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MaxIG

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Blog Entries posted by MaxIG

  1. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 4 Mar 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

     
    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
     
    Special dividends this week
    UKX RIO LN 7/03/2019 Special Div 183.55 AS51 QUB AU 6/03/2019 Special Div 1.4286 AS51 RIO AU 7/03/2019 Special Div 483.8571 AS51 S32 AU 7/03/2019 Special Div 2.4286 RTY NHTC US 4/03/2019 Special Div 8 RTY BTU US 11/03/2019 Special Div 185
    As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
    How do dividend adjustments work? 
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 
  2. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 23 Sept 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. 

    Special Dividends         Index Bloomberg Code Effective Date Summary Dividend Amount UKX MRW LN 26/09/2019 Special Div 2 UKX HL/ LN 26/09/2019 Special Div 8.3 NKY 1808 JP 27/09/2019 Special Div 1000 - ESTIMATE NKY 1803 JP 27/09/2019 Special Div 800 - ESTIMATE XIN9I 601857 CH 24/09/2019 Special Div 0.777 SHSN300 601857 CH 24/09/2019 Special Div 0.777 HSI 27 HK 24/09/2019 Special Div 46 AEX RAND NA 27/09/2019 Special Div 111 FBMKLCI SIME MK 30/09/2019 Special Div 70 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.
     
  3. MaxIG
    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
     
  4. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 25 Mar 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends
    Index Bloomberg Code Effective Date Summary Dividend Amount UKX RBS LN 21/03/2019 Special Div 7.5 AS51 FLT AU 21/03/2019 Special Div 212.8571 HSI 27 HK 25/03/2019 Special Div 45 RTY JILL US 18/03/2019 Special Div 115 RTY WSBF US 20/03/2019 Special Div 50 As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
    How do dividend adjustments work? 
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 
  5. MaxIG
    Around the globe, geopolitics dominates: Political spot fires have captured the attention of market participants. From Washington, to Hanoi, to Kashmir, to Caracas, to London: the ugly machinations of power have dominated the headlines. Only, despite fleeting action, the impact to market activity has seemingly been muted. A facile logic might suggest that it is because of the geopolitical uncertainty in the world that markets have traded so dull overnight. It would be too long a bow to draw, though: tremors can be seen in prices, but a global earthquake can’t be found. Not to diminish the events turning the world in the last 24-hours: they go well beyond the importance of markets. It’s simply just developed markets haven’t responded terribly much to them.

    In Washington: The most salacious news that had traders’ interest excited last night took place in the halls of US Congress. No, not the testimony of US Fed Chair Jerome Powell – though his words are of far greater import to markets. It was instead the unfolding Michael Cohen testimony, at which the disgraced lawyer has cast a series of accusations and aspersions toward US President Donald Trump, on issues ranging from Russian ties, electoral fraud and hush payments. On the face of what’s been said, the revelations are potentially monumental. However, although demonstrating signs of nervousness in the lead up to the testimony, as it unfolded, financial markets have seemingly shrugged off the possible implications of that event.
    In Hanoi: Is it a collective dismissal of Cohen’s testimony? It’s too hard call. One assumes that if there was a material chance that US President Trump could fact impeachment, traders would stand to attention. So far: they haven’t, so the roughest conclusion is that such an outcome is still considered unlikely. As the never-ending circus plays-out in Washington, US President Trump is of course half-the-world away in Vietnam, trying to employ his self-styled statesmanship to charm North Korean leader Kim Jong-Un. The end game is denuclearisation in the Korean Peninsula and the end of what is technically a multi-decade war. Again, despite all the pomp and ceremony, markets are behaving as though no breakthrough will happen in that matter this week, either.
    In Kashmir and in Caracas: Political posturing, and financial markets’ eye rolling, aside, there is a firm gaze on what is happening in both Venezuela, and the Indian-Pakistan border. At risk of conflating two all too complex geopolitical issues, markets are apparently taking note of the escalating tensions in those geographies. The necessary moral caveat:  the potential for human suffering in each conflict is the biggest issue by any measure. But for traders, the power-struggle in Caracas is being judged on its impact on oil markets, and the potential it could inflame tensions between the US, Russia and China; while the conflict in Kashmir is being monitored for the potential for an all-out war between two nuclear-armed nations.
    Back in Washington; and in London: It’s a tinderbox out there, but until it catches alight, markets en masse don’t appear too fussed. The geopolitical concerns pertain primarily to the trade-war and Brexit – the perpetual bugbears. The trade-war narrative overnight centred on a statement by Robert Lighthizer that America is pursuing “significant structural changes” to China’s economy. It’s contestable what impact that statement had on markets. The Brexit narrative did manifest in markets, however: falling into lock step with the UK on the issue, the European Union stated its amenable to extending Brexit if necessary. The Cable leapt to 8-month highs, Gilt Yields rallied across the curve, and a much better than 50/50 chance is being priced in the BOE will hike rates this year.
    Bonds fall; oil rallies: The market-friendly Brexit news looks as though it shared its benefits across national economies. German Bund yields climbed considerably, as did US Treasury yields. The yield on the US 10 Year note touched 2.70 per cent – something of a relief rally. Global equities were more reticent, with the major European and North American indices trading generally in the red. Important to note: the selling in bond markets could perhaps also reflect fundamentally altered inflation expectations, over and above growth optimism. Oil prices leapt overnight after US inventory data showed a much larger than expected drawdown in reserves, leading to US 5 Year Breakevens hitting 1.87 per cent – a level not registered since the middle of November last year.

    Australia: While inevitably influenced by Wall Street’s limp-lead, and the political ructions evolving across the planet, SPI Futures are indicating an Australian share market that is marching to its own beat once more. On that contract: the ASX200 ought to open roughly 9 points higher this morning, perhaps due to the jump in oil and a leg-up in iron ore prices. The day’s trade might find itself focused on the macro-outlook for the Australian economy, and the reactions in ACGBs, the AUD and pricing for RBA rate cuts: local Capex figures will be delivered at 11:30AM this morning – and are taking on greater significance after yesterday’s Construction numbers greatly missed economist consensus forecasts.
    Written by Kyle Rodda - IG Australia
  6. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 5 Nov 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

     
    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends this week
    Index Bloomberg Code Effective Date Summary Dividend Amount RTY COLB US 6/11/2018 Special Div 14 RTY HFWA US 6/11/2018 Special Div 10 RTY MPX US 8/10/2018 Special Div 10 RTY NHTC US 9/11/2018 Special Div 18 SPX ROL US 8/11/2018 Special Div 14  
    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. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 22 April 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends         Index Bloomberg Code Effective Date Summary Dividend Amount AS51 SUN AU 1/04/2019 Special Div 11.4286 AS51 ABC AU 2/04/2019 Special Div 5.7143 As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
    How do dividend adjustments work? 
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 
     

  8. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 29 April 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 
     

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends
    Index Bloomberg Code Effective Date Summary Dividend Amount UKX CRDA LN 29/04/2019 Special Div 115 STI CIT SP 30/04/2019 Special Div 6 SIMSCI CIT SP 30/04/2019 Special Div 6 RTY HCC US 3/05/2019 Special Div 441.6183515 How do dividend adjustments work? 
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 
  9. MaxIG
    The tariffs get hiked: The latest round of trade talks didn’t have the desired outcome. But nevertheless, the always forward-looking equity market closed last week on something of a high-note. It was a choppy day’s trade in Asia as the news filtered through that an agreement between the US and China in Washington wouldn’t be reached. Ultimately though, and just like the last time tariffs were hiked, financial markets handled the news with aplomb. The simplest explanation for why there wasn’t a huge reaction financial markets is roughly this: it “was buy the news and sell the fact” with markets having already discounted a trade-war escalation.
    Markets (probably) saw it coming: It’s an unhelpful cliché, that one. However, market-moves, ex-post or not, are often chalked up to such a dynamic. It’s one of those helpful mental models to make sense of the madness of financial markets day-to-day. Regardless, it’s ostensibly what financial markets have done in this instance; giving solace to the bulls and bolstering risk-appetite. Fundamentally, the global equity map was a rich-shade of green after the end of Friday’s trade. The S&P500, for one, closed 0.37 per cent higher, CSI300 lifted a remarkable 3.63 per cent, and SPI Futures are indicating a 29 point jump this morning.

    The future feels more uncertain: The question moves today to: where to from here? From a pure fundamentalists point of view, those folks probably just wait to see how new trade-barriers show up in the hard-data. That one is probably going to be a slow-burn. Recall, after the last round of tariffs were implemented, it took the better part of a quarter for them to show in the data, and vaguely reflect in market fundamentals. For the short-term sentiment watchers, an answer to that overriding question will be more immediate, however perhaps more gradual in its unfolding. Afterall, this is a headline driven market, and those headlines are still being produced.
    Trade will remain “headline-driven”: Hence, on the headline front, what was received over the weekend – after the market had closed – was probably not all that favourable for risk-sentiment. While Friday’s trade was buoyed by news that trade-talks were continuing and were “constructive”; trade at the very early stages of this week is being stifled by the harsh rhetoric from the Trump administration, towards the Chinese, over the weekend. Upping his binary “winner-and-losers” language, news has filtered through the wires that the US has delivered China an ultimatum: make-a-deal, or tariffs get applied to all Chinese goods going into the US in a month’s time.

    Higher trade-barriers to stifle global growth: The reliability of this story is somewhat questionable. Regardless, if tariffs are applied to all goods going into the US from China, and retaliatory tariffs are proportionately applied to all goods going into China from the US, then the global economy will almost certainly suffer. Speculation now in financial markets will probably centre in a big-way on trying to quantify the impact of this dynamic. This will take some time to actually materialize. But you can bet the quants and other data crunchers of the world will be adjusting their models to try and predict their impact now.
    US-China conflict possibly the “new-normal”: For traders not-so resource rich, the matter becomes less about predicting the numbers, and more about getting a rational grasp on whether the trade-war will continue to escalate. Given the current circumstances, a bitter spoonful of pessimism may well be the conclusion. That’s because the trade-war, as has been repeated ad nauseum in the punditry, is not an economic issue, but a strategic one. To borrow from the classics, it’s a case of Thucydides-trap. China does not wish to compromise its inexorable rise; while the US is trying to force China to rise within the restrictive confines of the world-order it, itself created.
    The consequences of this new order: The intractability of such an issue means that, at the very least intellectually, a true resolution to the trade-war in the short-term in unlikely. Tariffs may come and go, but financial markets will have to deal with a world in the future where its two biggest economies are “at each other’s throats”. This new reality will probably be internalized by markets, which will move-on over time, and trade according to the market-fundamentals, determined by economic and corporate strength. However, as the economic cycle continues towards its end, the interest will be in how weaker global-trade steepens its descent, and compromises the markets’ fundamentals.
    Written by Kyle Rodda - IG Australia
  10. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 20 May 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special Dividends         Index Bloomberg Code Effective Date Summary Dividend Amount UKX MRW LN 23/05/2019 Special Div 4 AS51 FMG AU 22/05/2019 Special Div 85.7143 HSI 1299 HK 21/05/2019 Special Div 9.5 SX5E ENGI FP 21/05/2019 Special Div 38 CAC ENGI FP 21/05/2019 Special Div 38 How do dividend adjustments work? 
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 
  11. MaxIG
    Written by Kyle Rodda - IG Australia
    Inverted Yield Curves: There’ll probably be a lot of talk about “inverted yield curves” and “recessions” today. For some, reading such headlines will come as a shock. Perhaps even a cause of anxiety. It’s wise to understand why such commentary has emerged – and what that may imply. The price action in US Treasuries has been quite dramatic in the past 24-hours: the (what ought to be) familiar themes regarding a looming global economic slow-down, and the prospect of softer future US inflation has seen traders cut their predictions of future rates hikes from the US Fed. The short-end of the yield curve – the end which is more exposed to the near-term actions of the Fed – has held up well; but it’s the middle-to-end of the curve – the part controlled very much by traders’ expectations about future growth and inflation – that is experiencing the greatest duress.

    What it all means: In short: traders are anticipating an imminent end to the Fed’s hiking cycle, and they are now trying to approximate when the Fed may cut rates again.  This is where the talk of recession starts to pop-up. As is easy enough to grasp, the Fed would need to cut rates in the event that the economy requires stimulatory support from monetary policy. Such circumstances would emerge if the economy began to slip into something resembling a recession. Hence, when yields at some point in the curve invert, it’s a reflection of traders collectively estimating that in the near-enough future, interest rates will be lower than what they are (around about) now, because the economy will enter into a period of significant weakness to require a rate cut from the Fed.
    No reason to panic (yet): It sounds quite ominous when the mechanics are explained. It’s doubly as bad when one considers the last time the US went into recession, it was the GFC. We all have memories of how dire that stage of history was. However, any fears elicited by talks of recession and everything that comes with it must be moderated by some counterbalancing arguments. Indeed, an inverted yield curve has portended the last 9 out 11 US recessions, but the time-lag between yield-curve-inversion and a recession should be noted. After an inversion of the US 2 Year Treasury note and the 10 Year Treasury note (the spread on these two assets being the most popular barometer for the phenomenon) it’s not for another 12-18 months that a recession is realized.

    US growth is solid (for now): So: while financial markets will be whipped into a frenzy about what is going on – especially as safe-haven assets like US bonds are gobbled-up as risk appetite wanes – the effects on the “real” economy are unlikely to manifest in the all-too immediate future. And justifiably so: global growth is waning, and it is not as synchronized as it was in 2017, but at least in the US, economic indicators remain relatively strong. The labour market, which is in focus this week with Non-Farm Payrolls figures released on Friday, is still very tight, leading to gradual wages growth; quarter-on-quarter GDP is still around 3-and-a-half per cent; and although business conditions are cooling, Monday’s release of US Manufacturing PMI still posted a much better than forecast result.
    What triggered the panic: It begs the question what precipitated this bearishness overnight. In financial markets, an underlying dynamic – such as that which has been experienced in the last 24 hours – may well be present, but it requires a catalyst to ignite it into full motion. Last night’s jitters, in a macro-sense, were brought- about by a slew of disappointing news. The post-G20 rally has been faded, as traders question the longevity and substance behind the so-called deal between the US-China, after several top White House advisers failed to substantiate what outcomes have been agreed upon between the two trade-waring nations. The trade related pessimism was exacerbated by renewed concerns regarding Brexit, and the apparent inevitability of an economically disruptive “hard-Brexit” outcome.
    Risk-off, havens-on: A rush to safety, and a subsequent liquidating of positions in riskier assets, has occurred. Touching again on US Treasuries: the yield on the benchmark 10 Year note has plunged to 2.91 per cent, and on the 2 Year note it has dipped to 2.80 per cent, taking the spread there to a narrow 11 points. Equities have been slaughtered, unwinding a considerable amount of last week’s gains: the Dow Jones is off 2.73 per cent, the S&P500 is off 2.3 per cent, and the NASDAQ is off 3.3 per cent (with an hour remaining in trade). The USD has climbed on its haven appeal, as has the Japanese Yen, which is back into the 112-handle, though gold has also rallied, despite the stronger greenback, to $US1238 per ounce. While in other commodities, copper is down 1.8 per cent, and oil is flat (this, leading into Thursday’s OPEC meeting).
    Australia today: SPI futures are predicting another punishing day for the ASX200, with that contract at time of writing indicating a 52-point fall for the local index. The heavy hitting financials and materials sectors will probably struggle today: the former due to this tumble in bond yields, the latter as traders unwind the growth optimism piqued by the weekend’s G20 meeting. In line with overseas markets, defensive sectors could be the play today, though a day similar to yesterday which saw 10 out of 11 sectors in the red on 17.5 per cent breadth shouldn’t be discounted.
    It’s GDP day today, and that should be watched closely, especially after the RBA at its meeting yesterday talked up the growth prospects of the Australian economy. Whatever the result the numbers produce – forecasts are for annualized growth at 3.3 per cent – it will unlikely shift Australian equities. The interest will be on the Australian Dollar and interest rate markets – the A-Dollar fell below 0.7350 again last night as risk-proxies were dumped – however the likelihood rates traders will bring forward their RBA-hike expectations in from 2020 is rather slim.

  12. MaxIG
    Global political economy in focus: International diplomacy, politics and global trade are at centre of attention to begin the new week. Indeed, that’s in part due to the corporate and economic calendar appearing relatively lighter, being the final week of the month; as well as the fact the UK and US are off on public holidays on Monday. But even in the absence of other hard-hitting, high impact news, the confluence of politics-related headlines merits attention in their own right. And it spans the globe: Trump is talking trade in Japan, the Europeans are voting in their Parliamentary elections, and the UK is now searching for a new Prime Minister.
    Markets watching for surprises: The overarching narrative hasn’t fundamentally changed. Generally speaking, a level of bearishness characterizes market activity, as the US-China trade war continues to rattle nerves. Nevertheless, global politics and international relations is bringing-about some shifting gears within the broader economic machine. On balance, there’s been little fall-out from the handful of political events unfolding across the globe. If anything, though not game-changing, they’ve collectively proven to be a net-positive for market sentiment. Of course, this could turn-around rapidly: traders ought to be used to expecting the unexpected by now. Hence, the least that can be said is “so-far”, so good.
    The future of Europe in question: European Parliamentary elections was where most interest lay over the week. For market participants, the vote is being viewed, and has been positioned for, through the lens that this election is a measure of public-sentiment towards the European Union as a political structure. Voting is in the process of wrapping-up currently, but from the available early indicators, the outcome of the poll looks to be in favour of pro-European parties. It must be said, there seems to be a sustained growth in Euro-sceptic parties. However, for the time being, such anti-establishment forces remain in the minority, and look broadly contained.
    Euro-sceptic parties grow, but stay in minority: Whether that proves to be a good thing or not is a value judgement. Of even greater import: whether, in the long-term, the continuation of the status quo is desirable is a more profound issue. In the here and now though, fewer uncertainties within the European political system will inevitably be welcomed by investment markets. This is especially so given Europe’s precarious economic position. European growth is anaemic, in the truest possible way, with policymakers possessing very few options in terms of monetary and fiscal policy. Europe’s problems won’t disappear with this election result, but at least it keeps one risk at bay for now.

    Leadership tussle begins in the UK: Across the English Channel, and the UK is facing its own political challenges. UK Prime Minister Theresa May has tended her resignation, and the jostling now begins for the Conservative Party leadership. In what will probably be another little test of liberal internationalism, market participants are watching the Tory leadership contest closely, in order to judge every candidates credentials and positions on Brexit. It’s very early days, however Boris Johnson is emerging as the favourite to achieve his long-held ambition to wrest the party’s leadership. And markets aren’t taking kindly too that, given the man’s “hard-Brexit” sympathies, and general populist-streak.
    Trump in Japan: For the next 24 hours, the interest of market participants will turn to US President Trump’s visit to Japan, as he chats trade and regional security. Japanese Prime Minister Abe and his team are apparently on the charm-offensive with Trump – treating him to games of golf, and all the other spoils of high-diplomacy. At-the-moment, risk-appetite is dwindling in financial markets, as the trade-war escalates and the White House hurls threats to its trading partners about imposing higher trade barriers. Market action will be in some-way determined by what commentary comes from Trump after this little summit, and whether he cools his anti-trade rhetoric.
    The lead-in for Australian markets: Despite the heightened nervousness brought about geopolitics, price action was relatively limited, and market activity was quite low, on Friday. The S&P500 edged modestly higher, while US bond yields lifted slightly. SPI Futures are indicating a follow through of this sentiment, pointing to a narrow, two-point drop in the ASX200 this morning. The AUD is back into the 0.6900 handle too, courtesy of a weaker greenback, after US Cored Durable Goods orders data disappointed on Friday – and comes despite a major drop in Australian bond yields, which saw the 10 Year note’s yield fall to par with the current cash rate of 1.50 per cent.

    Written by Kyle Rodda - IG Australia
  13. MaxIG
    US Retail Sales capped-off last week: The climax of last week’s trade was Friday night’s US Retail Sales data release. As is well known, sentiment in the market centres around concern for the state of the global economy. As the biggest component, of the world’s biggest economy, US consumption data was hotly awaited to test the thesis that the global economy is winding down for another cycle. As it turns out: right now, those fears are very slightly exaggerated, if the US Retail Sales data was anything to go-by. Core Retail Sales came-in bang on expectations at 0.5%, taking the annualized figure to around 3.2 per cent.
    Fed-cut expectations unwound slightly: Solid-enough US Retail Sales data numbers tempered some of the enthusiasm for rate cuts from the US Fed. To be clear: imminent US rate cuts are still in the market. In fact, 25 basis-points of cuts remain implied for July’s Fed-meeting. However, as it pertains to this week’s meeting, as well as the aggressiveness of future policy intervention from the Fed, traders unwound some of their rate-cut bets in the market. US Treasury yields climbed as a consequence on Friday, stifling the rally in global sovereign debt, with the yield on 2 Year US Treasuries, in particular, jumping by as much as 7 points.
    Bond yields climb, and stocks dip: The marginal pricing-out of Fed-intervention in the US economy was a negative for US stocks during Friday’s trade. Seemingly, this was particularly true for high-multiple stocks in the S&P500, like US-tech, which lead the overall market lower. As is widely known, US equities’ strong performance year-to-date has been largely attributable to a progressive increase in rate-cut expectations from the Fed. Though the overall trend remains intact – that is, rate-cuts are coming from the Fed in the near-enough future – Friday’s US Retail Sales numbers somewhat curbed the excitement for imminent, easier monetary policy-conditions, and its consequent benefit for US risk assets.
    US Dollar rallies across the board: A shift higher in US rates markets catalysed a spike in the US Dollar. The Dollar Index climbed 0.64 per cent on Friday, underpinned primarily by a tumble in the EUR/USD, which fell into the low 112.00 handle following the release. The Sterling also felt the pinch, plunging into the 1.25 handle for the first time since December last year, unaided by the ongoing uncertainty associated with the UK’s ruling Tory party’s leadership contest. While the Japanese Yen, as the final piece of the global currency market’s big-quartet, also softened against the Greenback – though it’s still finding buyers amidst continued global economic uncertainty.

    Australian Dollar tests new lows: This dynamic in global currency markets weighed heavily on the Australian Dollar, in particular. The AUD/USD touched a new-low on Friday, trading at levels not experienced since January’s notorious FX-market “flash-crash”. The all-important yield differentials between US Treasuries and Australian Commonwealth Government bonds crept wider, with the spread between the comparable 2-year bonds expanding to 85 points. The local unit now hangs precariously above a level of price-support in the market around 0.6865, which has been tested on 4 separate occasions in the last month. It sets-up a big week for the currency, ahead of the release of tomorrow’ RBA minutes release, and Thursday’s Fed-meeting.
    Chinese data disappoints: Of course, the Australian Dollar remain sensitive to the global growth outlook, on top of these two events – especially as it pertains to the Chinese economic narrative. Traders were handed a touch of information on the subject Friday, with the release of the Middle Kingdom’s monthly data-dump. What was revealed was, at best, a mixed picture: Fixed Asset Investment numbers missed, as did Industrial Production data; but Retail Sales beat, and joblessness held steady. For markets, the data was vapid – not good enough to ameliorate the economic outlook, but not bad enough to warrant more economic stimulus – resulting in a dip in Chinese indices.

     
  14. MaxIG
    Written by Kyle Rodda - IG Australia
    2018 reaches a climax this week: It’s effectively the last serious trading week of the year, and the economic calendar reflects that. Indeed, there’ll be a handful of days between Christmas and New Years to keep across, but with little news and thin trade, it’s tough to imagine anything coming out of them. The markets are still ailing, with the bears firmly in control of price action. There’s so many risk-events coming up this week, traders with a bearish bias are surely salivating. They did well to knock-off US equities in the final round of last week: the S&P500’s 1.9 per cent loss on Friday ensured another down-week for Wall Street. How this year is remembered and how next year will begin will in no small way be revealed in the next 5 days: if you’re a financial markets buff, it’s exciting stuff.

    Economic data: Concerns about future global economic growth tightened its grip on market participants last week. A slew of fundamental data was released across numerous geographies on Friday, and most of it was quite underwhelming. European PMIs undershot expectations, probably attributable in a big way to the impact of being caught in the middle of several domestic political crises and the US-China trade war. US Retail Sales data printed very slightly above expectations, to the relief of many, showing that the almighty US consumer is holding up well – at least for the time being. But it was a very soft set of Chinese numbers that had the pessimists tattling: the spate of economic indicators released out of China on Friday afternoon proved once more it’s an economy that is slowing down – and hardly in a negligible way.
    Recession chatter: Market commentary is continually focused on what prospect exists of a looming US recession. Financial markets, as distorted as they have become, do not necessarily possess strong predictive power of economic slow-downs. Nevertheless, your pundits and punters have taken a significant preoccupation with whether 2019 will contain a global recession. The signs are there, at least in some intuitive way. A google trends search on the term recession has spiked to its highest point 5 years, for one. Bond markets are still flashing amber signals: the yield curve is inverting, and US break evens are predicting lower inflation. Equities are still moving into correction mode, demonstrating early signs of a possible bear market. Credit spreads are trending wider, especially in junk bonds, as traders fret about the US corporate debt load. And commodities prices are falling overall, with even oil still suffering, on the belief that we are entering a period of lower global demand.

    Economic data: Concerns about future global economic growth tightened its grip on market participants last week. A slew of fundamental data was released across numerous geographies on Friday, and most of it was quite underwhelming. European PMIs undershot expectations, probably attributable in a big way to the impact of being caught in the middle of several domestic political crises and the US-China trade war. US Retail Sales data printed very slightly above expectations, to the relief of many, showing that the almighty US consumer is holding up well – at least for the time being. But it was a very soft set of Chinese numbers that had the pessimists tattling: the spate of economic indicators released out of China on Friday afternoon proved once more it’s an economy that is slowing down – and hardly in a negligible way.
    Recession chatter: Market commentary is continually focused on what prospect exists of a looming US recession. Financial markets, as distorted as they have become, do not necessarily possess strong predictive power of economic slow-downs. Nevertheless, your pundits and punters have taken a significant preoccupation with whether 2019 will contain a global recession. The signs are there, at least in some intuitive way. A google trends search on the term recession has spiked to its highest point 5 years, for one. Bond markets are still flashing amber signals: the yield curve is inverting, and US break evens are predicting lower inflation. Equities are still moving into correction mode, demonstrating early signs of a possible bear market. Credit spreads are trending wider, especially in junk bonds, as traders fret about the US corporate debt load. And commodities prices are falling overall, with even oil still suffering, on the belief that we are entering a period of lower global demand.

    ASX in the day ahead: There are signs a general risk aversion is clouding the ASX to begin the week. SPI futures are pricing a 32-point drop for the Australian market this morning, which if realized will take ASX200 index through last Tuesday’s closing price at 5576. There has been the tendency for the market to overshoot what’s been implied on the futures contract of late, as fear and volatility galvanizes the sellers in the market. This being so, a new test of last week’s low of 5549 could emerge today, opening-up the possibility for the market to register a fresh two-year low. On balance, the day ahead looks as though it may belong to the bears, with perhaps the best way to judge the session’s trade by assessing the conviction behind the selling. Although it appears the less likely outcome, a bounce today and hold above 5600 would signify demonstrable resilience in the market.

     
     
  15. MaxIG
    Fed on tap: It’s a commentary written on the fly this morning, as developments out of this morning’s US Federal Reserve meeting are being digested by markets. The Fed has hiked rates just as they were expected to do, with market participants now trawling through the fine print in the Fed’s commentary. We were expecting a “dovish hike”; what we got looks like a “less-dovish than-expected-hike”. The dot plots were revised as presumed: the Fed has told the markets that it expects interest rates to be lifted twice in 2019, rather than the three-times implied in the September dot-plots. It also downgraded its growth expectations and hinted unemployment is likely to pick up in the medium term. Overall, though, at first glance this looks like a Fed reasonably content with their policy position, as well as the position of the US economy.

    First responders: Price action in markets have been interesting. The message being delivered by the Fed is somewhat curious. Initial judgements are that they’ve struck quite an effective tone, albeit one that was probably different to that which was implied in market pricing prior to the event. US stocks are paring their gains for the day; volume has returned to Wall Street, after being below its average for most of the session last night. The NASDAQ is in the red presently: momentum stocks (read: information technology firms) are being hurt by the “less-dovish” Fed. Investors don’t want to buy into growth, it would seem. The intraday trend is pointing to a down day for Wall Street, though naturally that could turn in the next hour-and-a-half.
    Rates markets: The VIX is down currently, which is a good early indicator that markets are less-uncertain after the Fed’s announcement. That’s not always guaranteed and is liable to change today; one assumes policy makers would be pleased with that outcome. Interest rate markets, as the data presents itself in the Bloomberg World Interest Rate Probability data, aren’t presenting signs of adjustment yet. That indicator still implies only a modest 14 basis points of hikes into 2019 from the Fed – though it is showing a greater chance that the central bank will stop or even reverse course in 2020. Arguably, the most interesting price action has transpired in US breakeven inflation rates: the 5 Year indicator has dropped to imply future inflation of just below 1.6 per cent – well below the Fed’s target level of 2.00 per cent.

    Powell Press Conference: Fed Chairperson has delivered his commentary and is taking questions from the press. Markets are reacting quite well to what he is saying but most asset classes are still swinging around a lot. The “data-dependant” line is being touted once again, suggesting a flexibility to future policy decision. The dot-plots too, it has been stated several times, is not a consensus estimate or guideline and is subject to revision. Traders ought to take comfort from that notion: if things get uglier, for whatever reason, the Fed will provide some sort of a back stop – a low-premium Powell-put, perhaps. However, a positive – a less dovish, more hawkish – tone has been delivered. Powell is waving away some of the recent financial market volatility, despite acknowledging that financial conditions are less accommodative for economic growth.
    Bonds and currencies: Bond and currency markets have been the locus of activity, as one would assume. Sentiment is still shifting in response to new information, though some insights into the collective consciousness of traders can be inferred. The US Dollar is turning higher for the day, climbing toward 97 according to the US Dollar index. The greenback is performing best against risk and growth sensitive currencies like the Australian Dollar: our currency has been dumped, tumbling over 1 per cent to sit just above 0.7100, at present. Bonds are rallying across the board and all the way across the curve. US Treasuries are of course leading the drive: there is the feeling that risk aversion is taking hold now. Equities are selling-off: one criticism popping up now is the Fed is not taking financial market volatility seriously-enough.
    US Treasury yields: A cursory analysis of the yield curve is presenting some interesting information, too: the yield on rate sensitive US 2 Year note has fallen by 2 points at time of writing, but the US 10 Year note has fallen by an even greater 5. The spread between those two assets has narrowed to 13 points. Traders are suggesting, as they had been at stages in the lead up to this Fed meeting, it expects the Fed to keep tightening rates, even in the face of lower inflation and growth prospects. If anything is going to spark fear and further volatility today, it’s probably going to be based on that point. An imminent-enough economic slow-down is upon us, it is being implied, however the Fed will likely stick to its strategy of restricting financial conditions by lifting interest rates.

    The aftermath: The event is more-or-less over now: all the official information is out-there, and Powell has delivered his press conference. Now traders trade and speculate on what has been communicated to the market. After holding up well enough initially, US equities are being smashed and futures markets are pricing in a sell-off across both European and Asia markets. Looking at the market-map of the S&P500, it’s all a sea of red now, with just over half an hour left in trade. That index is clambering to hold onto the 2500 handle, while the Dow Jones has just registered a new year-to-date, intra-day-low. After all the formalities, market participants are behaving none-too-happy with what they have received this morning: stocks are off on volumes that have gone through the roof, credit spreads have widened, and safe-havens are being sought out.

    ASX today: Though it has suffered in the global equity sell-off, the ASX200 has held-up rather well of last, at least when compared to its global peers. SPI Futures have swung heavily this morning, vacillating all in the time it takes to type a sentence in a range between 7-to-25-points. Yesterday was a soft day for Australian shares as traders positioned for this morning’s Fed; the only bright spot for the session was the announcement from APRA it was going to lift lending restrictions on investor only loans. That fact gave the real estate sector, the banks and the consumer staples space a boost. What’s in store for the day ahead is hard to pick for a trader right now: the markets are shifting so rapidly. Anything more than a flat day for Aussie shares would be surprising. IG is pricing the ASX at 5560 as of 7.45AM, with the recent intra-day low of 5551 the level to watch today.
  16. MaxIG
    Wall Street clocks new highs: Wall Street achieved a milestone overnight: it registered an all-time closing high. It in some way punctuates one of the more bemusing runs in US equities, following (what felt like) the near-cataclysmic market correction at the end of 2018. The S&P500 closed at 2933 this morning – a mere 10 points from that index’s all-time intraday high. As had been expected, the catalyst for US stocks’ latest burst higher came directly from US reporting season. A series of companies, including the likes of Coca-Cola, Twitter and Procter and Gamble, beat analysts’ expectations, inspiring hope that the feared “earnings recession” isn’t confronting the market after all.
    Can the good times last? The natural question to ask in these circumstances is: how far further can this run? This is especially pertinent give that the last two occasions Wall Street hit record levels, it was followed by major market corrections. A familiar point too: the previous market pullbacks were characterized by the evacuation of momentum chasers from the market, after US indices began to test “overbought” levels, somewhat like they are beginning to do now. The growth and earnings outlook then, as compared to what it is currently, was also much more favourable, giving credence to the notion that this market isn’t being supported by strong enough fundamentals.
    Valuations are (relatively) favourable: Of course, it’s impossible to predict these things with any certainty; however, for US equity bulls, confidence can be taken from a few facts. The first, is that that valuations aren’t looking quite as stretched as they were in February 2018 and October 2018 when the last two corrections hit. As of today’s close, the S&P500’s price-to-earnings ratio of 19:1 is markedly below the 24:1 and 21:1 that defined those two market-corrections. Furthermore, yields are still attracting flows into stocks over other asset classes, with the S&P500 still boasting a relatively attractive 1.89 per cent yield overall.

    The core risk missing this time: As might be inferred from these statistics, the key risk absent now as compared to when the S&P500 hit its last record highs is the prospect of interest rate hikes from the US Federal Reserve. One might even suggest that the cause of and solution to Wall Street’s volatility has been the Fed. Recall: the February 2018 market correction was sparked by a surprise increase in US wage growth that forced bond markets to price in the greater prospect of Fed rate hikes; and the October 2018 market correction came subsequent to Fed-Chair Jerome Powell’s now infamous “a long way from neutral (interest rates)” comments.
    The Fed unlikely to remove the punchbowl: It was the unwinding, if not flat-out reversal of the Fed’s policy bias, that inspired the most recent ascent to all-time highs for the S&P500. And as opposed to the corrections of 2018, the chances that the Fed will “pull away the punch bowl” as this party is getting started is quite low. Instead, the muted inflation outlook, combined with economic and policy related realities, has led market participants to bet that the next move in US interest rates will be a cut. Hence, financial conditions are likely to be supportive of risks assets, with the key now ongoing economic, and corporate earnings growth.
    ASX to join the party? In light of Wall Street’s quick-sip of euphoria, SPI Futures are suggesting that the ASX200 will back up yesterday’s strong showing and add around 20 points at today’s open. Though missing true volume through the market, the ASX demonstrated signs of robustness during Tuesday’s session, with breadth solid at 76 per cent, every sector in the green, and the major energy, mining and financials stocks all adding substantially to the index. It was enough to push the ASX200 into and beyond the 6300 level, and clock highs not witnessed for Australian stocks since September 2018.

    Event risk centres on Australia today: A few supportive inter-market variables have underwritten the strength of Australian stocks this week: a tumble in the Australian Dollar, and Australian Government Bond yields. Arguably, it's in anticipation for today's headline event-risk that this has been so: quarterly local CPI figures. Though not as significant as labour market data to the RBA, the inflation numbers will offer some insight into the RBA's potential next move. Australian inflation, as it has been globally, has been stubbornly low. A matching or missing of today's 1.5 per cent estimate for CPI only adds weight to the idea the RBA's next move will be a cut.
    Written by Kyle Rodda - IG Australia
  17. MaxIG
    Written by Kyle Rodda - IG Australia
    Overnight bounce: A bounce in equities has finally arrived, unwinding some of the week’s heavy losses. As it currently stands, the NASDAQ – ground zero for much of the recent market correction – is leading the pack, up 1-and-a-half per cent for the day, followed by the S&P, which is up 0.8 per cent, and the Dow Jones, which is up 0.65 per cent. Volumes are down generally speaking, so the recovery today lacks bite – though the Thanksgiving holiday in the US may somewhat be behind this, meaning an apparent lack of conviction in this relief rally could be explained away. Meaningful price action in other areas of the market that gives a solid read on the current psychology of traders is absent: US Treasuries have been comparatively inactive, with yields remaining contained across the curve, and the US Dollar is slightly lower, without demonstrating remarkable activity itself.

    Risk assets: Certain assets have benefitted from the lull in panic-selling. To preface: the VIX has receded to a reading of 20, from highs around 23 yesterday. In currency land, the Australian Dollar and New Zealand Dollar, as risk proxies, have ticked higher to 0.7265 and 0.6795. Obviously, the reduced anxiety amongst traders has meant the converse is true for haven currencies like the Japanese Yen, which is trading above 113 today. The Euro and Pound remain in the 1.13 and 1.27 handle respectively, most unmoved by the day’s sentiment. While credit spreads, which have blown out recently as risk-sentiment evaporated, have finally come-in. To counter the notion of complete risk-off: Gold has caught a bid, to trade at $US1227, or thereabouts, with its rally attributable largely to a modestly weaker greenback.
    Global indices: But overall, risk appetite has been ever so slightly whetted, even if it is only temporary. European equity indices were well into the green, aided by a skerrick of positivity generated by good news relating to the Italian budget crisis. The DAX was up 1.61 per cent and the FTSE added1.47 per cent, shaking-off the mixed lead from Asia, which saw the Hang Seng up 0.51 per cent and the CSI300 up 0.25 per cent, but the Nikkei down 0.35 per cent and the ASX200 down 0.51 per cent. A bounce in commodity prices has fed into and supported the solid sentiment in equities, especially as it relates to oil, which rallied off its lows to trade just below $US54 in WTI terms and hold within the mid-$US63 handle in Brent Crude terms.
    Slow news day: If this all sounds dry, it’s because that in the context of the volatility experienced in the past week – if not almost 2-months – it very much is. Little has catalysed the overnight bounce. The major themes are still hovering about, and the questions implied by them have barely been answered. The big data release overnight – in fact, it’s probably the biggest for the week – was US Core Durable Goods numbers, and they disappointed. That release, very marginally, added to the chorus of pundits suggesting that the US Federal Reserve’s hiking path may be a little flatter than recently thought. As far as what can be inferred from the data, the US economy is cooling off, implying the “data dependent” Fed will lack the reason to aggressively hike interest rates.
    Fed-watch: A lot of these matters relating to the Fed will be clarified when a slew of board members speak next week. The markets attitude though is simpler to read: Fed Funds futures have reduced their bets on the number of rate hikes from that central bank to 2 and a bit from here. December’s telegraphed hike is being priced again at a 75 per cent chance, but after, if traders are a good barometer, rates in 2019 are looking very flat. A more dovish Fed, in the absence of developments in other issues like the Trade War or Brexit, is what is aiding the staunching of risk-off sentiment. It opens the risk now that markets could be all too wrong, and a spike in volatility will arrive if traders were to once again adjust expectations.

    A softer outlook: But with the volatility we’ve seen in markets, corporate earnings petering out, and economic growth cooling, the assumption of a more reserved Fed isn’t outlandish. It perhaps reflects the broader risks in the markets and economy too: the Trade War is ongoing, Brexit is falling apart, China is slowing, oil is tumbling, and Italy’s fiscal situation could blow up any day. Given such a landscape, an inevitable pull back by the Fed, timed with lower activity in financial markets, is very understandable – the game of chicken being played by markets and the Fed may have been won by the former. It could all turn on a dime very quickly of course, but as it stands now, the current environment is leading market participants to the conclusion that a period of soft growth, lower earnings growth and a more neutral Fed is upon us.
    ASX200: So: as it all related to the Australian share market in the here and now: our bounce today, according to SPI futures, will begin with an approximately 25 point jump at the open. Yesterday’s performance was naturally poor, but some solace can be taken in the fact the market bounced off the 5600-support level. The edging higher throughout the day’s trade was helped by a solid run from CSL, which rallied after Morningstar upgraded that company’s stock to “buy”. The banks also experienced some buying; however, breadth was very low, revealing the lack of conviction in yesterday’s modest upward swing. Today ought to see a broad pick-up, in sympathy with Wall Street’s trade: meaningful technical levels within reach on the daily chart are hard to find, but maybe the barometer is how closely a track towards the 5700 can be established.

     
  18. MaxIG
    Written by Kyle Rodda - IG Australia
    A relief rally, now onto the next risk: The relief rally for market-bulls was sweet, but fleeting: it’s on to the next risk event now. Traders are being inundated by information, much of it speculative. Against this backdrop, volatility reigns: while off its highs still, the VIX is up 2.7 per cent on the day. To be clear, the Fed’s dovishness and Mr. Powell’s-famous-Put is underwriting the potential for future bullishness. But market participants can’t afford to let their guard down in this environment. We have the world’s most powerful politicians converging on Argentina, and with so many fissures running-through global political economy, the number of issues threatening market stability is considerable. One assumes that every generation thinks of themselves as existing at the end of history – reference: we can thank Fukuyama for that notion, perhaps – but it does sometimes feel that with the world-order trembling, we are living through a historical juncture of some description.
    Markets want what’s familiar: Markets don’t like this. They desire support and stability and a protection of the status quo. It’s why, in part, seeing the Fed ostensibly step in to support financial markets is so emboldening, and sparks all sorts of bullish impulses. This is especially so within equity markets, which being able to gorge on cheap credit for years, became spoilt and fattened. The fundamentals of the system itself are shaky. Although this ought to be an inherent virtue when it comes to the nature of capitalism – the notion of creative destruction, as economist Joseph Schumpeter expressed it, whereby viable investments prosper, and wasteful inefficiencies are purged –  for the better part of a decade, policy makers (rightly or wrongly) have sought to resist this process to maintain a semblance of economic constancy and social confidence.
    Withdrawal symptoms: The problem is weening the macroeconomy and financial markets off the opiate. This is what the Fed is ultimately attempting to do, but with capital having allocated itself to places it ought not to have, removing the support from the system, along with the perverse incentives it produced, is proving no simple task. The Fed yesterday morning – articulated in Powell’s speech –  almost certainly backed down in the face of the implicit pressure applied by markets. The message was clear from marker participants: we don’t like the risks of macroeconomic and geopolitical instability, we think growth will slow, we need support, otherwise we’ll melt-down. And so, in the tradition of Fed board’s gone by, Powell did. The message was only affirmed in this morning’s FOMC Minutes: the idea of “further hikes” passed December is debatable, because economic forecasts are softer, and there exists too many risks that could undermine the Fed’s objectives.

    Inflation waning? One of these objectives, when looking at the Fed’s strict mandate, is inflation targeting, and it appears that fundamental inflation is petering out once again. Market participants have cooled on the idea of that inflation risk is high, primarily due to a downgrade in growth forecasts and the recent dumping in oil prices. The Fed’s chosen inflation measure, the PCE Index, printed overnight, and revealed inflation slipped below the Fed’s target level of 2 per cent by more than forecast. The number came in at 1.8%. It’s not to say the risk of inflation has disappeared: wages growth is on the up in the US, which could conceivably feed into higher prices – not to mention the effect tariffs or (an unlikely) turnaround in oil prices could have on future inflation. However, as the markets understand things for now, inflation isn’t a bug bear, and that gives an assurance that the Fed will stay steady.
    The G20: In the bigger picture: it’s about this weekend’s G20 Summit. The trade war, Brexit, oil prices and global economic prospects are the big talking points; but underneath those we also have new tensions between Russia and the Ukraine, Italy and its fiscal situation, the Saudi’s and the controversy surrounding the Khashoggi murder, along with a myriad of regional issues faced around the globe. It’s a true tinderbox, that unsurprisingly would have world leaders, and thus market participants, very anxious. The core dynamic appears to be that those with the power to influence the direction of the political-economic world order have no interest in preserving it. Trump’s America is descending into paranoid isolationism, China wishes to reshape the neoliberal system to serve its long term national interest, the Russians are apparently trying to consolidate their regional interests, while the Europeans are busy naval gazing and questioning how to keep a unified Europe together at all.
    Trade War: Presumably, traders will do their best to ignore the structural power struggles and all the comparatively smaller issues dampening market sentiment and just focus on what will come out of the Trump-Xi dinner date. One would have to be utterly naïve to believe a breakthrough is upon us here. It’s unimaginable – granted, maybe only for those who lack a rich enough imagination – that either side will compromise its strategic interests. President Trump will want concessions from the Chinese before doing a “deal”, the likelihood of which seems very low. China possesses a long-term strategy for its nation and economy – one that extends passed the speedbump that is the Trump Presidency. Compromising the future to appease a bombastic American populist leader in the present is counterproductive. Both sides must know this, and that they are not on the same page right now, whatever the benefits may be. The likely outcome from the weekend will surely be a piecemeal statement committing to ongoing talks, as always seems to emerge from the talk-fests.
    Price activity overnight: The price action overnight reflecting the underlying market dynamic described so far has been quite subdued. European indices caught up with their North American and (some) Asian counterparts to put in its own post-Powell relief rally. US equities lost steam however, but in late trade look poised to close 0.3 per cent higher for the day. US Treasuries whipsawed on shifting sentiment relating to interest rates, with the yield on the 2 Year Note is currently at 2.81 per cent and the yield on the 10 Year note is 3.03 per cent. In currencies, the US Dollar is effectively flat, the EUR is slightly higher, the Yen has experienced a haven bid along with Gold, the Pound fell on Brexit fears, and the risk off tone sent the A-Dollar below 0.7300. Finally, commodities are slightly up: oil benefitted from news that Russia was prepared to cooperate with Saudi Arabia on production cuts, but copper is slightly lower.

    ASX today: Promisingly for Australian equity market bulls, SPI futures are indicating a 12-point jump at the open for the ASX200, in line with the late run on Wall Street. The ASX experienced an immediate pop-higher at yesterday’s open, but the price action was dull and middling throughout the day. Overall, volume was strong, breadth was healthy, and the large-cap heavy weights in the materials and financials sectors added 13 and 10 points to the index, respectively. Growth stocks were big higher as expected, while defensive sectors were somewhat ignored. Private Capex figures were released and didn’t rock markets too much: it came in below expectations, but there were signs non-mining investment is turning around. The day ahead from a technical perspective should be assessed on whether the ASX200 can clear the small resistance hurdle at 5780 or so. But given what’s on for the weekend though, one shouldn’t be surprised or disheartened if that doesn’t happen today.
  19. MaxIG
    Wall Street rout: Wall Street capped-off last week with another day of considerable losses, even despite Europe posting an okay day. Come the end of the trading session, the Dow Jones had lost 1.81 per cent, the S&P500 had lost 2.06 per cent and the NASDAQ had lost 2.99 per cent. The fact markets are entering the thin holiday period doesn’t help. One assumes that many-a investor would be rather reluctant to be sitting at Christmas lunch this year holding open-positions in equities given this market. Friday’s volume was extraordinarily high, especially in the Dow Jones, which saw activity 140% of its 30-day average. That statistic is particularly remarkable when considering that the past 30 days have seen volumes at levels very elevated by broader historical standards.
    A down day, week, month, quarter: Looking at the S&P500 as the natural benchmark, US equities have shed 12.5 per cent so far in December, and 17.1 per cent in the fourth quarter. The 14-day RSI is flashing signs of an oversold market presently, however historical trading patterns suggest the S&P can dive lower, and momentum indicators are showing bearish-momentum is still building. A technical bear market, defined as a 20 per cent drop from previous highs, looks reasonably imminent given the current context. The NASDAQ, for one, is already there. Perhaps another concerning signal, IG’s sentiment measure is indicating traders are 70 per cent net long the S&P, implying that many traders may be trying “catch a falling knife”. If big-money keeps selling, the unwinding of these long positions could hasten the market’s tumble.

    Market-wariness: With all of this in mind, even if this bearish-trend feels overdone, and that therefore an inevitable bounce must be in store, it pays to understand this can get worse. That isn’t to prophesize and suggest that it will, but more that these circumstances require higher vigilance. As the cliché goes, the trend is your friend: with panic causing normal behaviour and correlations to break-down, falling back on that one may be comforting. Of course, these ideas only speak for 50 per cent of the traders in this marker presently. The uber-bears – particularly the ones who have been calling a central bank engineered market burn-out for years – are presumably feeling vindicated at-the-moment. If not that, then at least a little richer this Christmas than compared to last year’s.
    It’s still the Fed: To address the driver of current market activity: it is still fundamentally about the Fed. There seems to be an unshakeable notion held by market participants that the US central bank is way off the mark with their policy and views on the economy. A handful of central bank speakers have hit the hustings, so to speak, in the last several days to defend the bank’s position. An interesting question that keeps getting asked (more-or-less) is if by the bank’s own modelling inflation is going to undershoot, why lift rates now at all? The answer is frequently something that resembles the “data dependant” line, made to mean that the Fed’s forecasts are dynamic and therefore so is their decision making.
    Trump’s Powell-problem: The problem is, traders aren’t buying it: they likely want to hear here-and-now that hikes will stop. It’s been made a little more difficult in the last 48 hours to get a read on how this sentiment is evolving in markets. Looking at US Treasuries for one, there’s been a slight risk premium seemingly priced into yields after US President Trump drove the US government into shut down over the weekend. This may be exacerbated today and into the week by reports over the weekend (since denied by White House Treasury Secretary Steven Mnuchin) that the US President had several serious conversations last week about firing Federal Reserve Chairperson Jerome Powell because of the central bank’s recent policy actions, and views on the US economy.
    Political instability: He couldn’t do it, could he? According to many, legislation does open-up the possibility that a President can fire the Fed Governor for “cause”. It’s an ambiguous one, and a low probability event at this stage. But all this institutional dysfunction is spooking market participants. Not that the political instability hasn’t been the norm in last few years; the perception is though it’s getting a trifle worse. It’s an international phenomenon and strikes at the core of international political system. It’s manifesting in Brexit, in US politics, in France’s yellow vests movement, in the trade-war – and on and on. Financial markets take an amoral position on such subjects; however, they do manifest emotion, and right now the political climate is leading to a lift in fear.
    Australia: Trading in sympathy with Wall Street’s rout on Friday, the last traded SPI Futures price has the ASX200 opening 40 points lower today. There’s been a level of bemusement in the financial press about how rapidly this sell off took hold. Another down day today brings into clearer view the boundary line of the ASX200’s post-GFC bull-run trend channel at about 5380. The Aussie Dollar will also be an interesting one: it tumbled to rest on support at 0.7040 over the weekend. As fears build about the strength of the Australian economy, and greater volatility in global markets leads to diminishing risk appetite, an AUD/USD exchange rate with a 6 in front of it at some point this week is becoming a stronger possibility.

  20. MaxIG
    ASX’s looming recovery: The ASX200 has clawed itself to a level on the cusp of validating the notion that the market has bottomed. It might feel that we ought to already be at that stage, given we sit 7-and-a-half per cent of the markets lows. But turnarounds take time to be confirmed, and now having broken psychological-resistance at 5800, Australian equities are inches away from that point. There are counterarguments to be made, to be fair: the recent rally has come on the back of lower volumes, and the buyers have lost a degree of momentum. Nevertheless, the capacity to push beyond 5800, and then when the time comes, form a new low when the inevitable short-term retracement arrives, would give credence to the “market-recovery” narrative.
    ASX today: SPI futures this morning is pointing to a gain on 7 points at the open, at time of writing. There are several risks that could undermine that outlook. As the laptop’s keys are being tapped, there is 2 hours left to go on Wall Street, and the UK Parliament have just begun the process to vote on UK Prime Minister May’s Brexit Bill. More on that later. ASX bulls today will be searching for a solid follow through from yesterday’s 0.71 per cent gain. The daily candle on the ASX200 chart showed a market controlled by buyers from start to finish: the market never dipped below its opening price, and it finished by leaping to a new daily (and 2-month high) at the close.

    Sentiment; jumping at shadows: There’s a lot of noise in the commentariat about what the price action this week means. It is entirely justified. The December sell-off has punters and pundits hyper-vigilant for a catalyst for the next 4 per-cent intraday move. Collectively, it’s an irrational fear given how rare such occurrences are, but because it is understood that circumstances haven’t changed so drastically from then to now, such a phenomenon feels conceivable. The sentiment in markets has centred largely on speculation about the strength of China’s economy. On Monday, the fall in risk assets was over-attributed to the poor Chinese trade data, while yesterday it was attributed to the announcement that China’s policy makers are preparing stimulus for the world’s second largest economy.
    Mixed price action: The activity in stocks would lend itself to the belief that it is that story moving markets. The price action doesn’t give such a cut and dry indication to that. Indeed, equities were up across the board, and Chinese and Hong Kong stocks led the way. A better barometer for macro-economic drivers are currencies and bonds, and the activity there was rather mixed. US Treasuries have traded largely unchanged. The Japanese Yen is down, revealing greater appetite for growth and risk, as is gold, for the same reasons.  Commodities are mixed: oil is higher, mostly due to diminishing fears of global over-supply. However, commodity currencies like the A-Dollar are down, on the basis that there has been a bid on the USD at the expense of the EUR.
    European slow-down: The major laggard in the (major) currency-world was the EUR overnight. It’s come as-a-result of a speech delivered by Mario Draghi, who made uncomfortably clear his view that the Euro-zone economy is slowing down. Much of this view has been baked into markets, as it is. A series of really-poor PMI figures across the continent in the past month shows economic activity is in decline. It has diminished the prospect of a hike in interest rates from the ECB at any point this year. Markets have lowered their bets from a 50/50 proposition to less than a 40 per cent chance. German Bunds have rallied consequently, with 10 Year Bund yields retracing their recent climb to settle back at 0.20 per cent.

    Brexit vote: Bringing it back to unfolding events, UK Prime Minister May’s Brexit bill, as expected, has been rejected by Parliament. What was perhaps unexpected was the margin of the loss. It was always going to be ugly for May, but the final vote was an abysmal 432-202 against the Prime Minister’s bill. Thus far, and this is fresh as its being written, the price action appears to reflect the old situation of “buy the rumour sell the fact”. The GBP/USD has bounced on the news, rallying from its intraday low at 1.27 to currently trade above the 1.28 handle. Wall Street now, with an hour left to trade, has pared some of the day’s gains. The benchmark S&P500 is battling with the key 2600-level.
    The Brexit-vote fall-out: The commentary will come thick and fast for the rest of the day on Brexit. Members of the house are still speaking on the matter. Another referendum is being called by some, a general election is being called by others, a popular view seems to be one suggesting a delay of Article 50. How this affects the ASX this morning is contentious. SPI Futures have given up its overnight gains and are currently flat. In all likelihood, given that this morning’s events culminate in another little kick of the can down the road, the lift in volatility will pass for stocks. Markets hate uncertainty, so this relieves that anxiety for now. Using the AUD as a guide, the popular global risk/growth proxy is trading flat as of 7.00AM this morning.

     
    Written by Kyle Rodda - IG Australia
     
     
  21. MaxIG
    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
     
  22. MaxIG
    Flight to safety: There's been a general flight to safety in global markets over the past 24 hours, adding to the bearish sentiment that's been mounting for several weeks. The risks remain the same and there wasn't an event to precipitate yesterday's sell-off. It apparently began in the Asian session, after Chinese equities pared the gains it had added over the previous two trading sessions, then swept through European and North American markets as the day unfolded. Haven assets have caught a bid, the most pertinent of which are US Treasuries and gold (which tested $US1232 resistance once more), while the Yen has experience a broad-based boost from the unwinding of the carry trade, to test the support of a significant medium-term trend line.


     
    US Treasuries: Arguably, the most illuminating asset during overnight trade were US Treasuries, and the activity of its yield. Of course, that should come as no surprises, given the dominant theme in markets is the US Federal Reserve's rate hiking ambitions. The tussle in markets regarding heightened global growth risks and the impacts of higher global rates is manifesting on the hour across the US yield curve. The yields on interest rate sensitive 2 Year Treasury Note jumped to near-decade-long highs during Asian trade yesterday, seemingly inciting a minor panic amongst investors. The shift subsequently looks to have hastened the liquidating of equity positions, driving funds back into bonds, pushing yields down first at the back end of the curve, before driving the front end down with it, as havens have been sought.
    Asian equities: The edginess amongst investors played out most acutely in Chinese equity indices, which let go of much of the optimism engendered by policy makers' recent assurances of State-backed support for financial markets. The relatively blue-chip CSI300 dropped 2.66 per cent for the day, capping off an Asian session in which the Nikkei shed a comparable amount, the Hang Seng lost over 3 per cent, and the ASX200 dropped over 1 per cent. The downward trend continues for China's markets, which despite exhibiting stronger fundamentals (on paper) than what markets are conveying, can't managed to hold onto a sustained rally. It points to a market that may well believe that the worst impacts of the trade-war are still to play out – that is, that the trade war will transform China's mild economic slowdown into something graver.

    ASX200: The action on China's markets accelerated the momentum of selling on the ASX200 in yesterday's trading session, however it must be said bearish sentiment had already been pervading the local share market by the time China’s markets opened. SPI Futures have undergone a noteworthy reversal early this morning, indicating currently a 13-point jump at the open today. The shift in price can be attributed to a late run on Wall Street, which has seen US indices bounce off the day's lows to contain the session's losses to about half-a-per-cent. What Wall Street’s lead reveals about what lies ahead for the ASX today is opaque; but considering that yesterday’s activity saw losses across every sector, perhaps simply a general retracement is in store today.
    Europe: Europe took the weak Asian lead yesterday and added to it the continent's own idiosyncratic risks. The result was a 1.24 per cent fall in the FTSE 100 and a 2.17 per cent fall in the DAX. Combined with fears about global growth, higher global interest rates, and stalling Brexit negotiations, was another deterioration in the relationship between the Italian Government and European Union bureaucrats, after Brussels threatened Italy with hefty fines if it did not revise its controversial budget in the next 3 weeks. The spread between German Bunds and Italian BTPs expanded to around 320 basis-points once again, as markets priced in a greater chance of an Italian credit default. Despite this, the Pound and the Euro kept flat for the day, by virtue of a slightly weaker USD, which lost some of its haven bid to gold on the back of investors cutting exposure to fiat currencies.
    Wall Street: At Wall Street's close, the major US indices have all closed effectively 0.5 per cent lower for the day. Another poor session undoubtedly, making this the twelfth time in fourteen days that the S&P500 has registered a loss – however it must be remarked that the result comes after US equites fell by as much as 2 per cent intraday. The overriding theme again for US markets was the building angst regarding the various risks that posed to earnings growth in 2019, especially after Caterpillar flagged a suggested a crimp to its profits from the expected impacts of the US-China trade war. How this narrative holds will hold increasing weight in the final days of this week, as markets anticipate earnings release from the likes of Microsoft, Amazon, and Alphabet.
    Saudis and Oil: Oil prices experienced some of the highest levels of volatility overnight, as the sinister politics of the black stuff played out in price action. Brent Crude prices dropped by over 4 per cent, breaking its dance with the $US80 per barrel level. A degree of the tumble in prices comes as fears mount about the sustainability of global economic growth. However, the major catalyst for the very acute fall came as Saudi Arabia pledged yesterday to boost oil production, in the face of growing pressure from the global community regarding its (all but proven) murder of dissident journalist Jamal Khashoggi. If last night's move is indeed a turn of trend, time will tell; though it isn't a stretch now to suggest that the Saudi's may look to push oil prices down as an act of recompense to the global community for their heinous behaviour.

     
  23. MaxIG
    Markets trade-off Friday overhang: Markets traded in something of a vacuum Monday. The themes driving price action were more-or-less those that had determined activity to end last week. The effects of this were pronounced in the Asian session, but much less so in Europe and North America. It stands to reason: Asian markets were still to digest Friday night’s abysmal European PMI figures. That data’s impact is still rippling through the market. Anxieties about global growth and the likelihood for a global recession is the topic of the day. But the material losses stemming from these concerns, though broad-based, have been limited overnight. Wall Street is down but bouncing; European stocks were down; while futures contracts for Asian markets are mixed.
    Risk-off generally prevails: Fear is demonstrably higher. On balance, safety was generally sought on Monday. In something of a bittersweet development, the VIX has pulled of its lows, to trade above 16, as traders reprice volatility and risk. In the broader G10 currency complex, the Yen has been led the pack, though its rally has steadied, and it is currently shuffling around the 110-handle. Investment grade credit spreads have widened notably, as speculation about slower growth has fanned-fear regarding the massive US corporate debt burden. And finally, the overnight-drop in the US Dollar, combined with the ubiquitous disappearance of safe-yielding assets the world-over, has pushed gold prices to $US1322 per ounce.

    Sentiment balances out slightly: A sliver of relief made its way into market participants psyche overnight. Some positive German data helped traders decompress – the bears were made to take a backwards step. Perhaps fortunately for the bulls in hindsight, the lack of major data releases removed the risk of fuel being added to the fire of bearish sentiment yesterday. The business-media cycle primarily concerned itself with interpreting the meaning of an inversion in the yield curve between the 3-year and 10-year US Treasury note. The conclusion sensibly arrived at, after making it through the hysterical headlines, is that no one piece of information tells the whole story; and even if it did, this ****-bit suggests (historically) a recession is still over a year away.
    Global growth to remain central question for now: This isn’t to suggest that the global growth outlook ought not to be taken as a big-risk presently. It is, and it’s being digested by market participants meticulously. Naturally, equities aren’t showing it that much, but the unfolding dynamic in bond markets, which has recently seen global yields tumble to multi-year lows, is still in motion. The momentum behind this move diminished slightly last night, leading some to call for a bit of a snap-back in the very short term. However, the trend is firmly in place: yields are falling the world over as traders position themselves for the combined effects of a deterioration in economic activity, and subsequent interest rate cuts from the world’s biggest central banks.
    Australian bonds rally: Such an appetite for relatively safe bonds manifested in our own markets, too. There was a sale of 5 Year AGBs, and the demand for the asset conveyed market participants desire for capital preservation. The bid-to-cover ratio out of the auction was a significant 5.61. Aussie bonds have, in a world where government debt is outperforming short term, seen some of the greatest in-flows of late. Catching-up with risk-off sentiment that had plagued markets, yields on AGBs tumbled during yesterday’s trade. Most noteworthy was the activity in the 10 Year security: it’s yield fell nearly 8 seven basis points to a record low 1.77 per cent.

    Australian Dollar: resilience and a little luck: Despite the fall in yields on Australian Dollar denominated bonds, at least in the last 24 hours, the Australian Dollar has made its way modestly higher. The “little battler” as its affectionately known has lived up to its reputation recently, managing to hold itself above the 0.7000 handle, even in light of the mounting risk to global economic activity. The primary reasoning behind this has been twofold. First, the yield spread between US Treasuries and AGBs has actually narrowed, as traders price in a US economy increasingly inhibited by the slowdown in global economic growth. Second, the (perhaps) fortuitous lift in iron ore prices, courtesy of persistent fears about production and supply of that commodity.
    Defensive sectors loom as potential leaders: It’s unlikely that plain luck will keep the ASX200 sustained. A settling of fundamentals is required for that to be achieved. That’s problematic, too: given the dearth of information the world over, the ASX will be reaching for global leads to add to its recent gains. Just for today: SPI Futures are indicating that the ASX200 will open about 8 points higher, as Wall Street stages a quick dash higher into its close. The bulls will be hoping for a bounce today, but judging by US markets’ lead, it’s a bit tough to see where that may come from. A defensive rotation was at play in the S&P500, so chances are a play into yield stocks will be the theme today.
    Written by Kyle Rodda - IG Australia
  24. MaxIG
    Activity lifts to end last week: A risk laden week has ended with a pop. Asian and European trade was solid, albeit dull. However, it was a clear-cut-case of risk-on during the North American session. The new fuel to the S&P500s fire came as US earnings season kicked-off in earnest. JP Morgan, and a handful of America’s other big-banks, reported and generally surprised to the upside. The catalyst served two purposes: one, it supported (granted prematurely) the view that assumed earnings growth across US equities may be too low; and two, it pushed the S&P500 above key technical levels – notably, psychological resistance at 2900.
    Traders are US earnings focused: That milestone, which has been clocked on three occasions in less than 18 months now, triggered a lift in trading volume that had otherwise alluded US stocks last week. As its been stated before: this is a stock-market primarily concerned now with earnings growth, before anything else. And the reasoning is logical: whether right or wrong, markets have priced in a dovish Fed, and something of a bottoming in global growth. Now what’s needed is a validation in the earnings outlook; less one that applies to the current earnings season, and more those of which to follow in quarters ahead.
    Market internals validate momentum: The first signs of that were delivered on Friday evening, so markets flicked the risk-switch. Once again: there was a marked increase in trading volumes during Wall Street trade, providing a very short-term confirmation signal that substance exists behind the market’s latest foray higher. Intra-day breadth was also solid, with 76 per cent of stocks, and 10-out-of-11 sectors, gaining for the session. This adds to the already bullish breadth signals in other, deeper measures of market internals. For one: the NYSE advanced-decline measure has remained, and again turned positively, to the upside, reveal solid momentum in the market.

    Fear-falling; but anxiety remains: Thus, with 2900 broken on the S&P500, barring any external shocks, the rest of the earnings season on Wall Street will probably end-up a day-to-day countdown to a new record-high for the S&P500. With all the excitement that captured market-participants on Friday, the VIX has plunged to new year-to-date lows. While the drop in the “fear-index” can easily be explained away, it probably doesn’t reflect the true-trepidation in the market at-the-moment. The rationale for very subdued implied volatility is very comprehensible. Nevertheless, memories are crystal-clear of what happened the last couple of times the S&P500 traded this high with volatility so-low.
    The bears are still hungry: Vol-canos, vol-pocalypses: they were two of the portmanteau floating around after big-spikes in the VIX last year following short periods of suppressed implied volatility. Hence, although US stocks sit nominally less than 40-points from new records, historical memory, mixed with market-fundamentals that are less favourable to those that supported previous record highs, has this latest record-run viewed through jaded-eyes. Despite constantly being proven wrong, the necessary pull-back in US stocks during Wall Street’s big V-shaped recovery still ought to be upon us, according to bears. Market participants’ complacency, as betrayed by the VIX, will only contribute to another correction and volatility break-out in time.
    The missing agitator: It’s true that the S&P500 is edging towards overbought levels when looking at a medium-term time frame. However, although the global economy is lacking the fecundity present in previous record-breaking rallies, a few ingredients that were present in recent sell-offs are missing. First of all, price-to-earnings ratios aren’t as stretched as they were in October and February last year. But more importantly, the key impetus for those two sell-offs will probably remain absent this time around: discount rates, although edging higher on Friday, are unlikely to rain-on-the-parade, with the US Federal Reserve all-but locked into keeping interest rates on hold.

    The ASX’s loose relationship: So: with this in mind, entering the week, and a period of high-impact corporate data, risk-assets sit cautiously on the precipice. The gravitational centre of financial markets is Wall Street, and consequently, its internal dynamics will be a large determinant of how markets trade this week – and for a little while yet. Of course, its influence will be of varying significance depending on the market in question. For one, the ASX200 is an index that has recently moved in relation to the S&P500 like Pluto does to the Sun. Today, even despite Wall Street’s bullishness, SPI Futures point to a flat start for the ASX.
    Written by Kyle Rodda - IG Australia
  25. MaxIG
    Written by Kyle Rodda - IG Australia
    Fleeting relief: The Chinese and Americans are talking again; and the UK and European Union are nearing a deal. Those are the two stories that have turned the dour sentiment that characterized the first trading day of the week into something resembling optimism. Perhaps it’s another relief rally – every time the world doesn’t end we get one of those. Like when US mid-terms passed with few surprises, things going as they ought to engender nice feelings in the guts of traders. And not unjustifiably, either: the trade war and Brexit have become the two biggest bugbears in developed markets. In fact, 2018 may well be remembered in financial market history as the year the three biggest economic blocs’ almost tore one another apart – well that, and the very significant turn in US Fed monetary policy, of course.
    Is this the turning point? If this sounds all a little grand, that’s because it is; and it is why although the headlines read well this morning, the text of the story is one that we’ve read before. Could this time be different? Quite possibly. The steps taken by Chinese Vice Premier Liu He and US Treasury Secretary Stephen Mnuchin to re-engage in talks is a considerable step forward, ahead of what is a planned meeting between the two nation’s Presidents, US President Donald Trump and Chinese President Xi Jinping, at the sidelines of this month’s G20. And the news that UK Prime Minister May has effectively secured a deal with her European Counterparts – one that includes an Anglo-friendly outcome on the Irish border, it’s been reported – bares the signs that (at the very least) the British and Europeans are on the same page.
    A long way to go: Nevertheless, there is an amplitude to cover for the negotiating teams on all sides relating to both respective issues to feel comfortable that, this time around, this is the true beginning of the end. The political machinations driving both matters forward are occurring (naturally) behind closed doors – away from the prying eyes of the press and the public. For all we know, both or either one of the conflicts may be well advanced towards a resolution. From what has simply been reported thus far however, little has materially changed – at least for now. Even when stripping aside the important point that even if these issues were to disappear, the bigger fundamental challenges facing financial markets would remain, the very many sticking points to arrive at an end in the Trade War or Brexit means that turbulence inevitably lies ahead, whatever the outcome.
    Asian action: The price action in markets, as it evolved throughout global trade, apparently reflects this notion. When the news broke about a possible step forward in negotiations between the Chinese and Americans, China’s equities flew, erasing a one per cent loss to close day one per cent higher. The Yuan – a better barometer– pared its losses to trade back at the 6.95 handle, and the Australian Dollar rallied above 0.7200 and the New Zealand Dollar paid a visit above 0.6750. The Nikkei, which had been down by 3-and-a-half per cent on less than one per cent breadth, rallied to contain losses to – a still considerable – 2 per cent, courtesy, in part, to a fall in the Yen to 114.00 resistance.

    European follow-through: Futures markets also turned to price in the relief-pop across US and European equities, and as news filtered through about the potential Brexit-deal during European trade, traders hit the buy button. The DAX, which would have certainly fed on the prospect of reduced tensions between the US and China, added 1.30 per cent, and the Eurostoxx 50 gained 0.96 per cent for the day. The FTSE100, it must be said, only managed to register a flat finish for the session; but this was largely due to the rally in the Pound. The GBP/USD rallied above the 1.30 handle briefly and the EUR/USD pushed above 1.1250, forcing the USD to recede from its 18-month highs – a dynamic that also saw commodities generally turn higher for a period.
    Wall Street fizzle: Flash forward to this moment (or really, to the moment at which this is being written): US equities are entering the final hour of trade having erased the gains attained in early trade. As has been described, the attractive headlines about the Trade War and Brexit have proven not enough to change the fundamental landscape, for now. The VIX remains hovering just below the 20-level, and a general sense of risk aversion has pushed the yield on 10 Year US Treasuries back to 3.14 per cent. Another day of losses for oil, that has seen the price of Brent Crude plunge to $US65.14, has also been blamed for the poor showing for US stocks. In a choppy end to the session caused by below average volume, the Dow Jones is down around 0.5 per cent, the S&P500 is down 0.2 per cent, while an early tech-bounce has (thus far) supported a flat day for the NASDAQ.

    Australia today: SPI futures have followed US indices down at the back end of the North American session, indicating that now the ASX200 is expecting a more-or-less flat open. It was another wipe out for the local market yesterday, with the Australian share market closing 1.8 per cent lower, led by losses in the healthcare and information technology sector. A handful of companies going ex-dividend, including heavy weight Westpac, certainly exacerbated he ASX200’s fall, however a breadth of 10 per cent shows this was a widespread sell-off. 
    Australian trade could prove to be eventful today following Wall Street’s lead. The economic calendar is robust: locally, Wage Price Index data is released, while abroad, Chinese Fixed Asset Investment and Industrial Production data is printed. The Australian Dollar is exposed to downside in the event these three releases underwhelm – 0.7150 is a realistic level of support to watch for – and the ASX200 appears vulnerable to break below a key level at 5820, if Wall Street’s selling follows through.    

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