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MaxIG

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Everything posted by MaxIG

  1. Wall Street pulls back: On balance, and with Wall Street a few hours from ending its session, it's been a soft 24 hours for equities. The often heard calls of a looming "new-peak" in the market in the shorter term can be heard from some. Momentum has certainly slowed down. The S&P500 has its eyes one 2815 again - that crucial area where that index sold off on three occasions from October to December last year. It could be a slow drive to arrive at a challenge of that level now. The dovish Fed will keep the wind behind US stocks; but the earnings outlook, post reporting season, has dimmed on Wall Street, while positive regarding the trade war has already been heavily juiced. Trade war truce already priced in? Markets are positioned for a relatively positive outcome in the trade-war, and that's manifesting in pockets of market activity. A true resolution in the trade war isn't expected, however an extension to be March 1 trade-truce-deadline seems to be. The overnight fall in US Treasuries, coupled with a topside break of copper's recent range, is a testament to this sentiment. The yield on the US 10 Year note has jumped back towards 2.70 percent, while the 3 month copper contract on the LME leapt another 0.83 per cent overnight. In G4 currencies, the US Dollar is stronger against the Euro and Pound, albeit very, very marginally, but weaker against the Yen. The curious case of gold: Gold prices have dipped slightly courtesy of the stronger Dollar and greater confidence in the policy-outlook for the world's major central banks. The price of the yellow metal is sitting just above $1325 presently, as it continues its short term trend higher. One of the more divisive debates amongst traders currently is the outlook for gold. Like any market, time horizons are crucial to illustrating the trend for an asset's price. For gold, the short term trend is certainly higher, but with signs of "toppy-ness". The medium term trend, though perhaps posting some higher-lows in the price, is sideways at best. The long-term, secular trend though for gold prices is irrefutably pointing higher. The gold debate: There is several aspects of this price dynamic, and elegantly indicates the different types of traders that move a price over certain time horizon. The immediate-term outlook for gold is naturally speculative, and pertains to the swings-and-arrows relating to stories about the trade-war, global growth, and short term rates. The medium term activity in gold certainly tracks the changing yield environment and vacillations in the credit and monetary policy cycle - primarily of the Fed. In the longer-term, where time scales of decades are spoken of, gold prices are angling higher, seemingly as global central banks buy the metal to hedge their US Dollar dependence. Global growth outlook dims further: At the risk of flying off into paradigm after paradigm: a health check on economic data from the past 24 hours is in order. A mixed bag of data pertaining to global economic growth shaped the "global growth narrative" last night. It was a big PMI day in Europe and Asia, and while there weren't as many shockers, the numbers showed a greyer outlook for the global economy. Japanese Manufacturing PMI deeply contracted once more, Australian PMI figures dipped, while European numbers were relatively better, however did little to ameliorate the concern that European growth is sliding. It was a notion backed-up by last night's ECB minutes: policy makers can see what's happening to growth, and now future monetary policy is on notice. Australia's wise-old uncle calls RBA cuts: Centring on the Australian experience, and a headline grabber yesterday was the Australian Dollar's wild ride. Labour market figures popped a rocket under the Aussie in early trade, after it was revealed that the local economy added 39k jobs last month - enough to keep the unemployment rate at 5 per cent despite, despite a climb in the participation rate. It all came undone for the currency quite quickly, however, after Australia's wise-old-uncle on RBA policy, Bill Evans, announced his view that a forecast fall in domestic GDP to 2.2 per cent and a subsequent rise in the unemployment rate to 5.5 per cent would prompt to RBA to cut rates to 1.0 per cent this year. ASX to open soft: To add insult to injury, the AUD/USD was slapped down below 0.7100, after China announced a ban on Australian coal imports. This story aside, which dropped after the ASX200's close, the fall in the currency, and the fall in Australian Commonwealth Government bond yields, proved a positive for the ASX200. It closed 0.7 per cent higher for the session at 6139, and now eyes the next resistance level around 6160. The developments regarding the ban on Australian coal going into China, concerns about Australian fundamentals, and a bit of selling into the close on Wall Street should drag on stocks today. SPI futures indicating a 4 point drop for the ASX200 this morning. Written by Kyle Rodda - IG Australia
  2. News flow light thanks to US holiday: SPI Futures are indicating a flat start for the ASX200 this morning, in a 24-hours starved of meaningful news and data. US markets were closed for the Presidents’ Day holiday, meaning a crucial source of information was absent from the news flow. It was perhaps a positive thing for market-bulls: the vacuum left by US markets allowed for Asian and Europe equity indices to seize the improved sentiment flowing from Wall Street on Friday, following further progress in US-Sino trade negotiations. Commodities continued to climb, to multi-month highs according to the Bloomberg Commodity Index, led by a push higher in oil prices, as well as a renewed rally in gold, which edged to around $US1326 courtesy of a weaker US Dollar. Australian markets in focus: The Asian session will similarly quiet today, before markets return to normal transmission this evening. Arguably, it’ll be a day with attention directed to developments in Australian markets: the key data releases pertain to the RBA and its Monetary Policy Minutes, and ASX heavy-weight BHP, which reports its earnings today. Both the Australian Dollar and ASX200 will enjoy special focus this morning. The Aussie Dollar has pulled back below the 0.7150 handle after rallying beyond that mark on the back of trade-war optimism. The ASX200 will be more interesting for observers: having leapt from the gates yesterday morning to break above 6100 resistance, the index once again failed to prove its bullish mettle, closing trade yesterday at 6089. RBA Minutes headlines Asian trade: As alluded to, the highlight on the domestic calendar today, if not for the whole week, will be today’s release of the RBA’s Monetary Policy Minutes for their February meeting. In line with central bankers across the globe, the RBA has entered 2019 with a newly dovish approach to interest rates. Markets have thus far stood to attention: although leading the RBA (in some sense) in factoring the need for looser monetary policy conditions, the change in rhetoric from the RBA this year has further manifested in market pricing. Since the beginning of February, and certainly in the past week, interest rate markets have definitively shifted to pricing a rate cut as the most likely course for the RBA in 2019, over and above that of a “hike” or hold”. Slower growth: here and abroad: The variables conspiring to bring-about this dynamic are naturally complex, but can be distilled into a single, broad explanation: both the domestic and global economies are entering a period of slower economic growth. Australia’s symbiosis with China and its economy is never lost on market participants; and with the trade-war exacerbating what seems to be a deep, existing cyclical slow-down in China, Australia’s economy is one of the first to exhibit signs of pain. However, issues unique to the domestic economy remain: though showing tentative evidence of settling now, Australia’s falling property market is an issue of ongoing concern, as are issues of uncomfortably high private debt levels, low wages growth and its impact on inflation, and the generally sluggish state of the Australian consumer. The doomsayers argument: There will always be doomsayers in the world, so gloomy forecasts ought to be met with critical objectivity. It’s the way the RBA, however right or wrong they happen to be at any point in time, attempt to approach the world. Their “base-case” is very unlikely to be that the Australian economy is heading for some sort of catastrophic, recessionary set of circumstances. There are many in the punditry however, with cogent arguments as to why recession is a reasonable risk to consider. The position that the onerous burden of high household debt, in the face of tighter financial conditions, low wage growth and a “reverse wealth effect”, will accelerate the housing market’s collapse, and spark some housing-led recession is probably the most headline grabbing and generally evocative of these. All this talk of Australia’s ’08 moment: Such a set of circumstances, it’s envisaged, would be Australia’s dose of the GFC it never received in ’08, when a booming China protected the Australian economy from the many ills of that disaster. There is unconscious obsession – probably brought about by the trauma of the event – to contrast any market event with those of ’08. In 2019 Australia, the parallels intuitively exist: just like the US in ‘08, household debt is high, house prices are falling courtesy of the stifling of a hitherto speculative euphoria in the market, and consumers have fewer means to keep consuming or protect themselves from a period of economic malaise. The prospect of less favourable financial and economic conditions could be what it takes to turn a garden-variety economic slow-down into something more serious. Worst-case not the likely case; but still good to know: Once more: this crudely described series of events is what can be called, in financial market parlance, a “tail risk” – a low probability but very high impact event. It’s not what the RBA would be considering as their “base-case” for what lays ahead for the Australian economy in 2019; especially so, the doomsayers opinion won’t slip its way into today’s RBA minutes. Arguably, even it came close to becoming that way, at any stage, the PR-machine that is the RBA are unlikely to ever reveal, completely, a true pessimism about Australia’s economic health. Knowing the worst-case scenario market-participants is handy, though, if it can be done so objectively: it provides an intellectual tool to examine how close we are to coming to falling off the precipice we fear. Written by Kyle Rodda - IG Australia
  3. President’s Day: It’s Trump’s market – and we are all just trading in it. It’s perhaps for some – especially market-purists – the uncomfortable reality that, as far as short-term movements and sentiment goes, US President Trump and his policy making is the greatest determinant of the current macro-economic outlook. It cuts in both directions, and certainly the US President is just as prone to deflating the market as he is to inflate it. But almost by his own admission, Trump’s modus operandi is to implement policy and spout rhetoric that feeds the US equity market. For market bulls, there is the argument that this is a welcomed dynamic: we’ve seen the exercise of the Powell-put, and perhaps now traders are witnessing the execution of something resembling a Trump-put. Where does Trump want the market? The risk is that President Trump’s temperament and agenda can be difficult to gauge. He giveth to the market, and he taketh, depending on his personal, political priorities. For stages of his Presidency, Trump needn’t pay close attention to the US share market: he inherited improving economic conditions, then fuelled it with massive tax cuts, and stood back to observe the records falling in US stock indices. His hawkishness on international trade and bellicosity towards domestic political wrangling brought much of it undone, as the US President turned a cyclical slowdown in China into a possible trigger for recession in Asia and Europe. The global growth outlook is as downbeat as it has been in several years, and this has manifested in market-pricing. Global growth and the trade war: Now of course, President Trump’s policy making isn’t the major – let alone only – dictating market activity and financial market strength. In terms of macroeconomics, the actions of the Fed have proven to be market participant’s primary concern. What makes the US President’s actions relevant to the here-and-now – at the critical juncture that markets are situated within presently – is with the US Federal Reserve succumbing to market pressure and flagging steady interest rates for the foreseeable future, trader attention is fixed on the global growth story. And it would seem that considering this, the primary driver of the global growth outlook is the US-China trade war: the outcome of which will be mostly determined by the stance US President Trump chooses to adopt towards the conflict. Markets still jumping at headlines: The gap between the “knowns” regarding current economic conditions and the trade-war, and the “unknowns” regarding how the US President intends to approach these matters, is creating the vacuum of uncertainty that market participants are yearning to fill. As such, headlines are being jumped-at whenever news suggests there’s been a major development in negotiations between the US and China. Traders are less sensitive than they were to stories of trade-war progress, with every headline apparently yielding a diminished return. Nevertheless, if a significant enough story flashes across trader terminals, it apparently still warrants the release of risk-on sentiment. This phenomenon proved true again on Friday, as news that the US and China has agreed in principle on the main topics of trade negotiations moving forward. Risk appetite piqued as fear falls: The prevailing view is that, at the very least, an extension of the March 1 trade-negotiation deadline will be implemented. Although arguably amounting to little more than a prolonging of tension and uncertainty, market activity is suggesting market participants are welcoming the modest change in circumstances. Despite looking long in the tooth, the US equity market rally continues, dragging stocks in Europe and Asia largely with it. Bond markets have been steady, however “growth” currencies like the AUD, NZD and CAD have received a boost, at the expense of the US Dollar and Yen. Commodities have generally rallied, while the VIX and High-Yield credit spreads have fallen to levels not seen since shortly after US Federal Reserve Chairperson Jerome Powell’s infamous “a long way from neutral” statement in early-October. Where else but America: The general curiosity from here will be how long this broad-based confidence in the market can last. Even in the event that the best outcome can be achieved from US-China trade talks, it is contentious whether it will be enough to turn the tide for the global economy. China is slowing rapidly, and Europe is tiptoeing toward recession, with fewer policy levers to pull in the event economic activity deteriorates. The US economy for now is the beacon of the global economy, and ultimately one must assume that whether it be US stocks, US Treasuries, or the US Dollar, investors will remain attracted to “Made in America”. No economy in a globalized world can resist an international economic slowdown; until then though, market participants may well preference America first. Australian markets to follow US today: Australian stocks are on balance benefitting from the American-led recovery in financial markets. The ASX200, unlike its US counterparts, was unable to register a weekly gain last week. But according to the last traded price on SPI Futures, the AS200 ought to add 53 points this morning. The week for Australian markets should be interesting if nothing else: reporting season is underway, and the likes of BHP, Woolworths and Wesfarmers are reporting. The RBA release their policy minutes on Tuesday from their last meeting – an event that ought to be closely watched as rates traders gradually price in that the likeliest course of action for the RBA this year will be to cut interest rates, rather than to hike them or even keep them on hold. Written by Kyle Rodda - IG Australia
  4. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 18 Feb 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends this week NKY 9602 JP 26/02/2019 Special Div 1000 AEX AKZA NA 20/02/2019 Special Div 450 MEXBOL WALMEX*MM 25/02/2019 Special Div 14 RTY PJC US 22/02/2019 Special Div 101 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. A little bit of everything: It certainly wasn’t the highest-impact day market participants have experienced so far this year, but there was a spoonful of everything, thematically speaking that is, driving the macro-economic outlook for markets in 2019. To keep it high level, there was a series of significant growth-related data released out of all three of the world’s major economic geographies – China, Europe and China – plus a healthy smattering of geopolitics and corporate news to keep traders interested. Only, if you look at the price action, one might say that it didn’t amount to terribly much. Global equities are taking the middle road, posting a mixed day, as Wall Street creeps towards its close at time of writing; though some shifting in currency, rates, bonds and commodities markets has occurred. Markets immune to trade-war headlines: Fresh trade war headlines are at the top of the list of headline risks, however in contrast to what’s been seen in the past, the reactions have been muted. Arguably, and barring any news that hints at a true resolution in the trade war, stories that the US and China are getting along just fine are becoming (relatively) ineffectual. Yesterday saw the news that the Trump administration is considering pushing the White House imposed March 1 deadline for trade negotiations back another 60 days. The developments saw the standard risk assets shift – Australian Dollar-up, Asian stocks-up, US futures-up, commodities-up – but compared to the massive relief rallies seen in the past, the price action indicated a market that’s wanting more than just piecemeal developments in trade-negotiations. US Retail Sales a shocker: Hence markets moved past that news, as the tradeable appeal of trade-war headlines fades. The meaningful event market participants had marked into their calendar for last night proved of greater import in the end: US Retail Sales numbers for December were released and showed an abysmal set of numbers. In fact, they were so bad that the experts and the punditry have effectively written them off as a passing anomaly – one that can’t quite be explained properly. The figures themselves revealed US Retail Sales contract by a huge -1.8% in December, well below the “flat” figure estimated by economists. Though consensus is saying the data was too-bad-to-be-true, traders have adjusted their positions: bets of a Fed rate hike have been unwound back to effectively a 0% chance in 2019. US Dollar falls; Treasuries suggest slowdown: Naturally, the US Dollar has dipped, registering daily falls against most major currencies. US Treasuries have rallied too, which has probably very marginally benefitted stocks, with the yield on the 10 Year Treasury note falling 4 basis points to 2.65 per cent. As the Chinese and European economies slow, the US economy is acting as the fulcrum of global growth at present. Data points like US Retail Sales begs the question of how long this dynamic may last. A little while yet seems to be the popular answer. A look at what the US yield curve is doing is illustrative in this regard: the yield on 3- and 5-year Treasuries are below that of the 2-year, portending recession-risk in the medium term. No recession, but outlook still dim for Europe: The Euro was bolstered by its own set of economic data overnight. GDP figures were released for the Euro-bloc and the German economy, and while bad, they weren't as bad as forecast. The Eurozone's GDP came-in on forecast at 0.2 per cent, and while the German figures missed estimates and showed a stagnant economy last quarter, traders took comfort from the notion that at least the data hadn’t set Germany up for a possibly technical recession. Despite this, and the fact the Euro is edging back towards 1.13 again, there is a growing sense of inevitability about a European recession at some point this year or next. These things can’t be predicted of course, and perhaps a turnaround will occur, however the balance of probabilities looks to support the notion a recession is looming. Pound falls as Brexit reality hits: Continued Brexit uncertainty won't help Europe's economy, and markets were delivered a fresh dose of that too overnight. UK Prime Minister Theresa May lost another key vote in the House of Commons, placing in peril any chance of a Brexit deal, or at least a bill delaying Brexit, being passed. The Pound has returned to its (disputably) proper place, plunging back again into the 1.27 handle last night, and Gilts have climbed on the basis that a hard-Brexit will do no favours for the Bank of England and its bid to "normalise" it's interest rate settings. As always, the Brexit developments are being considered a problem unique to the European region, with little ramifications for broader markets. If Brexit accelerates Europe's into recession though, then this view ought to change. ASX showing signs of a pullback: SPI Futures are indicating a 2-point dip for the ASX200 at time of writing. The ASX200 is exhibiting signs of exhaustion now, as the market fails to push the index near enough or beyond the 6100 level. The conditions remain in place for future upside beyond that mark, but for now, market participants seem happy to either take profits, fade rallies, or just sit things out. The banks have unwound their gains following the post-Banking Royal Commission rally, and though it is showing signs of fundamental strength, a steadying in the iron ore price has mining stocks climbing, but at a careful tick. Hypothetically: if a pull-back does occur, 6000 will be a level of psychological significance, before true support around 5940 is exposed. Written by Kyle Rodda - IG Australia
  6. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 11 Feb 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends this week RTY APAM US 13/02/2019 Special Div 103 RTY PRK US 14/02/2019 Special Div 20 RTY PFS US 14/02/2019 Special Div 20 RTY PZN US 14/02/2019 Special Div 46 RTY TLYS US 14/02/2019 Special Div 100 RTY MC US 15/02/2019 Special Div 125 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.
  7. ASX missed the party yesterday: The ASX bucked the trend yesterday, at least across the Asian region, closing 0.26 per cent lower at 6063. Ostensibly, Australian shares missed-out on the party: global equities were noticeably higher across the board, with the other major regional indices in China, Japan and Hong Kong adding well in excess of 1 per cent for the day. Though a step-back for the Bulls, it's no cause for alarm: the price action speaks of a few idiosyncratic quirks on the ASX200 yesterday. The index was weighed down by a few heavy-hitters: CBA went ex-dividend and its share price fell 2.89 per cent; and despite reporting some solid results, over-zealous investors dumped CSL following the release of that company's earnings, to push its share price down 3.92 per cent. CBA and CSL weighed on the ASX200: In an index like the ASX200, which is quite top heavy, when 2 of your top 5 weightiest stocks underperform markedly, registering a day in the green is always going to be a challenge. Other measures of how the market performed for the day present more favourably for the Australian share market. Breadth was respectable at about 60 per cent, for one. There was another failure by the ASX200 to break resistance at 6100, which might add to the view the market has gassed-out in the short term and is due for a pullback. Conditions for medium term upside remain in place nevertheless, especially if the prevailing macro-themes in the market, ranging from central bank policy to the trade-war, continue to fall the way of the Bulls. Risk appetite elevated on positive news: SPI futures are indicating a modest lift in the ASX200 this morning, of around about 6 points. Wall Street, at least as this is being written, is registering another day of gains, albeit on some pretty low octane trade. The week in global equities has been defined by more positive trade-war headlines, which has raised the prospect of a continued freeze in trade tensions. It's difficult to imagine that the trade-war will go away any time soon, but markets probably have accounted for that in prices. Global growth will stay the underlying bugbear, so long as central bankers don't rattle the cage with rate-hike talk again. However, a weaker global economy is something traders seem willing to stomach for as long as recession risk remains low in the short term. Upside exists as long as recession risk is low: That's likely where the current equity market-run would stop in its tracks: if a recession finally hits one of the major economic regions. In the absence of this though, history suggests that, although the returns would be meagre compared to what was experienced during the "synchronised global growth" upswing in 2017/18, gains in stocks in an environment of slackened global growth are still possible (if not the recent norm) if loose monetary policy is maintained. It’s looking as though a familiar dynamic is taking hold: a fundamental search for yield, in an environment that supports risk taking, is seeing capital move out of safer assets in fixed income and cash markets, and into higher yield equity markets – boding well for global equity indices in the short-to-medium term. Its Fed before fundamentals but that could change: Market participants have proven their concern is first with the Fed and financial conditions, followed by fundamental concerns like earnings, global growth and concomitant factors like the trade-war and geopolitical ructions. Again, that balance would shift in the event recession risk becomes too heightened. While not an immediate problem now, such a risk ought not to be waived away. Economic data is treading a fine line, especially in Europe, and would indicate the world economy is on some sort of slippery slope. China is in the same boat, but unfortunately the opacity of their financial system and economy make it difficult to garner a credible view on the Middle Kingdom. The US stands out as a beacon in the global economy presently and is willed by the Bulls to maintain its currently solid growth outlook. Inflation risk looking low: One risk that doesn't appear too bothersome for traders -- in fact, it may be a welcomed dynamic -- is that inflation in developed markets is apparently flatlining once again. It was a theme of last night's trade: market’s received inflation data out of the U.K. and US economies, prefacing the release of Chinese CPI data today. On balance, CPI missed expectations in both the US and UK overnight, presumably to the relief of central bankers, who in the face of market volatility and growth concerns, would loathe being pushed into hiking rates because of an inflation-outbreak. In response to the news, traders maintained their position that global rates will stay low this year, as the global economy wrangles with its current funk. European bond curves flattening; greenback stands to benefit: Bond curves have flattened in the European region, consequently. Bizarrely, and this does not bode well for the Euro and Pound potentially, markets are still pricing in some-chance of a rate hike still from the Bank of England or European Central Bank this year. Far be it to argue with the will and wisdom of the market but given Brexit tensions and clear signs of cracks in the continent’s economy, the notion rates can move higher in this dynamic is fanciful. The US Dollar will be a barometer for European (and probably global) growth risks, as well as the rate outlook for the BOE and ECB. Although the greenback is still range-bound here-and-now, a desire for safety and higher yield should attract investors to Treasuries, and subsequently bolster the USD going forward. Written by Kyle Rodda - IG Australia
  8. New headlines to chase: The discourse in markets shifted early this week to where the next upside catalyst would come from. It needn't be substantial; just enough to fuel sentiment and attract buyers back into the market. In the last 24 hours, market participants received what they'd be yearning for: the combination of an in-principle deal in US Congress for border-security funding, along with the announcement that the US-China trade-truce deadline could be extended, has stoked bullish sentiment. These stories are more headlines than substance, however one thing traders ought to have heard ad nauseum recently is that, indeed, this is a headline driven market. So: for the last 12-18 hours in the financial world, markets have shown all the trappings of a renewed risk-on impulse. Short-term bullishness depends on Trump: It can be for some an uncomfortable thought: the key variable for both the US government funding and trade-was issues is the mercurial US President Donald Trump. The US President, it must be said, has outwardly advocated for a resolution to each concern. The worry for markets may be though whether Trump maintains his balanced temperament on the matters, and that there isn't an ulterior motive held by the President on either issue that could subvert the market's positivity. There isn't a clear timeline, other than those which have been imposed upon the President, to arrive at a decision regarding border funding or the trade-truce extension. Traders are taking bullish positions, but while doing so must surely be in a heightened state of vigilance, at least until firm validation for the rally arrives. Global growth concerns deferred: The activity at the margins driving price activity in financial markets overnight speaks of slightly diminished fears relating to the global growth slow down. It has to be said that the weakening growth outlook for the world economy is still hurtling like a freight train towards markets; the news last night simply increased hopes that perhaps there may be some tapping of the brakes when it comes to this phenomenon. Growth sensitive currencies were the major beneficiaries of last night's trade-headlines: the Australian Dollar, for one, is edging back to the 0.7100 handle. The US Dollar took a breather from its recent rally, as global bond yields climbed, and credit spreads narrowed – for the first time in several sessions. The confluence factors naturally gave a boost to stocks. Fear is falling, thanks to a friendlier Fed: Considering the balance of evidence, and the irrational, momentum chasing that pushed Wall Street to all-time highs in September 2018 may not be present right now. Fear is diminishing too: the VIX has fallen into the low 15s as of last night – a level also not seen since September 2018. If one were to infer a crude message from current market behaviour, it might be that maybe the Fed-engineered panic in Q4 2018 has been full remedied now. Of course, it was ultimately the Fed which fed to markets the medicine they were craving – the prospect of higher global rates and tighter financial conditions has evaporated. The strength in fundamentals is indeed waning, but appropriate conditions are in place for traders to take greater risks. US stocks recovery possesses substance: Wall Street is registering its best performance in several days on the back of the risk-on dynamic, though it's worth remarking volume has been below average and doesn't do much to validate the market's strength, just on an intraday basis. Market breadth conversely is portraying a broad willingness to jump into equities, with over 80 per cent of stocks higher for the S&P500 on the session -- at time of writing -- led by cyclical sectors and the high multiple tech stocks. What has been encouraging recently about US equities' recovery in 2019 is the substance behind it: the Russell 2000 (a deeper index made up of relatively smaller-cap stocks) is outperforming, and the SMART Money index suggests a market supported by buying from large institutional investors. ASX to be guided by global growth: As a trickle-down effect, the circumstances are favourable for Australian equities too, especially as our central bank joins the chorus of policymakers backing away from rate-hikes. Given the power of the RBA pales in comparison to that of the Fed, supportive monetary policy is eclipsed by the global growth outlook as the major determinant of the ASX’s direction. It does help in a meaningful way that market participants are receiving soothing words from central bankers, especially as our economy shows signs of slowing, as evidenced by yesterday’ weak home loan figures. The proof of what market participants see as the main risk to the Australian economy is in the price action, however: since the “Trump-trade-war-truce” news overnight, implied probability of an RBA rate cut in 2019 is once again back below 50%. ASX200 demonstrates will to power-on: The overnight lead has SPI futures pricing in a 27-point jump at the open for the ASX200. If realized, the index ought to challenge and likely break in early trade the resistance level at around 6100/05. From here, on a technical basis, the market meets a cluster of resistance, established during the period in September 2018 when the ASX traded range bound for the better part of a month. It’s been repeated frequently by the punditry that the market is overbought at these levels. Technically that appears true. But momentum is still in favour of the bulls, so for those with further upside in their sights, perhaps a break and close above 6100 this week could be the signal for some short-term consolidation, before the ASX200 builds strength for its next move higher. Written by Kyle Rodda - IG Australia
  9. A thus far settled start to the week: It was a day of low activity and mixed results, generally across global markets in the last 24-hours. Equities were patchy in their performance, on much lower than average volumes, while a retracing in bonds revealed stable risk-sentiment. It hasn't been so for some time, but yesterday market participants behaved in a classic "Monday" way. There was a lack of a unifying theme to drive market activity in a macro-sense, leaving traders to trade-off the idiosyncratic stories moving prices region-by-region. Granted, the trade-war negotiations currently going-on in Beijing were of top priority, however the interest in that event extended only as far as speculation by the commentariat. For traders, fresh leads are being awaited, to add some semblance of volatility to the market. Traders awaiting tradeable leads: The data docket is stacked to the end of the week, so perhaps it'll be another couple of days of listless trade before global markets really start to reshuffle the deck. Of course, a surprise could ignite some excitement; but naturally that's inherently unpredictable and difficult to position for. Chinese markets returned to the fray yesterday, adding that lost liquidity from markets. Japan was offline instead, creating some choppy trade in the CHF in very early trade. The reintroduction of Chinese markets may well have soothed the bull's concerns temporarily. After a week away, during which plenty of market moving events occurred, Chinese traders felt it fitting to ignore the noise, and jumped back into stocks, to deliver a 1.82 per cent gain for the CSI300 yesterday. Iron ore prices rocketing higher: Iron ore prices demonstrated best the impact of the return of Chinese demand to markets. Having continued to climb despite the absence of Chinese traders, and in light of further concerns about future production and supply into commodity markets after the tragic Vale dam collapse, iron ore burst out of the gates upon the reopening of the Dalian Commodity exchange. So much so, that on the first tick, the active iron ore contract reached its limit-up level, and effectively froze trade in the market. The price in iron ore is looking aggressively overbought in the short-and-medium term and is likely to attract short-sellers; however, there’s no knowing how long worries about iron supply into markets will linger, meaning countering this trend is not for the faint hearted. ASX200 held together by strength in materials sector: Australian markets are, as one can easily imagine, benefiting from iron ore’s parabolic rise. Despite an overall lacklustre day in domestic equities, during which breadth was quite balanced and volume was below average, a 16-point gain from the materials sector proved enough to staunch much of the ASX200’s losses. On the back of this, today SPI Futures are indicating a 14-point jump at the open for the index, probably once more courtesy of, in a big way, further falls in Australian Commonwealth Bond yields, and the depreciating Australian Dollar. Price action in the short-to-medium term is showing an ASX200 somewhat in no man’s land: at 6060, and with slowing momentum, the market eyes support at 5950, as it pulls gradually away from 6100/05 resistance. Markets keep pricing in weaker Australian growth: The Australian economic growth outlook is still looking clouded. Markets have been leading policy makers on this fact, and after the RBA’s admission last week their growth forecasts aren’t as strong as they once were, traders have taken another leap ahead to price-in weaker growth and inflation, and lower rates for the Australian economy in 2019. The pivotal event to watch will be GDP figures when they are released to gauge the merit of this view; but unfortunately, market participants will need to wait for the start of March to receive that information. The day ahead does contain NAB Business Confidence figures however, which may prove illustrative in a small way how the supply side of the economy views the domestic economy now and into the near future. Greenback rallies on weaker European growth outlook: In reference to currency markets, the US Dollar sustained its rally overnight, as the combination of a desire for safe-haven assets and higher yields push-up the greenback. The conspicuous loser out of this dynamic has been the EUR/USD, which has broken below the 1.13 handle once again overnight. Although they climbed yesterday, the trend lower in European bonds yields looks to be manifesting in the shared currency, as traders price in the prospect of a major European slowdown. The flight to the greenback weighed heavily on commodity currencies, too. The Australian Dollar registered an overnight low of 0.7057, pressured by widening yield differentials, with the spread between the very interest rate sensitive 2 Year ACGBs and USTs widening to 82 basis points. The UK experiences its own growth concerns: Still in currency land, and the Pound was one of the worst performing G10 currencies overnight, following the release of a slew of weak economic data during European trade. Most conspicuous was the fall in headline month-on-month GDP, which printed at -0.4 per, driving a miss in the more-impactful quarterly figure of 0.2 per cent – a skerrick below the 0.3 per cent that economists had estimated. Remarkably, even in light of the data-dump, which clearly illustrated the sluggishness of the UK economy, interest rate markets scarcely moved. A likely reflection of (an arguably Panglossian outlook for) Brexit expectations, interest rate traders are still maintaining an implied probability of 33 per cent that the Bank of England will hike interest rates before year end. Written by Kyle Rodda - IG Australia
  10. Not with a bang, but with a whimper? Without all the fire and fury that we saw in December, markets are pricing in once again a slow down in global economic growth. It could be strongly argued this is evidence of how important US Fed support is to equity market strength – but that’s a drum to beaten (over-and-over-again) for another day. Fundamentally, traders are quietly re-pricing for a world where economic growth will be weaker than once thought. Such behaviour has been long evident in Chinese markets, so there’s nothing new about pessimism in the Asian region. The point of focus now is in Europe, and to a lesser extent North America, which is increasingly demonstrating signs that market participants believe those economies are briskly approaching a period of (even) lower rates, growth and inflation. The many facets of the global growth story: There’s no shortage of causes for this looming slowdown – and in the financial media, each one is getting a good exercising. The trade-war remains the popular one, which is providing a convenient explanation for the confluence of confusing and complex causes for China’s recent economic malaise. This thread gets pulled-on to describe why Europe is feeling the pinch too, being the geography wedged in the middle of the trade-war’s heavyweight combatants. Throw in a sprinkling of Brexit anxiety and internal political unrest in the continent and that’s the story driving Europe’s economic outlook. The US economy is still humming, and the data coming out of the states is still showing a robust economy. Nevertheless, price action says that’s being somewhat ignored, with yields betraying an underling anxiety about economic health. What the bond market is saying: Essentially, it’s all written in yields at present. A few unwanted milestones were achieved in bond markets on the weekend. The most significant was in German Bunds, which saw the yield on its 10-year fall to 0.08 per cent – its lowest point since 2016 – even though rates markets leaving unchanged the implied probabilities for ECB decision making in 2019. 10 Year Japanese Government Bonds are back below 0 per cent, as markets stay resigned to the fact that the Japanese economy will see no signs of inflation for the foreseeable future. And despite there being an absence of data impetus to cause this – other than a general “risk-off” tone for Friday’s trade – US Treasuries climbed as traders priced in the increased chance the Fed will cut rates this year. The RBA adds its 2 cents worth: The market’s central premise that interest rates will need to fall the world-over manifested just as clearly in domestic trade on Friday. The RBA’s Statement of Monetary Policy, released on Friday morning, delivered to markets the material to price in further downside risks for local rates. Following the central bank’s meeting on Tuesday last week, and RBA Governor Philip Lowe’s influential speech on the Wednesday, it’s perhaps a surprise that anymore dovishness from the RBA could be priced into the forward curve. Lo-and-behold, there was, with the immediate reaction from markets towards the RBA’s SOMP to increase rate-cut bets in 2019 to over 60 per cent, bid higher Australian Commonwealth Government Bonds, and to sell-out of the Australian Dollar – pushing the local unit below the 0.7100 handle, subsequently. The RBA’s take on economic growth: It was another softening of the RBA’s economic growth outlook that spurred the flurry of activity. The SOMP was far from a manifesto of doom-and-gloom. However, what markets have for a while been predicting came clearly in the RBA’s opening lines of the document: “GDP growth slowed unexpectedly in the September quarter… The Bank’s growth forecasts have been revised down in light of recent data, particularly for consumption. GDP growth is expected to be around 3 per cent over this year and 2¾ per cent over 2020.” There was plenty of good news contained within the SOMP, it must be stated, especially as it relates to the outlook for the labour market. Sentiment clung to the growth outlook nevertheless, as traders assessed how a global economic slowdown will manifest down-under. The ASX followed global equities lower: The fall in yields on ACGBs and the Australian Dollar proved once again supportive of the ASX200, but the effect was fleeting. It was a bearish day for the ASX on Friday, no matter which way you spin-it. It was simply one of those days for risk assets, as the bulls took themselves to the sidelines for a breather, at the end of a week which was -balance very good for stocks in Australia. Equity market strength throughout last week was perhaps lacking in other parts of the world: Wall Street finished its week higher by a very slim margin, equity markets in continental Europe shed over 1 per cent across the board, the Nikkei dropped over -2.00 per cent, while a weaker Pound kept the FTSE in the green. Price action for the ASX200: The last traded price in SPI Futures is pointing to a 4-point drop at the open for the ASX200 this morning. The market demonstrated some signs of short-term exhaustion on Friday, after its face-ripping rally earlier in the week, as higher than average volumes propelled the index higher. Resistance at ASX200’s September low at around 6100/05 was dutifully respected as the week’s high. The daily-RSI is still in overbought territory, though not flashing a sell-signal nor a major change in momentum yet. The week’s break of the 200-day EMA is seeing that moving average slowly turn higher, which bodes well for the bulls. In the immediate future: the long-awaited pullback could be upon us here, with the November high at 5950 the next logical support level to watch. Written by Kyle Rodda - IG Australia
  11. ASX overbought; but clear-air ahead: The ASX200 ought to add another 22 points this morning, according to SPI futures. There is a lot of enthusiasm about Aussie stocks presently – something surely attractive for the contrarians who like to run counter to prevailing market sentiment. It’s been said so much that it’s become facile: a pull-back must come soon to test the strength of the market’s recovery. Of course, it is a matter of when this eventuates – timing is always the toughest thing to predict in financial markets. The ASX200 has become technically overbought on the daily-RSI; however, by that measure, momentum is still intact and pointing to an uptrend. Clear air exists for the market now too, with the next resistance level sitting slightly above 6100. ASX has the wind to its back: It’s often said that compared to other major indices, the ASX200 is a trifle boring to trade. It’s a simple formula, well known to most: get a view on the banks, and get a view on the miners, and you’re almost the whole way to knowing where the index will go. The bulls were thrown a bone on both fronts this week. The soft-touch (“pragmatic” is the word being used) recommendations contained within the Hayne Report has set a fire under bank stocks; and the parabolic rally in iron ore prices has the big-miners looking like an attractive long-proposition. It must be stated the market’s rally is broad-based, with volume and breadth in the market solid. But that had already been so, so-far in 2019: it meant little without the bank-bulls charging. Banks rally, but fundamentals questionable: The rally in the banks this week is arguably in large part a “catch-up” rally – the financials sector had been the only sector in the red for 2019. Bank stocks weren’t being touched, despite the bullish macro-drivers in global equity markets. But with this week’s rally, financials are up 4.50 per cent, against an overall index return of 6.7 per cent; perhaps the banks have rebalanced now with where the ‘big-picture” suggests they ought to be. The next question is however, what upside exists for the banks based on their fundamentals? This will take time to flesh-out, as each of the Big-4 progressively update the markets on their performance – and especially as the political cycle turns the findings of the Hayne Royal Commission into an election issue. CBA the first to show cards: Markets did receive their first insight into the financial state of the nation’s banks; and fittingly it was the CBA yesterday morning that provided their half-year results. The figures released spoke of a bank de-risking in the face of regulatory pressure, being stifled by higher global funding costs, and struggling with the Australian property market’s downturn. The ratio of Tier-1 capital the bank is holding climbed to 10.8 per cent, and its net-interest-margin shrunk by 4 basis points. Not a disastrous result by any means, however given that credit growth in Australia is still slowing, and the domestic property market seemingly has further to fall, suggesting a turn in the multi-year downtrend in the CBA’s share price will reverse because of diminished of regulatory-risk seems fanciful. The RBA becomes “balanced”: The concerns confronting the banks and the Australian economy (as a whole) were addressed in a speech delivered by RBA Governor Philip Lowe yesterday. His view on the economy was decidedly more “balanced” – as the Governor himself explicitly described – than what it had been at any stage in 2018. It was a refreshing take, however one that got market participants moving. What’s been inferred from the speech, is that given the slowdown in the global economy, weakening domestic demand, and issues in consumer credit and the property market, the chances for a rate hike are now even with that of a rate-cut. Gone is the rhetoric that “the next move in interest rates is likely to be higher”: the RBA, for all its optimism, is on standby with policy support if economic conditions deteriorate. Australian bonds and the AUD: As one can imagine, the Australian Dollar hated the change in the RBA’s outlook. It was the worst performer of all G10 currencies yesterday, diving to an overnight low of 0.7110 against the greenback. The probability of an interest rate cut at some point in 2019 has spiked, to effectively a 60 per cent implied probability. Australian Commonwealth Government Bond yields tanked consequently, with the 2 Year ACGB tumbling 10 basis points, and the 10 Year ACGB shedding 8 points. The fall in yields, though being brought-about by a less-rosy outlook for the economy, is probably supportive of the ASX for now. The drop-in discount rates have made valuations marginally more attractive, while more significantly, the lower Australian Dollar has visibly provided a boost to the market in the short-term. Powell and the BOE the highlights today: With less than an hour to trade, Wall Street looks as though it will finish in the red today, following a weak day in European equities, and a solid day across Asia. Overnight news-flow was bereft of market moving headlines, so traders look to the next 24 hours for inspiration. US Fed Chair Jerome Powell speaks today (11.00AM AEDT), but the big focus may well be on the Bank of England tonight. The GBP has lost its lustre this week, as markets come to the realization that a no-deal Brexit is a higher likelihood than what was being priced-in. The BOE are hamstrung at-the-moment, unable to shift policy stance until a Brexit outcome is known. An optimistic but idle central bank is to be expected until it is. Written by Kyle Rodda - IG Australia
  12. The bulls keep control: SPI futures are indicating that the ASX200 will climb another 20 points at the open, adding to yesterday’s bank-led 1.95 per cent rally. Another solid day on Wall Street can also be pointed-to for the market’s start in the green, with US shares continuing their run-higher. Quietness in Asia courtesy of the Chinese New Year holiday has kept some negative headlines way, aiding the bullishness. Global bond markets are steady, gold is off its highs, and credit spreads keep narrowing. Locally, the RBA’s optimism also gave the Aussie Dollar a kick-higher and lifted domestic yields. It’s a risk on attitude, for a multitude of reasons, here and abroad. There’s so much reason to be wary in markets currently; however, the bulls have seen enough to take a gamble in this environment. Some classic-cases of can-kicking: One lesson from financial markets in the last week: no person wants to be the one responsible for making necessary changes to something in the long-term, if it means inflicting pain in the short-term. It’s a characteristic of human fallibility and is arguably evidence as to why when crises occur, they tend to hurt more than perhaps what is necessary. There is a parallel with what we’ve seen in the US in the last 7 days, and what has transpired in Australia this week. In the US, it was US Federal Reserve Chairperson Jerome Powell wilting under the pressure of Wall Street in his bid to normalize interest rates. In Australia, it was the Hayne Royal Commissions failure to make the necessary systemic changes to improve the nation’s financial system. An invidious dilemma: When presented with the opportunity to make meaningful, structural change, individuals back away from doing so, to clear themselves of culpability for instigating a crisis. Sympathy to these folks who are handed the crushing responsibility of making these invidious decisions. Surely any other rational person would behave and make choices in the same way if put in a similar position. But removing single agents from the equation, and it becomes the case our human-systems remain tremendously difficult to reform without seeing them collapse first. People are motivated by short-term incentives, it ought to be inferred, and will seemingly (more-often-than-not) act according to those incentives, even if it means perpetuating a system that is dysfunctional, or worse, perhaps even immoral. No-one wants to be the fall-guy: One can make a blanket, high-level assertion as to why this is so. Our social, political and economic systems are entrusted to people whose mandate is to either ensure compounding prosperity, and a progressive and inexorable improvement of quality of life. When single individual’s take temporary control of a system that will outlast their tenure, they are incentivised to use it to serve their most immediate interests. For the people in power, it doesn’t matter so much that by failing to take responsibility now, they are adding to the grief to be worn by those in the future. It’s better for them to keep the machine rolling and take a gradualist approach of incremental (and superficial) change, even if it means compromising in the future what is being fought to preserved in the present. No-one benefits (now) from change: But sometimes, like the broken fridge that keeps needing its parts replaced bit-by-bit to keep it alive, it’s better to throw the whole machine out, even it means going without food for a day. The actions we saw out of the Hayne Royal Commission, for one, amounts to the tinkering of the system, without fixing the whole thing. An oligarchy of private banks has proven to be socially disruptive, but to break up what some call the “cartel”, it would mean major financial and economic disruption. Credit growth would go cold, pressuring the property market and the broader-economy that relies upon it; bank shares would depreciate and erode wealth, weighing on people’s future prosperity; and the Government’s coffers would become emptier, meaning it could do less to serve the nation. When it’s good, it’s fine; when it’s bad, it’s too late: As alluded to earlier, the phenomenon witnessed in the fall-out of the final Hayne Report can also be seen in the decision-making of the US Federal Reserve recently. For years, global asset markets have prospered courtesy of the innovative practices central banks have used to support a system that is disposed towards chaos. The pain of making true systemic change is deferred, to keep in place order and stability in the present. When it becomes necessary to unwind some of these practices, when it is justified, if not necessary, just like we have seen in the US recently, the prospect creates convulsions and disarray. Although it’s known that long term objectives will be compromised by short-termism, immediate self-interest once again comes to the fore, and bastardizes the process. Instant Karma is (not) going to get you: So much of what happens in financial markets is driven by short-term benefit, in the (often) naïve hope that when things turn truly bad, you’re not the one left carrying the can. Hence why Wall Street has rallied the way it has since the Fed took its dovish turn last week, and why the banks (and therefore the entire ASX) experienced its extraordinary rally yesterday. Market participants are enjoying their spoils now, in the knowledge that if they don’t, they’ll miss-out on the opportunity to take a slice of the good times while they are still on the table. It’s well known certain things need to be fixed, but no one wants to forego short-term benefit, or be the one responsible for bringing about short-term pain, so the system rolls on. Written by Kyle Rodda - IG Australia
  13. MaxIG

    Global markets - APAC brief 5 Feb

    Global markets relatively still: Wedged between the beginning of Chinese New Year and Superbowl Sunday in the US, financial markets, on a global scale, have been a relatively quiet place in the past 24-hours. The excitement, anxiety and anticipation that has catalysed movement and activity in global markets lately was noticeably absent. Last week was a hard act to follow, what with the Fed, US corporate earnings, trade-war negotiations, Brexit, and a litany of fundamental data to keep traders occupied. Not to mention that being a Monday, news flow in the financial press is always a little lighter than what it is the rest of the week. Overall, the major equity markets in Asia closed in the green yesterday, Europe was on-balance lower come the end of the session, and Wall Street should finisher the day higher. The Hayne Report handed-down: Considering the quietness – and as this is being written, the hope is US President Trump keeps his fingers away from Twitter – it provides a good opportunity to pop-on the parochial Australian hat and look at how local markets are evolving. In a reasonably significant way, Australia was where the locus of interest lay, if only in the Asian session, during yesterday’s trade. The final report of Kenneth Hayne, QC’s Banking Royal Commission had Aussie markets on edge throughout the day; and had global investors curious as to what game-changing findings would come out of the report. The pre-positioning in the morning’s trade had the ASX experiencing much larger volumes than the average Monday, though that petered out as the session unfolded and attention turned to simply awaiting the report’s release. The initial reactions: Avoiding the legalese and focusing simply on the initial market sentiment, and it might be fair to say that investors are quite pleased with the findings handed down in the final Hayne Report. It’s only a very early indicator, and the move was modest, but upon re-opening yesterday afternoon, SPI futures registered a quick 12-point jump after digesting the report’s findings and the subsequent Press Conference addressing them from Treasurer Josh Frydenberg. The move was pared as the European and Middle Eastern markets took control of price action. However, what the activity reveals is that the emotional money – the one that reacts straight-out-of the gates to news and noise – judged what was contained and prescribed within the Hayne Report as being on-balance beneficial to bank stocks. Smart money buying bank bargains? Taking a slice of Wall Street’s overnight upside as well, and SPI Futures at time of writing are pointing to a 28-point jump at the open for the ASX200. During intraday trade, the ASX managed to deliver a positive day for market-bulls. Whipsawing for the first hour of trade, the bulls took control of the market as the day unfolded, led by the bank stocks, which added over 17 points to the ASX200 by the day’s end. The price action screams of the classic “dumb-money-versus-smart-money” dynamic: the dour headlines about the Royal Commission spooked the emotional retail investors, who sold at the market’s open and pushed the price lower, only to establish better buying conditions for the “smart” institutional investors, who bid the banks and the index higher throughout the day. The banks avoid the worst-case outcome: Given the activity in futures, the market reaction could simply be a matter of “buy the rumour and sell the fact”, as the cliché goes. Alternatively, it could be a sign that market participants believe the 76 recommendations in the report were a little softer than expected on the financial services industry. Looking at what was recommended, and the kind of structural change that some pundits were calling for did not get mentioned. In short: the banks won’t need to be broken apart, and ASIC and APRA will remain the “two-peaks” of the regulatory framework. Most of the pain falls upon mortgage brokers and financial planners, with the general intent of the recommendations looking at existing laws and institutions to kill dodgy sales practices, abolish perverse remuneration programs, improve financial advisory practices, and hold future wrong doers to account. Credit and trust: The Royal Commission itself, we’ve been told, is to restore trust in the banking system, while ensuring ample credit-conditions and the necessary competition remain in the financial system. It’s always a poetic reminder: the origins of the word credit come from the Latin word “credere”, which means to “believe” or to “trust”. The extension of financial credit – the thing that invents and keeps capital in the world moving around – is essentially an exchange of trust. Fortunately, given what’s been revealed the Banking Royal Commission, consumers need not believe in the goodwill of a monolithic institution to extend their trust to it. We have legal coercion instead. The hope is now, out of all of this, even if power isn’t redistributed by breaking-up the banks, the legal institutions who are there to “keep the bastards honest” start doing their job. RBA day and Retail Sales: Staying focused on the fortunes of the Australian economy, the day ahead will be headlined by local Retail Sales data and the RBA’s first meeting for 2019. It’s a fitting mix, considering the major risk to the domestic economy and RBA policy, given mounting household debt, sluggish wages growth and falling property prices, is the strength of the Australian consumer. Today’s meeting from the RBA is the first we’ve formally heard from the central bank since the start of December. Given the many developments in the world economy since then, there will be plenty for the RBA to catch-up on. They won’t move rates today; that much is known. But the guidance moving forward is key, with rates markets still pricing in a 40 per cent chance of a rate cut this year. Written by Kyle Rodda - IG Australia
  14. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 4 Feb 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends this week Index Bloomberg Code Effective Date Summary Dividend Amount NIFTY INFO IN 24/01/2019 Special Div. 4 TOP40 NTC SJ 23/01/109 Special Div. 40 RTY CZNC US 25/01/2019 Special Div. 0.1 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.
  15. US economy still leads the pack: The bounce in global equity markets has been uniform, but the economic data is pointing to a return of the “diverging global growth” narrative. It was what dominated the latter half of 2018: the US is humming, while the rest of the world economy languishes. The difference in economic fortunes isn’t quite so stark now, however it remains conspicuously extant. It becomes a matter of how long such a dynamic can last. Frankly, market participants had resigned themselves to the fact it was already over. But a quick review of even Friday’s economic data alone suggests the narrative still has legs. An all-encompassing global economic slowdown is likely to arrive, eventually. For now, though, the US economy has its head above the water, while rest of the world doesn’t. Financial conditions and economic data supportive: The dovish Fed are, and will continue to be supportive of this, as financial conditions loosened once again in response to last week’s FOMC meeting. It’s no mystery to markets: the correlation between a recovery in financial conditions and the performance in equities is clear. The fears of a US recession, based purely on the macro-data, is still unfounded. The numbers coming out of the US on Friday weren’t spotless, but they were still very strong. ISM Manufacturing PMI beat economist consensus forecast, and US Non-Farm Payrolls showed an increase in jobs in the US economy of 304k. The jobs data was marred by a downgrade in previous months jobs-gain numbers, a dip in annualized wage growth, and a tick-up in the unemployment rate. Overall, however, the data showed a still strong US economy. Asian and Europe tangibly slowing: This contrasts with what came out of Europe, and really the rest of the world, during Friday’s trade. Europe is clearly heading for an economic slowdown, and it’s becoming a matter of true concern. Chinese economic data reminded traders too that the Middle Kingdom finds itself in its own strife. PMI numbers released from both geographies greatly disappointed market-bulls. The Caixin PMI release revealed a far steeper contraction than what had been estimated, while the balance of several European PMI numbers showed general weakness in the Eurozone – especially the embattled Italian economy. To be fair, European CPI numbers did beat forecasts slightly. But at 1.1 per cent annualized, it remains so far below target that the notion the ECB will hike rates before the next recession seems laughable. Financial markets neutral bias on Friday: As soft as the numbers were, they didn’t appear to faze traders a great deal. One assumes that the outlook reflected by the data was largely priced into the market. If anything, markets were pricing in a worse (collective) result to the weekend’s data. Interest rate traders lifted very negligibly their bets of rate hikes from the ECB and the US Fed – though it must be said the balance of opinion is in favour of no moves at all in 2019. Bonds sold off based on this, and emerging market assets, which had benefitted most from the dovish Fed, pulled-back to end the week. The US Dollar is in a short-term downtrend, apparently keeping gold prices elevated. The Australian Dollar kept range bound though, hovering around the mid-0.7200’s. The recovery keeps on rolling: Friday’s trade when assessed on its full merits belonged to the bulls though. Really, the entirety of last week did. It wasn’t a unanimous decision by any means; but it was enough to keep the “V-shaped” rally in equity markets intact. The extremeness of the January stock market recovery has pundits increasingly questioning what the next sell-off will look like. The “shape” of this price action is quite unusual, they are telling us. What was experienced in the last quarter of 2018 was somewhat extraordinary, so perhaps an extraordinary recovery is a necessary consequence of that. Where the market puts in its next low is a point of curiosity: Wall Street has visibly broken its downtrend, so the next low in the market builds the foundations for the next possible uptrend. ASX poised to gain this morning: The US lead will translate into a 20-point gain for the ASX200 this morning, according to the last traded price on the SPI Futures contract. Friday’s trade wasn’t quite as bullish for the ASX as it was for other parts of the global equity market. The index closed effectively flat, on a day of above average volume and relatively poor breadth. Iron ore prices, which have maintained a consistent rally since the tragic Vale dam collapse, have fed a rally in the mining stocks. The materials sector added 4 points to ASX200 on Friday and looks poised for further upside moving forward, as another shifter higher in oil prices, a weaker USD, and general market bullishness support elements of international commodity markets. The banks under scrutiny today: The challenge for the market will be trying to sustain a move higher while there remains so many concerns about the financial sector. The final report from the Hayne Royal Commission is released after-market today, and the uncertainty generated by what will be recommended in the report is keeping upside in bank stocks, and therefore the ASX200, at bay. Only time will truly tell what recommendations will come from the report – with less than 12 hours until its released, markets need not wait long for answers. Whatever is revealed, it will be assessed through the lens of how it may impact future credit conditions in the Australian economy, especially given the major slowdown in Australian property prices, and the recent slowing of consumer credit growth in the overall economy. Written by Kyle Rodda - IG Australia
  16. MaxIG

    Lunar New Year market hours

    Dear IG community, There will be some changes to some of our Asian markets over the upcoming Lunar New Year, starting Monday 4 Feb. We will continue to make out of hours index prices throughout any breaks (excluding Taiwan and Malaysia). See the table below for the relevant information.
  17. Fed sparks bullish sentiment: Traders were bullish overnight, but as far global equities go, the ultimate results were mixed. Activity has been very high, that’s irrefutable. Volumes flowing into stocks have been much higher than average, no matter where you look. Fundamentally, the Fed has lit a fire under markets, and traders are repositioning to adjust to a new set of circumstances. The fundamentals have shifted in quite a meaningful way. It’s the notion that the Fed will maintain monetary policy support that has made this so. A world of relatively easy monetary policy and loose financial conditions has market participants believing the record bull-run can be sustained. It may prove fleeting, merely a boost in sentiment, but at the very least today, markets have found their justification to buy-in. Bond markets start to adjust: Look no further to rates and bond markets to see the true impact of what the Fed has done. US Treasuries had been a boring market to watch for most of January, at least when compared to the events of late 2018. The US 10 Year note had been less than a 10-basis point trading range. The ultra-dovish Fed yesterday morning put an end to that. Implied probability for a rate hike this year from the Fed has for all intents and purposes has now been erased. By the end of the year, interest rate traders see little more than a 1 per cent chance that a rate hike will occur. US Bond yields have tumbled consequently, with the US 2 Year Treasury now yielding little more than current US Federal Funds rate. The greenback smack-down: The US Dollar is losing its advocates it seems. The pro-Dollar cheer squad espoused two reasons to justify their hitherto bullishness: if the economy regains its strength, then that means higher US rates, ergo a stronger greenback; if the economy goes into decline, that means greater risk aversion, ergo a stronger greenback. That idea is very cogent and could prove true in time, but here-and-now, the price action flies in the face of Dollar bulls. The USD is well off its highs, and although receiving a lift from a weaker Euro last night, a lift in our Australian Dollar (along with other risk-currencies) to above 0.7260 suggest traders are more than happy to short the greenback where it presently trades. Global economic data shows further weakness: Which leads to the irony, or perhaps contradiction, in financial markets at-the-moment: global growth keeps showing signs of a synchronized slow down. A weaker global economy in 2019 is all but a given if you listen to the analysis of the global economic elite. Last night though, markets were delivered another dose of reality about what the “real” economy is up to. A truckload of macro-data was released yesterday, and though there were some solid numbers here-and-there, most of it was quite ugly. Canadian GDP figures showed a contraction in growth for the quarter, German Retail Sales data missed by a long way, Chicago PMI disappointed, Italy is entering a technical recession, and Chinese PMI figures remain in contraction territory. Trade-war pain hurts Europe: It didn’t help sentiment toward global growth that US President Donald Trump decided to hit Twitter to discuss the trade war overnight. He said nothing inflammatory, in fact he was quite positive about trade negotiations. However, the US President made quite clear that a trade breakthrough couldn’t be expected until he and Chinese President Xi Jinping sat down to nut out the final details. Seemingly, European markets copped the brunt of that news, and it showed up in its currency and fixed income markets. The EUR was down across the board last night, as German Bund yields collapsed to a 2-and-a-haf year low -- primarily as recession risks in the European economic bloc, and a subsequently idle ECB, forced traders to price-out the prospect of monetary policy normalization in Europe in 2019. ASX200 bucked the theme: Not that is represents much, but the to-and-fro between the optimism regarding a more dovish Fed, coupled with the grow anxiety elicited by slowed economic growth, has SPI futures pointing to a slim 5-point gain for the ASX200 this morning. Defying the theme in global markets yesterday, the ASX200 closed just shy of -0.4 per cent lower for the session, sustaining most of its losses during the after-market auction. Notably once again, the index failed to break through stubborn resistance at its 200-day EMA, selling-off that point once more during intraday trade. Upside momentum is diminishing in the market in the very short term, but perhaps in favour of the bulls, an ascending triangle pattern has emerged in the price action, maybe signalling an upside break is building within the market. The Fed, Hayne, and Iron Ore: The down day in Aussie stocks could be interpreted as a sign bearishness is gripping traders, but yesterday’s activity should be put into the context that the sell-off into yesterday close was probably symptomatic of a bit of end of month rebalancing in the market. Financial stocks are languishing too, as traders apparently stay out of the space ahead of Monday’s release of the final report from the Hayne Royal Commission. The beacon in the market has been the materials sector, owing to the recent rally in iron ore prices, following the devastating Vale disaster, which has thrown into question the safety (and therefore future productive capacity) of the mining industry in Brazil. To see a day in the green today, it may rely on mining bullishness outstripping banking-sector bearishness. Written by Kyle Rodda - IG Australia
  18. MaxIG

    Mixed results - APAC brief 25 Jan

    Sentiment weaker; but ASX to rise: SPI Futures are indicating an 11-point gain at the outset for the ASX200 this morning. It's perhaps a surprising result, given overnight activity. The chorus of pundits calling an economic slowdown grew louder, backed up by weak data and some unfavourable headlines. The Australian Dollar is better reflecting the dynamic: it's fallen through the 0.7100 level to eye support at 0.7040. Perhaps the weaker A-Dollar is behind some of the expected lift in Aussie stocks – along with a trifle greater optimism for the fortunes of Aussie banks after NAB’s rate hike yesterday. Whatever way in which we start the day today though, it will occur within the context that pessimism about global increased just a little bit in the last 24 hours. Australian employment: Australian employment data portrayed a mixed picture of the Australian labour market yesterday. The headlines were attractive. The unemployment rate fell to a very solid 5.0%, supported by jobs growth of 21k in the month of December. Digging deeper however, and the outlook is slightly less rosy. The fall in the unemployment rate was primarily due to a decline in the participation rate, and perhaps worse still, the data showed a -3k contraction in full time jobs. Nothing to panic about, by any means. But it does highlight a level of spare capacity in the economy, and further slack in the labour market. It suggests an economy still some way off meaningful wages growth and inflation for which the RBA is waiting. Australian Dollar and rates: Markets ran with the positive headline number, regardless of the fine print, happy enough with seeing a jobs market nominally at full employment. The Australian Dollar lifted, supported by an increase in Aussie bond yields, and a slight unwinding of rate cut bets by the RBA in 2019. It all proved rather short-lived however, following the announcement that NAB would be increasing its standard variable mortgage rate, in line with its Big 4 peers. The Aussie Dollar fell through feeble support at 0.7120 on this news, as traders factored in the likely negative consequences that higher rates will have on highly leveraged households, and therefore future domestic consumption. Asian equity indices: The ASX responded positively to the NAB news however, with traders welcoming the implications for earnings growth in one of the market's mostly heavily weighted constituents. It was a positive day overall for the ASX200, which managed to add 0.4 per cent for the session to close at 5865. The modest upside developed within what was a rudderless day for Asian equities. China Bulls are attempting to squeeze as much from the optimism surrounding trade talks and new PBOC stimulus. While Japanese equity markets were controlled by the Bears for the day, after Japanese PMI numbers crept closer to the contractionary zone, as the trade war continues to bite Japan's export heavy-economy. Global PMI data: It was a day for PMI Manufacturing figures across the global economy. Comparable data was released right across Asia, Europe and the US overnight. Though there were upside surprises, the data, which is considered a strong forward-looking indicator for global growth, was mostly disappointing. Indeed, the US and French number were better than forecast. But the big concern is the marked decrease – into contraction territory – of the German numbers, which apparently contributed significantly to a big miss in the overall European Manufacturing PMI figure. It supports the growing notion that Europe's economy, if not that of the rest of the world, is trending toward a downturn. ECBs increasing dovishness: This fear (more-or-less) was explicitly enforced by European Central Bank President Mario Draghi last night, following that central bank’s monetary policy meeting. Markets were pricing in a very dovish Draghi, but the price action suggests that he may have “out-doved’ market participants expectations. He emphasized carefully that risks to the European economy have “moved to the downside”. The Euro tumbled below 1.13, breaking trend, and German Bunds rallied in response, with the yield on the 10 Year Bund dipping to 0.17 per cent. Rate hikes from the ECB have continued to be taken off the table now, falling to an implied probability of 25 per cent that the bank will hike at all this year. Wall Street’s mixed day: There's an hour left in trade for Wall Street and US stocks are heading for a mixed-to-slightly-lower session. The NASDAQ is up based on better than expected earnings from US chipmakers. But the sentiment was controlled by (misinterpreted) comments from Trump trade-war ambassador Wilbur Ross that the US and China are "miles and miles" away from a trade pact. The S&P is dancing with that crucial level again at 2630 - a developing pivot point between bullishness and bearishness. It's still a risk-off day, however. US Treasuries have caught a bid on haven appeal, and the US Dollar and Japanese Yen are up courtesy of the nervousness in the market. It's probably not a make or break day; just further confirmation that the recovery might be due for a pullback. Written by Kyle Rodda - IG Australia
  19. The control of the market: The bulls and bears are circling one another, with neither to take control in a meaningful way this week. There is a vacillating in sentiment, maybe as each side recognizes that not enough information has emerged this week to tip favour towards one camp or another. Moments like these can be opportunities whereby markets build to a breaking point. It becomes a matter now of waiting for the necessary evidence to buy-in or sell-out. Headlines are determining intra-day moves in presently, as traders jump at shadows any time the theme of “global growth” or “trade war” arises. The impact of such stories appears to be diminishing now: and impatience has developed. Market participants want substance before they commit themselves to their next move. The imminent catalysts: It won’t be long before such opportunities arise. US earnings season remains one of them, and overnight earnings beats by the likes of IBM and Procter and Gamble galvanized temporary upside. A slew of PMI figures out of Europe will also be released, before central bank policy comes to the fore too, with the ECB due to meet on Thursday. As can be inferred, the next 24 hours may well centre on Europe, and its apparently ailing economy. Recall, it was the last round of PMI figures released out of Europe that showed a contractionary figure in that measure in several sovereign economies. Coupled with what is assumed to be a dovish ECB President Mario Draghi tonight, and the outlook for global growth may prove up for revision. Geopolitical noise: Other ongoing geopolitical concerns will dominate, too. Momentum in trade war negotiations has seemingly diminished, adding urgency to those talks. Davos is delivering fodder for intellectual debate about the state of the markets, though little has come yet of market-shaking significance. And Brexit-drama keeps is keeping its hold of a big part of trader’s attention. Relating to Brexit, the GBP continues to appreciate, for reasons easy to rationalize but hard to truly understand. The Cable maintained its short-term rally overnight, breaking through 1.30, on what seems to be a market pricing in the real prospect of a delay of Brexit beyond the March 29 D-Day. Far be it to argue with the will of the market, but that could prove misguided and prone to correction. Australian jobs numbers: It’s not of broad-global significance – as it shouldn’t be, with the history defining events taking place in global-macro presently – but Australian employment figures will be one to watch this morning. Economists are forecasting few changes to the employment outlook: the unemployment rate is tipped to remain at 5.1 per cent, aided by estimated jobs growth of 17.3k last month. The labour market is as strong as it has been for the best part of 7 years, as the Australian growth engine hums a long at a respectable rate of knots. Rates and currency markets are reflecting this dynamic: expectations are for a fall in both, but the strong backward-looking data are keeping pronounced swings in these markets at bay, despite a weakening global outlook. Aussie economy health-check: A surprise in today’s labour market figures would of course lead to a touch of greater volatility. Markets are pricing in something of a slowdown in the Australian economy this year: interest rate markets have an implied probability of 40 per cent that the RBA will cut rates this year. The reasoning is simple enough to understand: major concerns are building about the strength of the Chinese economy, and Australia’s domestic property market has recently accelerated its decline. The two pillars of our economy, mining exports and residential construction, are vulnerable to this set of circumstances. While it is of low probability it will show up in today’s numbers, the pessimists are waiting for gloomier outlook to show-up in tier 1 indicators, such as employment numbers. Chinese policy intervention: Australia’s status as lucky country will hinge greatly on China’s ability to stimulate its way out of trouble. Policymakers are ramping up these efforts, only yesterday introducing a new policy tool to deliver credit to businesses, via safe and stable financial institutions. That news bolstered sentiment fleetingly, particularly towards Chinese equities and the markets exposed to them. Confidence isn’t high yet that these measures will be successful, with traders really waiting a true breakthrough in the trade war. It is in part what lead to the “risk-off” tone to the week: stocks are off their highs, and safe havens like US Treasuries are somewhat in vogue. It feels like a major boost is needed to reignite the bullishness that has fuelled January’s recovery rally. Wall Street’s lead for the ASX: Entering the final hour of US trade and Wall Street stocks are clawing their way back into the green. The Dow Jones is up, courtesy of the solid IBM and P&G results, but the S&P is currently flat, wrestling with what is becoming a key pivot point at 2630. SPI Futures are translating Wall Street’s lead into an expected 8-point drop at the open, backing up another day of losses for the ASX200. It must be said that it was a battle throughout the day between the buyers and sellers on the ASX on Wednesday. The sellers took the biscuits in the end, with selling heightening in the last hour of trade. 5780-5800 is where the index may find its support in the short-term and determine whether a further sell-off is looming. Written by Kyle Rodda - IG Australia
  20. The pull-back is here: The pull-back markets were waiting for – the one we inevitably had to have – has arrived. It’s risk-off across financial markets and the optimism that drove global stocks off their December lows has subsided. Relatively speaking, it’s been a day of significant downside, but nothing yet to warrant tremendous fear. It should be common knowledge, but it bears repeating: proper validation that global equities have truly established a recovery ought to be judged not by the latest high, but by where markets form their next low. The retracement which is apparently upon market participants now hands a golden opportunity to judge this market for what it truly is – have the bulls reclaimed their dominance, or have the bears lulled them into a trap, and now stand poised to assert further downside? The market’s rationale: A greater look at this subject and Wall Street’s price action later. In relation to the overnight sell-off, the rationale was as feeble as the one that got stocks to their recent peaks in the first place. It’s been chalked up to reduced positivity towards the trade-war, and renewed concerns about global growth. To begin with, very little data throughout the past week has provided a clear and substantial picture on economic growth. The boost in sentiment has come from geopolitical or monetary policy developments that was assumed to be supportive of the growth outlook – at some point in the future. Some nice-noises made between the US and China in trade negotiations here, and a few dovish comments from a handful of US Fed speaker there, is what ignited the latest part of the risk-on rally. Awaiting confirmation: Hence, it was naturally the inverse of this situation that’s prompted the leg lower in global stocks. US Fed speakers have quietened down as markets prepare for the central bank’s next meeting at the end of the month. And a story-or-three about storm clouds looming on the horizon for the global economy has quashed the naïve hope that incremental improvements in the trade-war will lead to a renewal of the global growth story. Now, bullishness may yet return to markets, and quite soon at that: US reporting season hands the opportunity to be able to assess meatier, fundamental data, rather than shallow headlines. The issue now may prove the uncertainty in the lead-up to such information: we are a fortnight away from getting a complete picture on US corporate earnings. The overnight headlines: Sifting through the stories that mattered to markets in the last 24 hours, and one can understand why bullish sentiment has reached a lull. The downgrading by the IMF of its global growth forecasts established the context, but it was fresh fears of a major Chinese economic slowdown that really got traders edgy. They were piqued first by news that the US is sticking with its pursuit to have Huawei’s CFO extradited to the US; and then exacerbated by a speech delivered by Chinese President Xi Jinping about the deteriorating state of his country’s economy. The latter was especially unsettling: President Xi warned of potential social instability if China failed to regain control of its economy and deliver the growth required to keep satisfied the nation’s people. Brexit and UK data: Not that it registered as highly on trader’s macro-agenda last night, but the UK economy did share in the focus. Of course, the Brexit drama continues to unfold: Opposition leader Jeremy Corbyn made his play in the House, tabling a series of votes designed to avoid a no-deal Brexit. The news ought to be friendly to markets, and perhaps the Bremainer cause, but it didn’t do much to move UK markets. What did however, was the release of UK labour market figures overnight, which showed an increase in wages and a fall in the unemployment rate. The data, in the face of Brexit-uncertainty, pushed the Cable toward the 1.2980 mark, and lifted the implied probability that the Bank of England would lift interest rates at some point in 2019. A risk-off day: Looking forward to the day ahead and the economic calendar is fuller, but little jumps out as possessing the weight to turn the tide in sentiment. The Bank of Japan meet this afternoon, New Zealand’s CPI numbers are released this morning, and stories from the World Economic Forum in Davos will filter through throughout the day. Safe-havens will maintain their bid, one assumes: equities are being sold-off, the JPY is higher, gold has climbed, oil is retracing, and US Treasuries have rallied 4-to-5 basis points across the curve. The Australian Dollar, as its wont to do in these situations, has dipped, and looking as though its latest run higher is done-with. The local unit is presently just above 0.7100, as it eyes support at 0.7040. ASX test ahead: SPI Futures are suggesting a 31-point fall for the ASX200 at time of writing, in sympathy with Wall Street's sell-off. The ASX200 closed the day 0.5% lower yesterday, at 5858, led by a noteworthy enough tumble in the bank stocks. The short-term uptrend has now been broken, with support at 5800, 5700 then 5630 now in view. The RSI confirms a meaningful slowdown in momentum for the market, however unlike US markets, volume is well below the 100-day average still. The daily chart has established an apparent reversal pattern now and indicates a new high has been made. Just like its global counterparts, the market's essential strength will be tested, with the capacity to form another higher-low crucial to confirming a true bullish trend in the market. Written by Kyle Rodda - IG Australia
  21. Bullishness settles: The ASX200 was sold into the close on a day where the market's bullishness stalled. Nevertheless, the index ended the day in the green, adding 10 points. It's a very headline driven market currently, and the finger is being pointed to news that the US and China are squabbling over intellectual property protections as the cause for the cooler sentiment. US markets were closed for the Martin Luther King Day public holiday, so the lack of tradeable information probably hindered the market too. But almost universally yesterday, financial markets traded on markedly lower activity. The ultimate result was an overall down day for stocks, a mixed day for bonds, a tinge of a bid for safe-haven currencies, while commodities were higher underpinned by well-supported oil prices. ASX set for flat start: SPI futures are positioned for the ASX200 to open flat-to-very-slightly-higher come today's open. It's a resilient market at present, with the trend line derived from recent lows looking clean and dutifully respected. The bulls guided the-200 above the 5900-mark for the first time in roughly two months yesterday. As widely expected, the market met resistance at the index's 200-day EMA around 5909 during intraday trade, registering a daily high only a skerrick above that point. Yesterday’s daily candle indicates one slightly more vulnerable to bearish control in the very short-term: the sellers overwhelmed the buyers into the back end of the day, bringing about a close in the green, but well-off the day's high. A strong start in 2019 for the ASX: Sifting through the ASX on a sector-by-sector basis, and the activity in the market indicates the burgeoning hope and bullishness of traders. Year-to-date, the energy sector has paced the gains, led naturally by oil’s recent recovery. While the high-multiple information technology and health care sectors, and the growth-sensitive consumer discretionary sector, also sits high on the table of year-to-date returns. Perhaps unlike US equity markets, the buying in Australian equities lacks evidence of deep conviction, as revealed by relatively lower breadth and volumes so far this year. Regardless, this phenomenon could be waved-off as reflecting normal trading dynamics: January tends to be a month of lower activity when compared to other stages of the year. The latest in Brexit: Brexit developments were high on the agenda overnight. Following the profound defeat in last week’s “meaningful vote”, UK Prime Minister Theresa May delivered to the House of Commons her amended vision for a way forward for Brexit. Maybe to the chagrin of traders, little of substance again could be gleaned from the UK House of Commons. The spectacle displayed the same partisanship, gridlock and frustration exhibited last week. Despite this, the Sterling maintained its recent rally and the yield on UK 10 Year Gilts stayed above the 1.3 per cent. Markets still hold the belief that the political dysfunction will force an extension of Article 50 and a delay of Brexit; or even another referendum (despite PM May denying such an event will go ahead), with recent polling suggesting a victory to the Bremainers if it were to occur. Chinese data goes to plan: Turning attention to global-macro themes in the past 24-hours, and the most watched fundamental news was China’s economic data-dump yesterday. In the lead-up, it was a potential make-or-break situation for growth-sentiment, and a potentially pivotal set of numbers for the global growth outlook for early 2019. Lo and behold, despite the high anticipation, upon their release, little came from the data. As far as traders were concerned, the figures received came-in at expectation: China’s economy is slowing (GDP printed 6.4 per cent) but at a rate that was already implied in market pricing. There wasn’t much of a kick-up in many parts of the market after the news. Chinese stocks rallied half-a-per cent, bonds fell slightly, and the Yuan dipped – though that may be due to a stronger USD. Global growth downgrade: The news pertaining to global growth that proved of greater import was the IMF’s downgrade of its expectations for global GDP in 2019. It’s the second downgrade in three months from the institution, and this time highlighted the impact of Europe’s economic slow-down as being a major cause for concern. Of course, the trade-war has been highlighted as a drag too – Europe’s troubles could well be tied back to that issue, anyway. The drop in the continents economic activity poses challenges for European and global policy makers, as the ECB fights to normalize its monetary policy settings. As it stands, markets are still pricing in a 35 per cent of a rate hike from the ECB this year, but the odds are progressively diminishing. Eyes on the elite at Davos: It bares reminding that as a bloc, the Eurozone economy constitutes comparable economic output to the US. A slowdown in Europe will be a considerable drag on the global economy. World leaders gather in Davos beginning tomorrow and the subject-matter will be high on the agenda, along with the trade-war and tighter global monetary policy. How the economic and financial elite broach these issues will be closely watched by market participants. Financial markets at the core are being dictated still by concerns relating to a drop-off in global economic growth, coupled with the impacts of potentially tighter global monetary policy settings. Language will be scrupulously analysed by traders as world leaders speak – maybe in search for a market moving headline or two – with sentiment liable to swaying on what and how something is said. Written by Kyle Rodda - IG Australia
  22. The bulls are coming back: Traders received the greenlight to jump into risk assets on Friday. It culminated in a substantial jump across global equities and a certain “risk-on” attitude to trading. The impetus was arguably more technical than fundamental. The boost in sentiment in being attributed mostly the leaked news that Treasury Secretary Stephen Mnuchin was planning to lift US tariffs on China. Whatever the motive, nefarious or simply untrue, that story was quickly denied by the White House. However, it signalled enough to the market that progress was being made in trade war negotiations. That extra fuel to this recovery’s fire supported a push above very significant technical levels in Wall Street indices, attracting buyers and further validating the view that the December sell-off is behind us. The stock market’s biggest fan: There’s one market participant who is apparently willing that notion to be true: US President Donald Trump. The US President obviously uses the stock market’s performance as a measure of his success – rightly or wrongly. And over the weekend, amidst the very many Tweets that were Tweeted by Trump, this one outlined his view on the US economy and stock market: “the Economy is one of the best in our history, with unemployment at a 50 year low, and the Stock Market ready to again break a record (set by us many times)…” Quite a pledge to make – and one markets participants aren’t going to take too seriously. Regardless, it does provide a perversely comforting story for markets, to know that the US President is wishing this market higher. Technical indicators strong: For now, at least, the direction for US, and therefore global stocks, is up. The recovery has scarcely taken a breath to start the new year. Indications are now too that the market (as a whole) is starting to believe that 2019’s early rally is for real. Technical indicators for Wall Street’s benchmark S&P500 were as solid as they have been all year on Friday. Resistance at 2630 was broken through, clearly attracting the many sceptical or nervous market-bulls, pushing the index 1.32 per cent higher for the day. Volume was well-above average for the first time in several weeks too, at 9 per cent above the 100-day average. Breadth was also highly impressive, with 91.3 per cent of stocks higher, and every sector in the green for the session. The ASX200 set to follow: Friday’s solid session in US stocks has the ASX200 poised to jump 43 points at the open, according to the last traded price in SPI Futures. The ASX enjoyed its own strong performance on Friday, though it lacked the substance of its US counterparts. Like Wall Street, every sector gained ground on the day. But breadth and volume weren’t a shadow of US markets – in line with the trend of recent weeks. IT stocks were the only sector to attract meaningful interest, largely by way of virtue of a 11 per cent rally from Afterpay Touch Group, after it updated its underlying sales numbers. The ASX200 will eye its 200-day EMA in the day ahead at 5909, a level the index ought to exceed at the open according to SPI Futures. China in the spotlight: For all the excitement that markets have achieved the turnaround they were looking for, the week ahead hurls-up several challenges to this narrative. The macroeconomic drivers of market sentiment remain the dual concerns of global growth and US Federal Reserve monetary policy. The biggest risk to global growth comes from China’s economic slowdown – and how the trade war is exacerbating that. Deep insight into the Chinese economy’s state-of-affairs will come today: a major data-dump from the Middle Kingdom arrives today, with GDP figures headlining the lot. Much of the upside experienced in markets recently has come from hope and speculation that the Chinese (and therefore global) economic outlook is better than previously expected. The data from China today will put this hope to the test. Australian Dollar: As it always is on these occasions, the Australian Dollar will likely prove to be the barometer for sentiment relating to today’s data from China. There’s been relatively thinner commentary about currency markets, and the A-Dollar by extension, in financial markets recently. There was the flash crash which generated headlines, however putting that aside as a temporary quirk of market malfunction, volatility in currency markets has been quite subdued. Realized volatility in the AUD/USD is presently 5.45 – a very low reading, especially for currency so exposed to risk/growth dynamics – with the pair trading within a 100-point range for best part of 2 weeks. Though by no means guaranteed, perhaps today’s Chinese growth figures will ignite some of the action speculators are craving. Other risk events: US markets will be closed on Monday for the Martin Luther King Day public holiday. Several of the secondary and tertiary risk-factors moving markets will keep relevance in the next 24 hours. Brexit will hit the headlines as UK Prime Minister Theresa May prepares to table alternatives to the House of Commons after last week’s failed “meaningful vote”. The US Government shut down will drag on further, after Democrat leaders declined to cooperate with President Donald Trump’s latest salvo to end the stand-off over the funding of his border-wall. And the international economic elite will gather in Davos this week for the World Economic Forum, where issues such as global trade and the normalization of global monetary policy will be the hot topics. Written by Kyle Rodda - IG Australia
  23. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 21 Jan 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends this week Index Bloomberg Code Effective Date Summary Dividend Amount NIFTY INFO IN 24/01/2019 Special Div. 4 TOP40 NTC SJ 23/01/109 Special Div. 40 RTY CZNC US 25/01/2019 Special Div. 0.1 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.
  24. MaxIG

    Mixed trade - APAC brief 18 Jan

    Mixed trade across the globe: Global equity indices have traded mixed in the last 24 hours. Asian trade was soft, European trade was poor, while US indices look as though they will deliver another day in the green. This may not be such a bad thing: perhaps the differing performance across regional indices is a sign of a more discerning market place. Panic about the global economic landscape has subsided for now, allowing traders to take a more nuanced view of the asset class. There is a degree of divergence happening again between US equities and the rest of the world – though it must be said the ASX is still following the lead of Wall Street. Optimism about fundamentals in the US is progressively being restored; that of the rest of the world is still in doubt. US macro-outlook apparently strong: The notion the US economy is still on solid footing was supported by strong economic data last night. Both unemployment claims and the Philly Fed Manufacturing Index beat expectations, boosting confidence that the labour market and business activity is strong in the US. As has been repeated many-a-time throughout the recent stock-market funk, economic fundamentals could well be secondary or tertiary to other forces previously supporting equity markets. There are still doubts about the future of financial conditions (read: Fed tightening) and the state of the profit cycle. While the US economy is delivering strong data however, the perma-bears and recessionistas should remain sidelined – at the very least, on the basis that the US economy doesn’t yet appear to be spiralling into recession. Risk-appetite higher: Price action reflects the change in attitude of market participants. US Treasuries have ticked higher as interest rate traders price out rate cuts from the US Fed in 2019. The yield on the US 10 Year note has climbed to 2.72 per cent, and the yield on the US 2 Year note has reached 2.55 per cent. Even more promisingly, the curve is taking on a slightly healthier shape. It’s still quite unattractive, that’s undeniable. But the 2-to-10 spread is widening, as markets price a better economic outlook and a more accommodative Fed. The lift in oil prices has helped this – one point that is still understated and underestimated by many. The recent rebound in the price of the black stuff has led US 5 Year Breakevens back to 1.65 per cent. The elusive goldilocks zone: It will still stay a tight rope walk for equities, especially in the US. The financial system is arguably inherently unstable, and policymakers’ job puts them in the invidious position of keeping markets at an equilibrium, despite this instability. Hence, it’s never the case that markets aren’t at risk of losing balance and falling towards one extreme or another. The particular issue with the set of circumstances market participants find themselves in now is that the tight rope is narrower, and the risks have closed-in tighter around them. Economic data needs to remain strong to keep the recessionistas at bay on one side, but not so strong that it results in the necessity of a hiking US Federal Reserve. US earnings season the new priority: So far, so good for US markets, but of course we are only half-way through January, and there’s a long path ahead of traders, given the risks out in the market place. Focus has been set on US reporting season, given the radio-silence in the trade-war, along with the more dovish-Fed. The financials sector cooled its run on Wall Street overnight, after Morgan Stanley’s results bucked the industries trend of beating forecasts this earnings season. It hasn’t proven so far enough to undermine Wall Street’s recovery. The real interest in gauging US corporate strength will come when the tech-giants begin to report next week. For now, though, keep your eyes peeled for Netflix’s results out this morning: it’s often a volatile stock, and there are big expectations for that company’s latest results. Risks being shrugged off: Back on the risks to market sentiment, and whatever little issue has been hauled at markets this week has been effectively shrugged off. The news about Huawei facing charges in the US on tech theft didn’t undermine sentiment for long. And the bigger headline story this week, the UK parliamentary vote on Brexit, has actually engendered positivity. The GBP for one is edging higher, with the Cable eyeing off 1.30 now. A better indicator of traders’ attitude towards the UK economy is in bond-spreads. The spread between US 10 Year Treasuries and 10 Year UK Gilts has narrowed further to 142 basis points, as markets price in the chance that UK will be heading for another referendum – one that could well yield a Bremain result. A trade-war sentiment boost? There’s an hour left in Wall Street trade at time of writing, and sentiment has apparently received the boost it was looking for: news has crossed the trading terminals that the “US weighs lifting China trade tariffs”. Volume has spiked on the news and the S&P500 has broken resistance at 2630. It’s contentious whether this story has merit. Conflicting reports are coming out suggesting there is more to the story than just the headline. A Treasury spokesperson has leapt out to say that neither Treasury Secretary Mnuchin, nor trade Ambassador Robert Lighthizer have made any recommendations to ease tariffs. It’s causing markets to whipsaw. This one might be a live issue this morning. Keeping abreast of its developments in the day ahead could prove beneficial. ASX keeps grinding: In line with US cash equity markets, SPI Futures are dancing around as traders try to process the news delivered to them. At present, that contract is suggesting an approximate 20-point jump for the ASX200 this morning, up from about 15 before the news release. Whatever the extent of the rise, traders were pricing a positive start for Australian shares this morning. The ASX200 kept defying gravity yesterday, closing trade 0.26 per cent higher at 5850. Indicators relating to the conviction of the session’s move were lacking once more. It’s still January however, and activity is generally lower this time of the year anyway. The ASX200 index looks now to chase down its 200-day EMA at 5910, which itself could prove a significant hurdle. Written by Kyle Rodda - IG Australia
  25. Bullishness rolls on: The bullish correction in financial markets continues, and global equity markets are rolling on. It’s a matter of contention as to why this rally hasn’t been faded, just in the short term. Stocks were oversold on a technical basis, and the market internals were very over-stretched at the deepest trough of the recent sell-off. An elastic band effect was expected – a brief snap back in to place. Perhaps complacency will bite at some stage, and the rally in risk-assets will prove a mere counter-trend. Analysing the price-action however, the buyers are controlling the market. Keys levels in several major share-indices have been tested and breached. Yes, without overwhelming conviction, but the technical breaks of resistance are there. One must respect the will of the market. Fear falling, confidence rising: Substance in the move higher is lacking, just at present. Fundamental justifications are emerging, though not in such way yet that justifies out-right bullishness in this market. Earnings season in the US has gotten off to a good start, with bellwether banks beating analyst forecasts thus far, and the overstated effects of Brexit have been contained. The meaty part of reporting season is still ahead of us, so evidence US corporates are in a better than expected shape remains wanting. The simple explanation for why market participants are more confident now is that they believe policymakers have their back. Separating the philosophical arguments about whether that ought to be proper reason to take-risk, invest and trade in a financial market, for self-interested traders, that’s enough of a cue to buy-in now. The political-economic power-axis: The economic and financial world rests on a tripartite axis of economic power: there’s the US, Europe and China. Every other national economy is in some way a satellite to these economic giants. The best set of circumstances for markets is when all three economies are growing and possess solid financial conditions. At-the-moment, only the US comes close to passing that test in the mind of traders. In the absence of solid fundamentals, the next best thing for markets to hear is that the powerful people in these economies intend to do something big about their problems. This week, and more-or-less since the equity market recovery has taken hold, that is what markets have gotten. After months of feeling abandoned, market participants now feel comforted by policymakers soothing assurances. Policymakers making the right noises: There has been delivered numerous announcements from key policymakers in the US, Europe and China. The US Federal Reserve has launched a concerted campaign to soothe markets’ nerves, going as far as implying interest rates will remain on hold until signs of greater financial and economic stability emerge. European Central Bank head Mario Draghi acknowledged in a speech this week that the Eurozone economy is sputtering but pledged that the ECB will stand-by with policy support if necessary. And China’s key-economic boffins have implemented a range of policies – from cutting the Reserve Ratio Requirement for banks, injecting cash through open market operations, and sweeping tax-cuts – which have done enough for now to prove to traders they are serious about tackling China’s economic slow-down. The G20 meeting: The temporary reliance on policymakers to support market sentiment will be put to the test to end the week. Global financial leaders will meet in Tokyo to discuss global economy and the financial world at the latest G20 meeting, in what will certainly be scoured for signs of unity and conviction of purpose. These events are often talk-fests, with little coming out of them more than a rosy-joint press release. But with the way markets have been behaving since the start of January, this may be all that market participants need to keep talking risks and buying back into equities. Talk of stimulatory fiscal policy, looser monetary policy, and better yet, the reduction of trade barriers (read: ending the trade war) will underwrite such risk appetite. The test of fundamentals: Of course, it’s too reductive to suggest that market activity hinges in the immediate future on the outcome of this G20 meeting. Fundamentals will have to come into play and drag sentiment, wherever it goes, back to reality, whatever that happens to be. The good thing is too, that markets won’t have to wait long to get that reality check. Earning’s season is ramping up now, and while some of the more popular companies haven’t yet reported, some important information is being gleaned. In a positive development, Goldman Sachs reported before the US open last night, and broadly beat expectations by way of virtue of solid results in its M&A division. The numbers further eased concerns that the US banking sector, and therefore US economy, is in an increasingly tough-spot. Wall Street to the ASX: The sentiment boost there has lead Wall Street higher, supporting what at time of writing looks like an 8-point gain for the ASX200 this morning, according to SPI Futures. Promisingly, the benchmark S&P500 continues its grind through a marshy resistance zone between 2600-2300, which if traversed, will add weight to the notion US stocks have executed a recovery. The ASX200 is arguably a little further down the true-recovery path: yesterday’s trade saw the Aussie index add 0.35% to close at 5835. Buyers ought to become thinner at these levels, with the daily RSI close to flashing an overbought signal. The next key level to watch out for is approximately 5870 based on a read on the hourly chart, however resistance there doesn’t shape-up as particularly firm. Written by Kyle Rodda - IG Australia
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