-off, havens-on: A rush to safety, and a subsequent liquidating of positions in riskier assets, has occurred. Touching again on US Treasuries: the yield on the benchmark 10 Year note has plunged to 2.91 per cent, and on the 2 Year note it has dipped to 2.80 per cent, taking the spread there to a narrow 11 points. Equities have been slaughtered, unwinding a considerable amount of last week’s gains: the Dow Jones is off 2.73 per cent, the S&P500 is off 2.3 per cent, and the NASDAQ is off 3.3 per cent (with an hour remaining in trade). The USD has climbed on its haven appeal, as has the Japanese Yen, which is back into the 112-handle, though gold has also rallied, despite the stronger greenback, to $US1238 per ounce. While in other commodities, copper is down 1.8 per cent, and oil is flat (this, leading into Thursday’s OPEC meeting). Australia today: SPI futures are predicting another punishing day for the ASX200, with that contract at time of writing indicating a 52-point fall for the local index. The heavy hitting financials and materials sectors will probably struggle today: the former due to this tumble in bond yields, the latter as traders unwind the growth optimism piqued by the weekend’s G20 meeting. In line with overseas markets, defensive sectors could be the play today, though a day similar to yesterday which saw 10 out of 11 sectors in the red on 17.5 per cent breadth shouldn’t be discounted. It’s GDP day today, and that should be watched closely, especially after the RBA at its meeting yesterday talked up the growth prospects of the Australian economy. Whatever the result the numbers produce – forecasts are for annualized growth at 3.3 per cent – it will unlikely shift Australian equities. The interest will be on the Australian Dollar and interest rate markets – the A-Dollar fell below 0.7350 again last night as risk-proxies were dumped – however the likelihood rates traders will bring forward their RBA-hike expectations in from 2020 is rather slim.
  14. MaxIG

    OPEC preview

    Please see the following analysis from Chris Beauchamp, Chief Market Analyst at IG, a global leader in online trading. OPEC preview OPEC faces a difficult task this week, as it aims to prop up the oil price without antagonising the US or putting too much strain on state finances by cutting production too much. The current state of demand and supply After being in deficit for 2018 and 2019, the oil market is expected to shift back to surplus next year: Crude output continues to rise despite the decline in Iranian output: Crude oil seasonality Usually oil weakens in the first two months of Q4, but it then tends to pick up from the first half of December, beginning a steady rally into the summer. Expectations Current forecasts suggest a cut of 1.4 million barrels per day will result from the meeting. Anything less than this would likely cause another drop in prices. The meeting may not go with an explicit number, merely creating an agreement to restrict supply. Again, this is unlikely to be well-received by the oil market. Saudi Arabia – walking a tightrope Saudi Arabia faces a difficult balancing act. On the one hand, it must avoid letting the oil price fall too far and hurt its finances (and those of the others in OPEC, though that is less of a concern). On the other, it will seek to avoid cutting too far, too fast, since this might lead to a sharp bounce in the oil price, which would annoy the White House. Saudi Arabia knows that it has outraged world opinion with its actions regarding Jamal Khashoggi, and that only the lack of outright condemnation from the US has saved them from serious consequences. Trump’s decision to equivocate on the subject, while not conditional on keeping oil prices down, may waver if they cut output by a significant amount. But then again, with a defence budget running at 10% of GDP (almost five times the global average and three times the US budget in GDP terms), plus large state spending commitments, Saudi Arabia has to look at some cuts in order to restore balance to its finances. The FT reports that the Saudi energy minister has argued that cuts of at least a million barrels per day are needed. Russia Although not an OPEC member, Russia is Saudi’s other major partner in the oil market. Russia too is caught between wanting to boost prices and keeping its oil wells going at full production. Putin is aware that falling oil revenues put pressure on the Russian state, at a time of austerity for the Russian economy. Recent attempts to raise the pension age have not gone down well, and the president faces falling opinion poll ratings. Russia is arguably happy with the current state of affairs, but may be persuaded of the benefits of cutting production in return for higher prices. A smaller than expected cut, however, might have the opposite effect, sending prices lower and resulting in lower output for Russian wells. This would not go down well in Moscow. The rest of OPEC Saudi Arabia could look to persuade other members to cut production. Nigeria and Libya were left out of the last round of cuts, due to the fact that their output was still recovering after shocks arising from political troubles. But both are keen to keep producing to boost state revenues, while others like Iraq and Iran are also rather cool on the idea of reducing output. Saudi Arabia faces a tough task convincing the rest of the cartel to cut output, particularly if it does not set out its own production cuts. All trading involves risk. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading Spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results. 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. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. 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. Prepared by IG Markets Ltd.
  15. MaxIG

    Relief rally - APAC Brief 30 Nov

    Written by Kyle Rodda - IG Australia A relief rally, now onto the next risk: The relief rally for market-bulls was sweet, but fleeting: it’s on to the next risk event now. Traders are being inundated by information, much of it speculative. Against this backdrop, volatility reigns: while off its highs still, the VIX is up 2.7 per cent on the day. To be clear, the Fed’s dovishness and Mr. Powell’s-famous-Put is underwriting the potential for future bullishness. But market participants can’t afford to let their guard down in this environment. We have the world’s most powerful politicians converging on Argentina, and with so many fissures running-through global political economy, the number of issues threatening market stability is considerable. One assumes that every generation thinks of themselves as existing at the end of history – reference: we can thank Fukuyama for that notion, perhaps – but it does sometimes feel that with the world-order trembling, we are living through a historical juncture of some description. Markets want what’s familiar: Markets don’t like this. They desire support and stability and a protection of the status quo. It’s why, in part, seeing the Fed ostensibly step in to support financial markets is so emboldening, and sparks all sorts of bullish impulses. This is especially so within equity markets, which being able to gorge on cheap credit for years, became spoilt and fattened. The fundamentals of the system itself are shaky. Although this ought to be an inherent virtue when it comes to the nature of capitalism – the notion of creative destruction, as economist Joseph Schumpeter expressed it, whereby viable investments prosper, and wasteful inefficiencies are purged – for the better part of a decade, policy makers (rightly or wrongly) have sought to resist this process to maintain a semblance of economic constancy and social confidence. Withdrawal symptoms: The problem is weening the macroeconomy and financial markets off the opiate. This is what the Fed is ultimately attempting to do, but with capital having allocated itself to places it ought not to have, removing the support from the system, along with the perverse incentives it produced, is proving no simple task. The Fed yesterday morning – articulated in Powell’s speech – almost certainly backed down in the face of the implicit pressure applied by markets. The message was clear from marker participants: we don’t like the risks of macroeconomic and geopolitical instability, we think growth will slow, we need support, otherwise we’ll melt-down. And so, in the tradition of Fed board’s gone by, Powell did. The message was only affirmed in this morning’s FOMC Minutes: the idea of “further hikes” passed December is debatable, because economic forecasts are softer, and there exists too many risks that could undermine the Fed’s objectives. Inflation waning? One of these objectives, when looking at the Fed’s strict mandate, is inflation targeting, and it appears that fundamental inflation is petering out once again. Market participants have cooled on the idea of that inflation risk is high, primarily due to a downgrade in growth forecasts and the recent dumping in oil prices. The Fed’s chosen inflation measure, the PCE Index, printed overnight, and revealed inflation slipped below the Fed’s target level of 2 per cent by more than forecast. The number came in at 1.8%. It’s not to say the risk of inflation has disappeared: wages growth is on the up in the US, which could conceivably feed into higher prices – not to mention the effect tariffs or (an unlikely) turnaround in oil prices could have on future inflation. However, as the markets understand things for now, inflation isn’t a bug bear, and that gives an assurance that the Fed will stay steady. The G20: In the bigger picture: it’s about this weekend’s G20 Summit. The trade war, Brexit, oil prices and global economic prospects are the big talking points; but underneath those we also have new tensions between Russia and the Ukraine, Italy and its fiscal situation, the Saudi’s and the controversy surrounding the Khashoggi murder, along with a myriad of regional issues faced around the globe. It’s a true tinderbox, that unsurprisingly would have world leaders, and thus market participants, very anxious. The core dynamic appears to be that those with the power to influence the direction of the political-economic world order have no interest in preserving it. Trump’s America is descending into paranoid isolationism, China wishes to reshape the neoliberal system to serve its long term national interest, the Russians are apparently trying to consolidate their regional interests, while the Europeans are busy naval gazing and questioning how to keep a unified Europe together at all. Trade War: Presumably, traders will do their best to ignore the structural power struggles and all the comparatively smaller issues dampening market sentiment and just focus on what will come out of the Trump-Xi dinner date. One would have to be utterly naïve to believe a breakthrough is upon us here. It’s unimaginable – granted, maybe only for those who lack a rich enough imagination – that either side will compromise its strategic interests. President Trump will want concessions from the Chinese before doing a “deal”, the likelihood of which seems very low. China possesses a long-term strategy for its nation and economy – one that extends passed the speedbump that is the Trump Presidency. Compromising the future to appease a bombastic American populist leader in the present is counterproductive. Both sides must know this, and that they are not on the same page right now, whatever the benefits may be. The likely outcome from the weekend will surely be a piecemeal statement committing to ongoing talks, as always seems to emerge from the talk-fests. Price activity overnight: The price action overnight reflecting the underlying market dynamic described so far has been quite subdued. European indices caught up with their North American and (some) Asian counterparts to put in its own post-Powell relief rally. US equities lost steam however, but in late trade look poised to close 0.3 per cent higher for the day. US Treasuries whipsawed on shifting sentiment relating to interest rates, with the yield on the 2 Year Note is currently at 2.81 per cent and the yield on the 10 Year note is 3.03 per cent. In currencies, the US Dollar is effectively flat, the EUR is slightly higher, the Yen has experienced a haven bid along with Gold, the Pound fell on Brexit fears, and the risk off tone sent the A-Dollar below 0.7300. Finally, commodities are slightly up: oil benefitted from news that Russia was prepared to cooperate with Saudi Arabia on production cuts, but copper is slightly lower. ASX today: Promisingly for Australian equity market bulls, SPI futures are indicating a 12-point jump at the open for the ASX200, in line with the late run on Wall Street. The ASX experienced an immediate pop-higher at yesterday’s open, but the price action was dull and middling throughout the day. Overall, volume was strong, breadth was healthy, and the large-cap heavy weights in the materials and financials sectors added 13 and 10 points to the index, respectively. Growth stocks were big higher as expected, while defensive sectors were somewhat ignored. Private Capex figures were released and didn’t rock markets too much: it came in below expectations, but there were signs non-mining investment is turning around. The day ahead from a technical perspective should be assessed on whether the ASX200 can clear the small resistance hurdle at 5780 or so. But given what’s on for the weekend though, one shouldn’t be surprised or disheartened if that doesn’t happen today.
  16. Written by Kyle Rodda - IG Australia A bullish Monday: That big uplift we were all expecting after the weekend’s events at the G20 has transpired. The trade-war truce, as fleeting as it may prove to be, has supported a substantial enough boost in sentiment. Risk appetite has been teased, and risk assets across the global, beginning in the Asian session yesterday, and carrying through European and North American trade, have dutifully rallied, consequently. It’s a synchronized boost, prevailing across asset-classes, with traders relishing the double-shot of bullishness injected into markets in the last 7 days: a much more dovish Fed, which has lowered the possibility of higher global interest rates; and a de-escalation of the trade-war, which has ameliorated the concerns regarding future global economic growth. Global stocks: There remains, at time of writing, a few moments left in the North American session, and as it stands, the good-vibrations are waning somewhat. Nevertheless, Wall Street is higher, capping-off a positive day for markets overall. The NASDAQ is leading the charge, up around 1 per cent for the session, while the Dow Jones and S&P500 are 0.7 per cent higher for the day. It follows an Asian and European session which saw the Nikkei up 1 per cent, the CSI300 up 2.8 per cent, the DAX up 1.85 per cent, and the FTSE100 up 1.2 per cent. Volumes have also been very substantial, running 30 per cent above average on the S&P, and a remarkable 45 per cent above average in Chinese share markets, adding conviction behind the day’s trade. Currencies and commodities: Across the currency and commodity landscape, a comparable appetite for risk has occurred. Growth proxy currencies have generally prospered: the Australian Dollar is (presently) trading at 0.7350 – having challenged the 0.7390-mark yesterday, before a raft of soft local data gut-checked the local unit – and the New Zealand Dollar is up around 0.6920. The Loonie is also rallying, benefitting from the additional support of higher oil prices. The US Dollar has been sold-off, along with other haven currencies like the Japanese Yen, pushing the price of gold to resistance at $US1232. The Euro is modestly higher courtesy of a weaker greenback, but the Pound has left the party following news that a vote of no-confidence looms for Prime Minister May in the British parliament. Finally, Industrial metals are higher, thanks to the uplift in economic-growth-optimism, paced by LME copper, which rallied 1.6 per cent. Can it last? So that was Monday, and its undoubtedly been a day of positive price-action. But it now begs the question: beyond a sweet one-day rally, does this move higher have more legs? As far as this week goes, the matter is dubious. Markets move on surprises, whether they be good or bad, and what market participants received on the weekend was quite a surprise: a cordial outcome to the trade-talks was expected and priced-in; what wasn’t, however, was the freezing of tariffs for 90-days, coupled with the various commitments to reform certain trade practices. The rush-of-blood for traders came as they attempted to price this new information into markets – naturally, leading to a spike higher in risk-assets. The problem is now that with today’s market activity this has been completed, meaning traders will now go back to looking ahead to the next events at hand. Risk events loom: Looking forward into just this week alone, there is an abundance of information to keep traders shuffling on their toes. Economic data wasn’t particularly heavy across the globe yesterday, but the next 24 hours will set in motion a fortnight of highly significant economic data. Locally, the RBA meets today, before the big-ticket Australian GDP print is released tomorrow. A slew of PMI figures will be released in the next four days across Asia, Europe and North America, and will provide a proper gauge on the state of global growth. US Non-Farm’s come out on Friday, potentially reshaping once more perceptions regarding the US inflation outlook and possible Fed policy. And OPEC meet on Thursday (AEDT) to discuss oil markets – an event which has taken even greater significance now after Qatar announced yesterday it plans to leave OPEC. Bonds flashing warning signs: Those are just the headline grabbers, too. There’s considerably more than just that going on. Fundamentally, from a macro-perspective, a reversal in sentiment if a data-point goes the wrong way for the bulls could shift the dial once more. The signs under-the-hood are already presenting this: despite rallying across the curve briefly during Asian trade, US bond yields have retraced their gains – the yield on benchmark US 10 Year note climbed to 3.05 per cent, before plunging back below 3.00 per cent in US trade. Most worryingly, the spread between the 10 Year and 2 Year US Treasury notes narrowed to just below 16 points, while the spread between the 3 Year and 5 Year equivalent has inverted. This is as good as a flashing light as any to suggest that markets are increasingly pricing in slower growth, if not some sort of US recession, moving into the medium-to-long term. The here and now: ASX200: That’s certainly the alarmist view – and it should be noted that it’s a problem to be confronted in the slightly-more distant future. Bringing the focus back to the here-and-now and to today’s Australian session, SPI futures are pointing to a pull-back in the ASX200 of about 20 points. The day’s trade will be highlighted by the RBA’s meeting, but the central bank will keep interest rates on hold, and there are few surprises tipped to come out of the accompanying statement. Yesterday’s session, during which breadth was a remarkable 88 per cent, could be considered a combination of a recovery from Friday’s substantial losses, and a relief rally off the back of the weekend’s G20 meeting. Maybe futures markets are telling us a necessary moderation of that excitement ought to be in store today. It was the materials space that unsurprisingly led the charge during yesterday’s trade, supported by a climb in the financials sector. The former added 29 points to the index and the latter added 16. Energy stocks were the best performing in relative terms, as traders took the cues from Russian and Saudi leaders at the G20 regarding likely oil production cuts, to climb 4.6 per cent and tip-in 14 points to the ASX200’s overall gains. Riskier momentum/growth stocks in the health care and information technology sectors experienced a solid bid – a healthy barometer of bullishness. Ultimately, across the overall index, though it may not transpire today given early indicators, a rally beyond support at 5745 towards 5786 is required to maintain a bullish-hue for the ASX200 coming into the Christmas period, to open-up a run at the more meaningful resistance level around 5875.
  17. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 3 Dec 2018. 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 Index Bloomberg Code Effective Date Summary Dividend Amount STI SPH SP 6/12/2018 Special Div 4 SIMSCI SPH SP 6/12/2018 Special Div 4 RTY MBWM US 6/12/2018 Special Div 75 RTY ORIT US 6/12/2018 Special Div 15 RTY SGR US 7/12/2018 Special Div 25 RTY GLOG US 7/12/2018 Special Div 40 RTY LADR US 7/12/2018 Special Div 23 How do dividend adjustments work? 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. 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.
  18. Trump’s G20 Summit: Love him or loathe him, Donald Trump seems to be able to get things done. Given he is the most powerful man in the word – at the very least, in a political sense – perhaps this isn’t such a difficult task. When you have the world’s largest economy, coupled with the world’s most potent military at your disposal, one would have all the leverage needed to get their way. But nevertheless, arguably not since Ronald Reagan has global politics experienced such a rapid ideological shift. There were plenty of little-stories, centring around a myriad of economic and political issues, that were played out at the weekend’s G20 summit. The overarching narrative however, at what was possibly the most historically significant G20 meeting since 2009 – when world leaders gathered to discuss the global economy at the depths of the Global Financial Crisis – was about the pitfalls of global trade and migration, and it had President Trump written all over it. Typical talk-fest: As generally occurs at these talk-fests, this year’s G20 summit was apparently characterized by the typical jostling and lobbying between the many tiers of power. What happens behind closed doors seemingly stays behind closed doors (it’s hardly surprising the masses treat these engagements with cynicism, if not outright paranoia), so it’s difficult to know the depth of discussion shared by world leaders. What we do get though is a nice little communique at the end of it all, summarizing the broad, shared vision of the member countries, with some normative statements articulating how the world ought to approach itself in the future. The short-term financial market implications of this year’s statement will presumably be limited, and more focused on (somewhat improving) US-Sino relations. Regardless, for those with a concern for the structural matters directing future financial and economic activity, an appreciation of what was spoken over the weekend gives a keyhole insight into what can be expected in tomorrow’s world. Trumpian philosophy wins: True to Trump’s historic influence, the financial and economic world of tomorrow, if the G20’s communique is a reliable indicator, is one of greater nationalism, higher trade-barriers, and less liberal movement of people. For the first time in its (albeit short) history, the G20 avoided disavowing protectionism, and instead stated that the world trade system is “falling short of its objectives and there is room for improvement”. It pointed out, too, the necessity of institutional reform, naming and shaming the World Trade Organisation as a body failing to meet its mandate, and calling on supranational bodies to do more to ensure fairness in the global economy. Ultimately, the culmination of many days of talks lead to an implied (and what can probably be judged a reluctant, at least for most member-states) rebuke of globalisation, and the liberal democratic order that grew out of the post-World War II world. A New World Order? Although the reactionary face of this growing impulse of isolationism, nationalism and protectionism in parts of the global political stage possesses the fake-tanned ugliness of US President Donald Trump, some of the genuine criticisms relating to the liberal politico-economic order ought to be treated with some credibility. The virtues of free-trade, liberalization, globalization and the like haven’t always been lived-up to by world leaders, who sometimes have appeared to bastardize the system to preserve the special interests of those who exploit the system. Not only that, in a practical sense, trade-barriers, high borders, and the unequal treatment of certain nations have always existed in some sense, despite the pontificating of world leaders about the benefits of multilateralism, freeness and fairness of the liberal order. It may not ultimately be true that internationalism and institutionalism is undesirable, however whatever the truth, the perception amongst many is that the system is corruptible, ineffective, opaque and (dare it be said) “fake”. Realism reigns: It’s where the brutal appeal of realist politics – which is exemplified today by Trump, Brexit and other forms of “populism” – takes its hold. It harks back to a notion (an old cliché, really) spouted famously by Paul Keating, channelling his mentor Jack Lang: “In the race of life, always back self-interest: at least you know it’s trying.” Such a brutal, Machiavellian view of the world, if delved into, especially too deeply, is highly disturbing – almost misanthropic. Though for all its base savagery, the idea does seem self-evidently true, and fundamentally real. It isn’t as if such extreme real politick ever truly disappeared as the liberal-democratic global order, and the global economy it produced, emerged and flourished. Ostensibly, it was always there in come capacity, moving the gears of history in one way or another. The difference now – in a time of social crisis, apparently defined by “fake news” and “alternative facts – is that extreme self-interest can be understood, trusted, openly embraced, and even lionized. Trade-truce to be the focus: In the end, evening if begrudgingly, this system – epitomized by serving the (collective and individual) self at the expense of all others – was tacitly endorsed by G20’s communique, paving the way for meaningful, structural change in the global economy. The potential impacts of this are unlikely to manifest in notoriously short-termist financial markets: whatever the effects, they will be considered and experienced some way down the road. Traders will search for information in the next 24 hours that influence the here and now – and given that the summit appeared to go ahead cooperatively, it ought to be presumed a bullish sentiment will reign across markets. The primary reason this may prove true is that at the coda of the event, the highly anticipated dinner between US President Trump and Chinese President Xi Jinping reportedly went along well, with both trade war combatants appearing cordial, and agreeing in principle to halt new tariffs on one another’s countries for at least 90 days. Possible price reaction: This being so, risk appetite may well be piqued today, and risk assets could be poised to rally. The last price of SPI Futures have the ASX200 up 25 basis points, having shed a remarkable 1.6 per cent on Friday to close at 5667. Asian equities will surely be beneficiaries today, however considering the major ramifications of the weekend’s events, indices throughout Europe and North America stand to gain, too. Growth currencies like the Australian Dollar and New Zealand Dollar may climb, with the A-Dollar eyeing minor resistance at 0.7360 – a break of which could enable a run to 0.7430. The risk-on tone, combined with a fall in US Treasury yields across the curve, will probably produce a weaker greenback – with other havens in the form of CHF and JPY likely to experience the same. While in commodities prices, notably precious and base metals, should move higher, though it must be stated oil specifically will likely track its own idiosyncratic trading-patterns.
  19. A game of chicken: Did Powell just blink? That’s how last night’s speech from the Fed chair is being interpreted. Debate has raged whether in the face of financial market turmoil, the Fed will be forced to cool its rate-hike rhetoric. Powell’s speech – and this is speculative – may have represented this. Gone was the talk of rates being “a long way” from neutral, and that rates may need to move “past (the) neutral” rate. Instead, it was replaced with the key comment interest rates are “just below” the neutral range, and that future rate hikes, as Fed Vice President Richard Clarida implored yesterday, will be “data dependant”. Perhaps we saw last night, in the tradition of many-a Fed Chair gone before, the latest incarnation of a “Fed-put” – that is, this time around, a “Powell-put”, which will underwrite financial market strength at the first sign of true-trouble. Rates and bonds: The reactions in financial markets have been predictable, but assertive. US Fed fund futures suggest that traders have heard enough to justify pricing in an 80 per cent chance of a Fed-hike next month. But naturally, the shifting of expectations has been seen in the pricing for rate hikes in 2019. The Fed’s last dot-plots implied 3 hikes for next year – and markets got close to pricing the full three at stages only just over a month ago. We are now seeing just the one, and for some very dovish folk, even that’s too bullish. The short end of the US Treasury curve is manifesting the shift in sentiment: the benchmark 10 Year Treasury note is yielding 3.05 per cent currently, but the yield on interest rate sensitive 2 Year note has fallen back to 2.80 per cent, taking the spread between those two assets back to 25 basis points. Currencies: The US Dollar has been ubiquitously dumped by extension of the fall in rate expectations and yields on US Dollar denominated assets. Even despite no sort of counterbalancing good news to prop-up any of the other major world-currencies, the effect of the weaker green back has been spread evenly across the G10 heat-map. The GBP and EUR, which are in as vulnerable a place as ever due to ongoing Brexit drama, are up to the 1.2840 and 1.1380 levels, respectively. The traditionally risk-off Japanese Yen has appreciated slightly, as did gold, which is trading at $US1228 per ounce, and the embattled Chinese Yuan climbed to fetch 6.93. While the highly liquid risk-proxies, the New Zealand Dollar and Australian Dollar, have spiked to 0.7320 and 0.6880, respectively. Equities: The greatest action of course occurred in Wall Street equity markets post-Powell’s speech. The major indices have sky rocketed on the relief that discount rates may be steadying their rise and the tightening of monetary policy conditions may be nearing its zenith. It was the high-multiple, growth and momentum stocks that led the charge, predictably. The NASDAQ – at time of writing, with about an hour left in the US session – has rallied 2.30 per cent. The mega-cap laden Dow Jones is also up over 2 per cent, while the comprehensive S&P500 is up by just under 2 per cent. European indices missed out on the fun, closing well before Powell’s speech. However, futures markets are exhibiting early signs that European markets will join their North American cousins in the relief rally upon their open later today. When bad news is good news: Maybe this a grand statement inspired by the major plot twist markets experienced overnight, courtesy of Fed Chair Powell’s dramatic change of tact, entering the last stanza for financial markets in 2018. But the price action and sentiment shift seen in last night’s trade does appear a microcosm of the perpetual battle faced by central banks for perhaps decades, if not at the very least, since the Global Financial Crisis. Asset markets appear dictated not by fundamental strength in the macro-economy, but by the central bank-controlled credit-cycle that investors have come to rely upon for their investment cues. It’s a contentious debate, and one that hasn’t been resolved. However, last night’s developments hark back to years gone by when bad economic news was judged to be good news for financial markets, and good economic news was judged to be bad. Let the good times roll? Without delving too deeply into the philosophy behind the idea – although suggested reading would include the work of Hyman Minsky – the contradicting information received last night pays heed to this notion. Aside Fed Chairperson Powell’s speech, overnight there was a raft of news that highlighted the world is experiencing slower economic growth, and that the global economy has quite possibly reached peak growth for this cycle. A speech for BOE Governor Mark Carney highlighted the dire economic consequence to the UK economy in the event of a no-deal Brexit. US GDP came in a smidgeon below forecasts and affirmed the view the US economy may gradually slow-down in 2019. And Christine Lagarde, the Managing Director of the IMF, stated last night the global economy may be slowing faster than expected. Nevertheless, Fed policy hogged the limelight, with the prospect of marginally more accommodative monetary policy conditions inspiring risk-on behaviour all the way from, credit, to bonds, to equities, to currencies. The ASX: SPI futures are pointing to an ASX200 that will relish the global relief rally today. The ASX200 ought to jump about 30 points at the open, likely breaking through 5745-resistance in the process, and opening upside to the next key level at about 5780. Volumes have been quite high across the ASX this week, and to the presumed delight of the bulls, the strength is demonstrating signs of running deep. For one, although the ASX200 was down 0.06 per cent for the day yesterday, it was the small and mid-cap stocks demonstrated the most upside. Really, it was the materials space once more, confronting falling iron ore prices, that sucked 6 points from the index yesterday and was responsible for the markets weakness. Overall, a true bullish turnaround is still some way off, but the chance of a true turnaround in the market has increased meaningfully overnight.
  20. Written by Kyle Rodda - IG Australia A loaded menu: If this week in financial markets is a buffet of information, then yesterday’s session tasted like the entrée. The themes that were predicted to define this week’s trade all showed-up in one form or another, hinting at bigger things to come. US President Trump added heat to the trade war, then spiced up the Brexit debate; a speech from US Federal Reserve Vice President Richard Clarida had traders questioning how many Fed hike’s markets have baked-in; another day of plunging oil prices stirred up fears regarding corporate credit; and overcooked tech-stocks fluctuated, with the key ingredient there the wobbles in Apple Inc.’s share price. The mixture of stories blended through the market is just a sample of what could be in store for the rest of the week, with traders now at the edge of their seat and hungry for more answers. Trump and the Trade War: Okay – enough of the cheesy food metaphors (sorry, last one). What we were delivered in the last 24 hours is very important and establishes the firm possibility of spikes in volatility over the next seven days. US President Trump, for one, hogged the airwaves – and he doesn’t seem like a happy camper. After the close of Monday’s North American session, President Trump fired the first broadside at his Chinese counterparts ahead of this week’s meeting at the G20, stating that he expected that his administration would go ahead with increased tariffs on Chinese goods come January 1 this year. Not only that, but he suggested that iPhones and other high-volume consumer goods could be included in the next round of tariffs, proclaiming consumers would be comfortable paying an extra 10 per cent on such items. Nervous trade: Apple Inc. naturally struggled in overnight trade because of the comments, leading to a choppy session for the NASDAQ and Wall Street as a whole. It must be said that in late trade, US stocks are turning higher, and trading in a much tighter range than what we’ve endured over the past 2 months. Nevertheless, President Trump’s rhetoric is making traders edgy, as they try to take in their stride his inevitable provocations leading into this weekend’s trade negotiations. It has ignited concerns about global growth, resulting in an overall fall in commodity prices last night. Safety has been sought in US Dollar denominated assets consequently, keeping the yield on the benchmark 10 Year Treasury note to 3.05 per cent; and pushing the US Dollar higher, with the US Dollar Index challenging resistance at 97.50 – a dynamic in which has cut gold prices down to $US1213 per ounce. Protectionism: A big part of why the greenback and US assets performed so well is President Trump really fired-up the MAGA rhetoric yesterday. It must have been news that General Motors was planning to close 5 North American factories that really got him going and excited his protectionist impulses. Not only did he take to Twitter to voice his frustrations at GM and its CEO for its decision – threatening to introduce new auto-tariffs in response – he also went out of his way to lash-out at Theresa May and her Brexit deal, asserting that it may compromise futures trade deals between the US and UK. The onslaught of commentary from the President drove the Pound back within the 1.27 handle and the EUR below the 1.13 mark; and dragged European equity indices lower across the board. Fed-Watch: Away from the antics of US President Trump now, and the less-headline grabbing (yet arguably more significant) story for the day was a highly anticipated speech from US Federal Reserve Vice President Richard Clarida. If you recall, it was another speech delivered by Mr. Clarida a few weeks ago that kicked-off the “the Fed is becoming dovish” narrative, prompting traders to unwind their bets on future Fed hikes. Last night’s speech was far less impactful than that one, with US rates markets barely budging. But the tone – it’s all about the tone – of the speech has been judged as more “neutral” than the last, emphasizing the “data dependence” explanation for the Fed’s outlook on rates and the US economy, setting the groundwork for a speech Fed Chair Jerome Powell in the next 24 hours, and the Fed’ monetary policy minutes on Friday. Oil, credit and equities: The final major theme dictating overnight trade is oil prices, and its implications for equities and credit markets. Leading into the end of the US session, in line with activity in US stocks, oil has pared its losses to presently be sitting more-or-less flat for the day. A bearish bias remains for the black stuff, as traders seek to anticipate what the G20 meeting plus a meeting between OPEC a week later will mean for global production. The prospect of lower oil prices, while good for consumers, has traders nervous: credit markets have built in wider spreads in corporate bonds on the risk that energy giants will prove less credit worthy if their income is diminished by a lower price of oil. The knock-on effect is weighing on sentiment in US (and global) equities, with fears that high funding costs will put pressure on highly leveraged US corporates and those company’s share prices. Asia and the ASX: With all of this as the back drop for today’s Asian session, futures markets are indicating a mixed start for the region’s shares, following a similarly mixed day of trade yesterday. SPI futures currently have the ASX200 opening flat this morning, off the back of solid Tuesday session, that saw the Australian shares add 1 per cent on higher than average volume. The heavy lifting was performed by the bank stocks, which compensated for the day prior’s weakness in the materials sector, to add 27 points to the index. The gains ran deep however, with every sector in the green, and breadth at 74 per cent. The index’s close at 5728 positions the market just below resistance at 5745: a push beyond that level today, if the S&P500 is any sort of lead, may need to come defensives and non-cyclicals, which lead the gains in US indices last night.
  21. Written by Kyle Rodda - IG Australia US traders return: It’s nice to be back to some normal programming. The big-wigs on Wall Street have returned to their desks and volumes across the market are looking far healthier. After last week’s sell-off and volatility, and well before the meaty part of trade this week, traders appear to have had their appetite for risk whetted. Only slightly, of course: there is an acute awareness that the next seven days will hurl up some major events and some significant uncertainty. However, the VIX is off its highs and below 20 once again, and riskier assets are feeling some love. There were patches of underperformance yesterday, naturally – our ASX200 happened to be one of them, along with Chinese indices – but as it applies to most the major indices, a healthy coat of green is covering the screen to kick-off the first 24 hours of the week’s trade. Asian session: The tide turned during the Asian session, with no true impetus behind it. If anything, the fundamentals we received during Asia’s trade made for ugly viewing: Japan’s Flash Manufacturing PMI data was released, and that disappointed markets, adding to fears of slower global growth; while New Zealand Retail Sales figures put-in an abominable showing, printing flat quarter-on-quarter versus expectations of a 1.0 per cent expansion. They were non-stories, though, in the ultimate context of yesterday’s trade, as futures markets pushed-higher on pricing of a solid start to the week for equity markets. Some macro-excuses to buy stocks did arrive in the European session, when reports that Italian policy makers were reviewing their maligned budget filtered through markets, compounding the slight lift in confidence engendered by the weekend’s rubber-stamped Brexit deal. European trade: Across European indices, the DAX jumped 1.45 per cent, the FTSE climbed 1.20 per cent, and the Euro Stoxx 50 1.13 per cent. Bond yields edged higher across the Continent and throughout North American, while the positive developments in the Italian fiscal crisis narrowed the spread between German Bunds and Italian BTPs. The fall in US Treasuries saw the yield on the 10 Year note easing to 3.06 per cent and the yield on the 2 Year note to 2.83 per cent, narrowing the spread between those two assets to approximately 23 basis points. The higher yields supported the US Dollar, which returned to the 97-level according to the US Dollar Index. The Japanese Yen was the biggest loser of the major currencies, dropping over half-a-per cent to trade within the middle of the 113-handle; however, gold, the Euro and Pound traded relatively stable. Wall Street: At time of writing, US stock indices are on the cusp of registering quite a solid day. Volumes are higher on average too, reflecting that there is some substance behind what is being dubbed as a "relief rally". It's more a bounce to be fair – the kind we've seen before since the global stock market correction took hold. Nevertheless, for the bullish and opportunistic, it's justifiably proven a respectable 24 hours. US tech stocks have lead the market higher, supported by a bounce in oil prices, which have helped narrow corporate credit spreads and spur greater appetite for risk. The troubles for tech-stocks and oil haven't passed yet -- the big picture hasn't changed -- though (just maybe) there are signs that the bearishness driving the downside in those assets is abating. ASX200 yesterday: The action in financial markets in overnight trade has SPI futures indicating a 44-point jump at the open – a dynamic if realised, will regain yesterday's session's losses from the opening bell. Activity was quite high on the Australian share market yesterday, with volumes approximately 5 per cent above the 100-day moving average. The liveliness in markets was predominantly driven by a dumping of the mining stocks, which were pummelled by the considerable sell-off in iron ore, following the plunge in steel rebar futures over the weekend in response to greater concerns about Chinese economic growth. Overall, the materials sector was responsible for a noteworthy 25 points of the ASX200's losses during the day’s trade, with the likes of BHP and Rio Tinto sliding just over 3.5 per cent. Aussie Dollar: The circumstances also led to a slight pull back in the AUD/USD, which generally has lost some of its lustre. Upside momentum has slowed, as the pop higher brought-about by a squeeze on traders’ short positions looks to have stalled, if not subsided. Macro-fundamentals have eased the pressure on the AUD/USD in November, as traders unwind their bets of an aggressive Fed in 2019: the yield-spread between the interest rate sensitive US 2 Year Treasury note and the 2 Year Australian Commonwealth Bond narrowed to as little as 75 basis points. That has expanded once more, but with heightened volatility in the markets and sentiment interfering with fundamentals, a crude assessment of the Bollinger Band suggests that the myriad of macroeconomic risks in the next month could see the AUD/USD move within a broad range between 0.7020 and 0.7450 into the medium term – with the local unit currently smack-bang in the middle of that range based on the weekly chart. ASX200: Looking ahead: Now that financial markets have returned to a normal state, getting a gauge on sentiment becomes considerably easier. Positioning will begin taking place across asset classes for the series of US Fed related events in the next 4 days, combined with the weekend's major G20 meeting. The implications for the breadth of global markets are seemingly endless, but as it applies to the ASX200, the outcome of both concerns is profound. IG client sentiment is giving generally bearish signals presently – something that will only become further entrenched if the Fed come-out more hawkish this week and US-China trade negotiations deteriorate. Support at 5600 (give or take) will be where the bulls will be hoping for a floor in the event of a worst-case scenario; while a bullish break-out can't be confirmed until at least 5930 is breached.
  22. Written by Kyle Rodda - IG Australia The themes: Boy oh boy, are we facing a significant week. It promises to be a big one, with so many of the pressing macro-economic issues currently driving market activity set to dominate headlines. Given this is so, and the Thanksgiving hangover kept trade light on Friday, casting an eye ahead and speculating on what the next seven days may deliver the most valuable insights. The themes won’t be foreign to traders: we’ve got the US Federal Reserve and global interest rates, slower global growth, the US-China trade war, Brexit, and the crash in oil prices. The way each unfolds sets the foundations for markets not only in the crucial month of December, but also the start of 2019. Being so, it’s more than likely that whatever the developments in these stories, traders will be perusing the devils in the detail to infer as much they can from them, providing ample fuel for heightened and ongoing volatility. The Fed and US rates: The US Federal Reserve remains the major and most powerful driver of financial market activity. The impact of the end of the easy money era is manifesting in markets the world over. The question has long been asked – for the most part of the last decade, in fact – what the effects will be of normalizing Fed policy. We are apparently beginning to get that answer. This Friday welcomes the release of FOMC Monetary Policy Minutes, and the core concern for traders is whether the Fed is showing further signs of burgeoning dovishness. Traders have interpreted the central bank’s recent discourse as reflecting a reduced willingness to keep to an aggressive rate hiking path, amid concerns that growth and inflation (the later a data-point that market participants will also receive this week) has possibly topped-out. It’s resulted in markets pricing-in a 73 per cent chance of a rate hike from the Fed in December; and pricing out all but one hike from the Fed in 2019. Global growth: The primary reason for this changing dynamic is there is a prevailing fear that the world is headed for slower economic growth. It’s far from assured, and with a remarkably strong labour markets coupled with still reasonable business conditions, the US remains in good stead to grow at a respectable clip. But the problem remains the world ex-United States, as forecasts increasingly point to a significant (enough) slow-down is Europe and China. This view betrayed itself on Friday in global bond markets: the yield on 10 Year US Treasuries fall precariously near the 3.00 per cent level, in tandem with yields across Asian and Europe – meaning the US Dollar held its bid. Perhaps of greatest concern is that this lift in bond prices hasn’t seemed to shift sentiment within equity markets, as a continued blow-out in the spreads on investment grade and high-yield credit aggravates concerns about over leveraged US corporates. US-China Trade War: Fears about slower economic growth, the global debt burden and tighter financial conditions will be hard to unwind. The once high-flying US stock market has seen the Dow Jones, S&P500 and NASDAQ shed 5.8 per cent, 8.4 per cent, and 12.67 per cent, respectively, over the past 3 months. The losses will prove difficult to staunch, and momentum still appears skewed to the downside. If there is any hope of sentiment shifting-around this week, one imagines it’ll have to come because of improved relations between the US and China – and a possible beginning of trade negotiations. Overall, the signs are looking positive. US President Trump is mercurial, and the Chinese are stubborn, so the situation is liable to rapidly change. However, so far, the dialogue has been relatively amiable, inspiring hope that the beginning of the end of this trade war could well commence at the weekend’s G20 summit. Brexit: The other geopolitical risk hanging over markets is of course that of Brexit. The UK’s and the European Union’s divorce deal will face another flashpoint this week, after almost being derailed over the weekend by Spanish official’s concerns around the Brexit-implications of Gibraltar. The deal has been rubber stamped by European bureaucrats at the weekend’s EU Economic summit, however the view remains that it won’t get through the House of Commons. A vote on the deal won’t be immediately forthcoming, and the official exit date for the UK isn’t until March 29 next year. But markets require far less-meaningful milestones to cast their judgement and get a feel of the likely fate of Brexit. The key-current Brexit agitators, like Boris Johnson and Dominic Raab, not to mention opposition leader Jeremy Corbyn, will surely whip up the rhetoric this week – reminding that this Brexit deal is possibly dead in the water, spelling trouble for European equities and the Pound. Oil: Commodities are suffering owing to fears about global growth and widespread market-volatility, and this of course is no truer than in oil markets at present. The price of oil tumbled again over the weekend: WTI is trading just above the $US50.00 per barrel level at $50.41, while Brent Crude has spilled through $60.00 to presently trade at $59.32. There is waning optimism amongst oil-bulls that productions cuts can be organized by the world’s largest oil exporters, with the Saudi’s losing control of OPEC, the Russians showing only a tepid determination to intervene in markets, and the US advocating for lower oil prices. It’s a set of circumstances that seems very nearly intractable and will weigh on equities and credit markets – especially one that could very quickly spiral out of control if the massive number of long positions are unwound in the market. ASX200: SPI Futures in the day ahead are indicating a 37 per point drop following Wall Street ‘s soft trade on Friday. It’s difficult to imagine that the ASX200 will break its strong relationship with activity on Wall Street this week. Trading come the local session on Tuesday will be back to normal, after several days of thin trade: volumes on Friday were around 30 per cent below average. There isn’t a great deal of local data this week, either: Private Capital Expenditure data plus a speech from RBA Governor Philip Lowe is all we’ve got. The strength of the bounce for the ASX200 will surely be tested this week, particularly if any one of the litany of macro risk factors causes a spike in volatility. Much of the buying that has driven the bounce are in the markets safer and larger-cap stocks, implying that an appetite for risk is low, and the buyers are searching out bargains. The next key level of support to keep an eye on to gauge the underline strength in the ASX200’s mini-rally is around 5745, though it must be stated levels well beyond that need to be attained before a definitive turnaround in this market can be called.
  23. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 26 Nov 2018. 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 Index Bloomberg Code Effective Date Summary Dividend Amount AS51 TNE AU 29/11/2018 Special Div 2.6429 RTY FIZZ US 29/11/2018 Special Div 290 RTY RLI US 29/11/2018 Special Div 100 RTY FULT US 30/11/2018 Special Div 4 RTY HVT US 30/11/2018 Special Div 100 RTY ITIC US 30/11/2018 Special Div 1060 RTY DHIL US 30/11/2018 Special Div 800 How do dividend adjustments work? 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. 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. Entry Actions Report Entry
  24. MaxIG

    Markets on Thanksgiving - 23 Nov

    Written by Kyle Rodda - IG Australia Time to give thanks: It’s Thanks Giving in the US, so US traders are away from their desks and equity markets in the country are offline. Perhaps it’s something the bulls can be thankful for: the holiday has resulted in very thin volumes across the globe, giving a subsequent ability to take pause from the unfolding market rout. There is so much information awaiting market participants coming into the end of November and start of December, so surely the opportunity to distract oneself for now by gorging on roast turkey and a few beverages of choice is being welcomed by our American cousins. Presumably, little can fix for too long the underlying anxiety caused by the myriad of fundamental concerns plaguing investors. But that’s next week’s problem, for now – better that we take stock while the American punters sift around for reasons to give thanks. Global equities: To capture a theme from last night’s trade: it was – for all intents and purposes – about Brexit. Before delving into that one, let’s take a check on the price action. European equities were down across the board. The volumes for the continent were, as has been touched on, remarkably thin, except for the FTSE, which was down 1.28 per cent on the unfolding Brexit drama. The DAX clocked in a loss of 0.94 per cent for the day, unable to grasp the lead from the Asian region’s mixed but respectable trading day, which saw the Nikkei up 0.65 per cent and the Hang Seng up 0.18 per cent, but the CSI300 down 0.37 per cent. In our local session, the ASX200 was another index that bucked the trend of low activity, continuing its bounce off support around 5600 to close 0.86 per cent higher on volumes 10 per cent above the 100-day average. Bonds, currencies and commodities: The US Dollar was weaker, largely due to the bidding higher of the Pound and EUR, with those currencies leaping above 1.28 and 1.14, respectively. The weaker dollar also supported gold, which is trading back at $1227 per ounce. US Treasuries are flat due to the Thanks Giving holiday: the yield on the US 10 Year note is 3.06 per cent. Dulled risk appetite has meant the Yen is modestly stronger, trading just below 113 at time of writing; and the Australian Dollar is off a touch, trading slightly above 0.7250, in tandem with the New Zealand Dollar, which is just holding onto the 0.6800 handle. Oil prices have dipped again, falling about 1.4 per cent, dragging the Canadian Dollar with it; while copper is a little higher for the day. Brexit developments: Back to the pressing issues at hand, and the lack of data combined with closed US markets has meant Brexit developments have taken centre stage. In what's been judged a positive step-forward by markets, Donald Tusk, President of the European Council, announced overnight that a draft Brexit proposal had been "agreed at a negotiators level and agreed in principle at a political level" amongst European Union leaders. The news is what sent the Pound on a tear -- and the FTSE100 lower consequently -- following yields on UK gilts, which of course rallied courtesy of the optimism engendered by the announcement. The stage is now set for this weekend's EU economic summit, where it's now very much assumed European leaders will rubber-stamp the Brexit proposal. What are the chances? For all the hope that a Brexit deal can be reached, the stark reality is that UK Prime Minister May faces an uphill battle. In what must have been a gruelling three hours or so in front of the House of Commons, the Prime Minister delivered a speech and then fielded questions from parliamentarians on the Brexit proposal. There is such division and disparity in the British Parliament about what Brexit ought to look like, that the likelihood any proposal could unite the very many different and opposing interests appears slim. A no-deal “hard Brexit” remains the probable outcome, spelling trouble for UK and European markets – especially the Pound. How low the Cable could go in this event is difficult to predict: recent lows around 1.2750 would just be the beginning – perhaps the January 2017 low of 1.1990 could be considered the bottom of the range. ASX200: Bringing it back home, now: SPI futures are presently indicating the ASX200 will open 29 points lower this morning. It would be awfully surprising if volumes on the Australian share-market bucked the trend today and were anywhere near average. A rudderless market may emerge, whereby trade is choppy, momentum low and price action contained – particularly after yesterday’s relief rally, that added to the bounce by the index off recent lows around 5600. The fortunes of the ASX going forward will inevitably be tied to the themes that emerge from US markets, and as it stands that strongly implies further difficulty for Australian shares. However, the silver lining investors and the bulls may wish to cling onto is the notion that our share market was nowhere near as elevated as that of the US’s, so falls from here may not be as steep. ASX: the bigger picture: Once more: that 5600-mark is significant. It amounts to the bottom of a range that was established in 2017 and held steady several months, in what might now be safely described as the markets “accumulation phase”. From the end of that phase in October 2017 to now has seen the registering of a new decade long high, then – in recent months – a strong correction of that move. It suggests a medium-term cycle has been completed, and a bearish impulse has now seized control of the market. The strength of that move ought to be watched for, but the broader global economic slow-down and the peak in the US market suggests a follow through 5600 is highly possible moving into 2019. The broader, secular bullish trend provides the trading channel to work within and judge the bigger picture, with the 5375-level representing the bottom of this trend-channel.
  25. MaxIG

    APAC brief - 21 Nov

    Written by Kyle Rodda - IG Australia I see red: The global equity rout continued last night, and out to the furthest horizons it was a sea of red. There was very little reprieve no matter where one spun the globe. The Asian session saw China's equity bounce faded again, joining the suffering experienced by the Nikkei, Hang Seng and ASX200; European indices continued their orderly decline, underpinned by a 1.6 per cent drop in the DAX and a 0.76 per cent fall in the FTSE 100; and with less than an hour to trade, Wall Street is clocking losses, led by the Dow Jones, of as much as 2 per cent. The themes aren't wildly different from before, it's just now the story is being read (and bought-into) by a growing mass of traders: global growth is late-cycle, earnings have peaked, and tighter financial conditions means there's no hiding from the risks. Seeking shelter: Not that market participants aren't searching for places to hide. The problem is, it would seem, that there aren't too many good places to find shelter. The classic safe-havens were given a good crack overnight: US Treasuries were sought out, giving the US Dollar a boost after several days of declines. Yields on US Treasuries were steady; however, this appears more a function of the residual need to maintain pricing of interest rate expectations. Gold was slightly lower because of the stronger USD alone, as was the EUR/USD, which traded into the 113-handle again, and the Pound, which dropped into the 1.27 handle. Even the Japanese Yen dropped slightly as traders scurried around, though it must be said it is far-off its recent lows. The losers: The flip side to the bidding-up of safe-havens was a smack-down of riskier and/or anti-growth assets, of course. The Australian Dollar is trading into the low 0.7200's and the Kiwi Dollar has slipped below 0.68. The Chinese Yuan edged to 6.94 and broader emerging currencies felt the pinch, again. Commodity prices fell on fears of slowing global growth: copper is off (but it did bounce of the day's lows), and of local relevance, iron ore has plunged by over 2 per cent. Bitcoin too has finally exhibited its status as risky and speculative "asset", spiralling further, to just over $US4,500, at time of writing. Credit spreads continue to widen, especially in investment grade corporate bonds, portending sustained weakness in global equity markets. Fresh falls for oil: Amid all this selling and search for safety is the conspicuous matter of oil: the black stuff arguably fared worst of all overnight, shedding over 6 per cent. The concerns regarding a massive global over supply continued, as analysts forecast higher inventories and a higher-likelihood that major oil producing countries will prove unable (or unwilling) to collectively cut production. The dynamic has prices of Brent Crude trading at $US62.50, and that of WTI at around $US53.50. Energy stocks were some of the worst performing for the overnight session -- a theme that is expected to persist today – while the oil sensitive Canadian Dollar fell to 1.33 on fears of a deterioration in that countries terms of trade. Less news, more uncertainty: The volatility experienced in just the first two days of the week -- the VIX spiked to about 22 again overnight -- gives further credence to the notion that light data weeks exaggerate price action. It's like existing in a vacuum, whereby a lack of air resistance makes everything move much more swiftly. In good times, this doesn't feel so bad: it's an excuse to buy, and everyone is mostly happy. However, in this new period of uncertainty, the opposite proves true: less information means fewer opportunities to find certainty and reassurance in data. As such, trading picks up a velocity that exaggerates what might otherwise be tempered movements in markets, spawning vicious cycles where fear feeds and multiplies on more fear. ASX yesterday: The ASX200 hasn't been spared from this cycle -- and feels an immediate escape will not be forthcoming. The index fell with far greater force than was anticipated during yesterday's, as the broad-based evacuation from equities persisted. The tech-wreck theme has spilled over into our market: momentum chasers are being washed aside, legging high-multiple growth stocks. It was the IT and healthcare sectors that subsequently experienced some of the highest activity and losses, the culmination of which saw the ASX200 come conspicuously close to the oft-mention support level around 5625, or so. Buyers entered the market at that level, allowing the market to staunch its losses seemingly as bargain hunters searched for value in the large caps. However, it was only enough to curb the session's losses to about 0.4 per cent. ASX today: The lead handed to us by Wall Street has SPI futures indicating quite a considerable drop for the ASX200 at today's open of 58 points, or about 1 per cent. If that were to eventuate, support at around 5625 would quickly give way and expose the key-psychological mark of 5600 to a challenge. Considering what’s been witnessed on markets this week, today may once again be a case of what can lose least. The utilities space and other defensive sectors look to be the early favourites for that title, but it may be one that won't be won without sustaining a few battle scars. Given the overnight moves, the materials sector and energy stocks are presenting as the likely biggest losers, with activity in the banks perhaps the uncertain variable considering a bounce in the Big 4 late yesterday.
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