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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
    Growth fears ease; risk taking subdued: Risk appetite wasn't terribly high overnight. But in saying this, the persistent, vexatious concerns regarding the global growth outlook has continued to abate. Markets have become used to modifications in the growth outlook manifesting in a powering of risk-on behaviour. Given the economic backdrop, the reasons for this are pretty intuitive. Just as far as last night's trade, though, this relationship didn’t hold quite so strongly. There were clear signs that market participants were tempering some of their worst fears about global growth. However, risk-assets didn't respond in the way that they have in the recent past. Not that this should be looked into too much; it's just been a curious truth that's lead to a touch of head scratching last night.
    More good news than bad: It would be wrong to suggest it was a bad day for equity markets. More, that given some of the news in the market, and the cross-asset price action, a stronger move higher might have been expected. The macro-development that captured most attention was news of "new progress" in the US-China trade-war, that boosted hopes of a breakthrough in upcoming trade-negotiations in Washington. In a muted response, Wall Street has edged a trifle higher last night, with the S&P hovering around the 2870 mark. European indices performed a little better, following some strong Services PMI numbers, while Asian indices probably led the pack in the last 24-hours.
    Bonds tell the story (again): Evidence that market participants are re-pricing their global-growth-concerns, in part due to the trade-war developments, manifested in the bond market. A move inverse to that which markets saw last week, government bonds have retraced their gains, as traders reassess the immediacy of what is a widely accepted slowdown in the global economy. It's been the middle of the curve that has demonstrated most movement, with the US 10 Year Treasury note making a foray back above 2.50 per cent; while the equivalent German Bund is making a run out of negative yield. In fact, part of this move in bond markets could explain some of the flatness in equities overnight, as the swift jump in discount rates diminish equities' relative appeal.

    Yield fluctuations show in currencies: The slightly, and probably transitory, revision to global growth has naturally manifested in the currency market. The Australian Dollar and Kiwi Dollar performed strongly yesterday, while the Japanese Yen and US Dollar fell. The quick normalisation in bond yields supported the Euro, which continues to hold onto the 1.12 handle in the face of geopolitical risks and a concerning trend in the continent's growth. Gold prices also dipped on the normalising yield environment, and sits someway of its highs, though its losses were contained by the weaker greenback. The Pound also leapt higher, but as always, that was due as much to Brexit speculation, as it was to any other macroeconomic driver.
    Overall: a day of mixed signals: Really, if anything ought to be inferred from market behaviour yesterday, it's that it was a day of mixed signals. Upside in global equities is practically expected, as earnings forecasts stabilise, P/E ratios remain in a normal range, and monetary policy settings stay accommodative. Certain indicators of the "real economy" are favourable too: the gold-to-silver ratio keeps climbing, credit spreads are falling, while industrial metals keep trending higher. However, some cautionary signals remain: the VIX looks unnaturally suppressed, the "smart money" isn't supporting these news highs, and yield curves are completely bent of shape still. The path of least resistance for equities is higher, however the climb there could still be treacherous.
    ASX to open lower, following solid day: Never to be left behind on a global trend, the ASX200 ought to open a little lower today. The good fortune was flowing for the index yesterday, as the trade-war developments, the Federal Budget fallout, and another big lift in iron ore prices fuelled the market to multi-month highs. The materials stocks naturally lead the ASX higher, but the effects of the night prior's budget was plain to see: industrial stocks, the Real Estate sector, and utilities all fed off the news of fiscal stimulus. The eyes were on consumer discretionary space, given the support to households in the budget. It traded slightly higher, though most of the budget's news had already been baked-in.

    Retail Sales beats, easing local concerns: The good-news story, in a domestic sense, for Australian markets came in the form of Retail Sales data yesterday. It exceeded expectations considerably, printing month-on-month growth of 0.8 per cent, against a 0.3 per cent estimate. The fine print was interesting: on the month, Australian’s spent their discretionary income on eating-out, generally forewent spending on attire, and spent a tiny-bit more on department store spending and household goods. Overall, markets reacted bullishly to the data: the Australian Dollar rallied to trend line resistance at 0.7130-ish, and bond yields jumped as traders repriced the number of expected rate-cuts from the RBA before the end of 2019 to 32 basis-points.
    Written by Kyle Rodda - IG Australia
  17. 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
  18. 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.

     
  19. MaxIG
    Written by Kyle Rodda - IG Australia
    Panic stations, still: The behaviour in financial markets is resembling cats trapped in a burning room: the air is unclear, it’s unbearably hot, and people are scrambling to find an exit – or at least, somewhere appropriate to hide. The chaos is one thing, but the true issue – as is always the case, when these situations become particularly fraught – is no one can really describe why this is going on exactly. Now, we all know the stories: the Fed has equivocated and that’s confused the heck out of markets; US-China relations are hot-and-cold; future global growth expectations are being unwound; Brexit is on-again-off-again; and a breakthrough in oil markets out of the OPEC meeting hasn’t emerged. These issues are ongoing, so it’s not any sort of surprise that they’d all be weighing on markets in some form. The confusion is why they are all conspiring to create such fireworks now.
    Risk-off: Maybe traders have just taken too many hits in the last 3-months, and the bulls are effectively tapping out. A premature call, here, to be sure, however there seems so little motivation to hold onto riskier assets. It seems that collectively, a clear strategy to handle the volatility isn’t yet to emerge. The classic plays into safe-havens can be seen: US Treasuries are going on a tear presently, for a variety of reasons to be discussed shortly. An unwinding of the Yen carry trade has pushed the USD/JPY to 112.50. And gold is looking at a break-out above resistance at $1240. Inversely, risk proxies have also been thumped: global equities (needless to say) are getting hammered, the AUD/USD is taking a rinsing, and commodities, led by a 3 per cent tumble in oil, and a 1.1 per cent fall in copper, are plummeting.

    US interest rates: Interest rates traders have taken it upon themselves to signal to the market that the Fed ought not to be going anywhere in 2019 with interest rates. A December hike is still considered locked-in for all intents and purposes, but even a single hike in 2019 is progressively being priced out by markets. It’s an incredibly aggressive play ahead of key Non-Farm Payrolls, where wage growth figures will be assessed for inflation prospects. But whether rightly or wrongly, interest rate markets are calling it: hikes-off, cycle over – the share market and the economy have peaked. The dynamic is showing up right across the US yield curve: the yield on the interest rate sensitive 2 Year Treasury note is at 2.75%, above the 5 Year note, which is at 2.74%; and the benchmark 10 Year Treasury bond is yielding 2.87 per cent.
    Update on the yield curve: Doing the maths: the yield curve is still inverted, and the key spread between the 2 Year and 10 Year Treasuries is about 12 basis-points. For those who believe in the indicator’s efficacy: this still is flashing signs that markets are moving to price in a recession. To be sure, it’s way too early to call such a thing; but what can be inferred with more certainty is that markets believe an economic slow-down is approaching, and the global economy can’t withstand a non-stimulatory US Fed. It’s an indictment on the economic system that it can’t hold itself to together without extraordinary support. Stepping away from the disorder, though: perhaps this big-long cycle of central banks seeking to control the business cycle is seeing such diminished returns, and that the overall structure is no longer viable or sustainable.
    Trade War tensions: First comes the Fed, and then everything else. It has to be when assessing these markets. There are other drivers of the current climate of fear, however, that threaten market fundamentals. The US-China trade war took a nasty turn yesterday when it was reported the Huawei’s CFO has been arrested in Canada, and faced extradition to the United States, on allegations of trade violations. Though a long way from certain, some attributed the mini-flash crash on the CME Futures exchange yesterday to the shock of this news. Nevertheless, US-Sino trade relations have become highly-charged again, with the expectation now the goodwill between the US and China as each nation works towards a trade deal is disappearing. Trade sensitive areas of financial markets got smacked-down consequently: Chinese stocks were walloped, the Yuan plunged to 6.88, and industrial stocks bled.

    US Session: There is about an hour-and-a-half left in trade on Wall Street, and while the isn’t as bad Tuesday’s session, it’s still far from pretty. The Dow Jones is leading losses, down 1.8 per cent, followed closely by the S&P500 which is down 1.42%. The NASDAQ is holding up a trifle better, down only 0.8 per cent. This backed up a day in Europe that saw stock indices across that region shed over 3 per cent. Brexit concerns certainly aren’t helping there. The uncertainty around the day’s OPEC meeting is enervating financial markets. The price of oil is down in the realms of 3 per cent itself, sparking jitters in credit markets and therefore global equities, as traders wait-and-hope for a deal to cut oil production by OPEC. The price of Brent Crude has dived below the $US60.00 handle in the interim, while WTI is buying just above $US51.00 per barrel.
    ASX200: SPI futures are pointing to another down day for the ASX200. That contract is indicating a 23-point drop at the open. It must be remarked that despite the turmoil in overseas markets, Australian shares are holding up rather well. The session closed with a relatively modest 0.2% loss yesterday, clawing back the losses sustained during the US Futures mini-flash crash. Proven again was the thick support for the index in the low 5600s, which provided a solid floor for the market to bounce off yesterday. Repeated challenges of that mark can’t last forever, but it is heartening to know the buyers are there.
    Also positive was a clear rotation within Australian equities yesterday: unlike other parts of the world, traders were discerning enough to rotate into defensives away from cyclical stocks, rather than dumping equities whole-sale. It shows a desire to be exposed to equities at all, at a time where, in some parts of the world, going near the asset class is toxic. A grind lower may well transpire today, with the banks surely to be hurt by falling global yields, the miners to feel the pinch of falling commodity prices, and the energy sector to suffer from oil’s spill. Once again, maybe today can be assessed today on the breadth experienced by markets, and whether defensive sectors can hold it together.

  20. MaxIG
    Written by Kyle Rodda - IG Australia
    Friday’s trade: Activity in global markets was more settled on Friday. There isn’t a consensus yet whether the trading witnessed last week was a dead-cat bounce, or a true bottom. Nevertheless, perhaps the lack of substantial news flow was enough to keep the bulls and bears from clashing heads for one day. The ASX200 impressed the bullishly inclined, albeit once again on thin trade, to add 1 per cent during the Asian session. The index managed to chop through the cluster of resistance between 5600 and 5630, to end the week at 5654. The rest of the Asian region put in a mixed performance, with China’s market finishing 0.44 per cent higher and Japan’s Nikkei ending 0.31 per cent. Europe fared well, ending its week in a sea of green, while US indices were also mixed.

    Final day of 2018: Today is quite obviously the last trading day of 2018 and it caps off an extraordinary month – and an extraordinary year, at that. A reliance on the calendar as a way of defining and measuring market success is shallow. But for purely rhetorical purposes: who would have thought that a year that would contain two all-time highs for Wall Street would culminate in a negative year for global equities? In a similar vein: what about the gang buster earnings, and white-hot economic growth – does this seem like the end of a year that contained both those things? It’s reductive to distil the year’s market action to those two points, however it does highlight how unconventional and sometimes strange this year has been in global markets.
    Volatility: The year was much about the return of volatility. Volatility is a measure of fear, and fear is a function of uncertainty. Uncertainty breeds confusion, and the behaviour in financial markets at present is reflecting a state of confusion. It stands to reason and doesn’t necessarily need to induce pessimism. A collective view on the state of the world is absent – good, bad or otherwise, the aggressive swings in equity markets last week is a function of market participants seeking to price-in the most accurate representation of the financial world right now. Such a representation is far from being fully formed, and its shape is being pushed and pulled by opposing ideas and views. Until the will of either the bulls or bears can overcome the other, swings in markets, in an environment of tightening financial conditions, will continues into 2019.

    Bulls, bears and the Fed: Fundamentally, there is a disagreement between the bears and the bulls about future global growth and financial conditions. On the one hand, the bulls suggest the sell-off is overdone, and prices have corrected approximately to where they ought to be. On the other hand, the bears are of the belief that this sell-off has more to run, and that prices remain distorted. The logic begins with the US Federal Reserve, and market views on what the Fed will and ought to do, then expands to the many other major issues impacting market sentiment from there. A great many think that the Fed is overestimating the strength of the US economy and will lean on it in such a way that it will exacerbate a looming economic slow-down – so much so that Fed hikes have been effectively priced out for next year.
    Risk-off, anti-growth: It’s been over a week since the December 19 Fed meeting, and the central bank’s next meeting isn’t until January 31st, opening-up the chance of an uncertain and volatile month. In equities, beginning on Wall Street, the foundations of major turbulence are in place. Traders are bidding up safe-havens, and pricing out higher global interest rates, pushing the yield on US 10 Year Treasuries to 2.72 per cent, and the yield on US 2 Year Treasuries to 2.52 per cent. The US Dollar is looking exhausted as-a-result, falling to 96.40, supporting a push higher in gold, which rallied to $US1283 over the weekend. The anti-risk, ant-growth mentality of traders has also pushed the Yen deep into the 110-handle and held the AUD/USD to support at 0.7040.
    Trade war: It’s very unlikely to change the trend or status quo, however today’s focus, at the outset, should be directed towards riskier, growth exposed assets. A mere Tweet of course, though confidence again has been piqued by assurances from US President Donald Trump over his Twitter account that there is being made “Big progress being made (on a trade deal)”. Markets are used to this commentary, so the chances of a complete overturn of the prevailing view on the trade war is next-to-zero. Even still, it adds to what appears to be positive momentum in working towards a trade-resolution, at a time where Chinese equity equities keep plumbing to new lows, and fears mount for the health of the Chinese economy and financial markets.
    ASX200: As this all relates to the ASX200 today: the latest traded price in SPI Futures is implying a 22-point jump for the index today. The trend for the ASX200 is still lower, meaning market bulls should remain cautious. With its break through ~5630 on Friday though, the index apparently possesses some upside, even if for no longer than the short-term. The market is currently wrestling with the index’s 50-day EMA at 5669 – eyeing the psychological-barrier of 5700 presents as the next key level. Beyond that, a line-in-the-sand is draw at 5760: the level represents boundary line resistance, traced back to the index’s last high. Given that the fundamentals are yet to greatly shift, a break through this level seems unlikely. However, it might well indicate that at least for the ASX, the bears are losing control of the market.

     
  21. MaxIG
    The bulls are coming back: Traders received the greenlight to jump into risk assets on Friday. It culminated in a substantial jump across global equities and a certain “risk-on” attitude to trading. The impetus was arguably more technical than fundamental. The boost in sentiment in being attributed mostly the leaked news that Treasury Secretary Stephen Mnuchin was planning to lift US tariffs on China. Whatever the motive, nefarious or simply untrue, that story was quickly denied by the White House. However, it signalled enough to the market that progress was being made in trade war negotiations. That extra fuel to this recovery’s fire supported a push above very significant technical levels in Wall Street indices, attracting buyers and further validating the view that the December sell-off is behind us.
    The stock market’s biggest fan: There’s one market participant who is apparently willing that notion to be true: US President Donald Trump. The US President obviously uses the stock market’s performance as a measure of his success – rightly or wrongly. And over the weekend, amidst the very many Tweets that were Tweeted by Trump, this one outlined his view on the US economy and stock market: “the Economy is one of the best in our history, with unemployment at a 50 year low, and the Stock Market ready to again break a record (set by us many times)…” Quite a pledge to make – and one markets participants aren’t going to take too seriously. Regardless, it does provide a perversely comforting story for markets, to know that the US President is wishing this market higher.

    Technical indicators strong: For now, at least, the direction for US, and therefore global stocks, is up. The recovery has scarcely taken a breath to start the new year. Indications are now too that the market (as a whole) is starting to believe that 2019’s early rally is for real. Technical indicators for Wall Street’s benchmark S&P500 were as solid as they have been all year on Friday. Resistance at 2630 was broken through, clearly attracting the many sceptical or nervous market-bulls, pushing the index 1.32 per cent higher for the day. Volume was well-above average for the first time in several weeks too, at 9 per cent above the 100-day average. Breadth was also highly impressive, with 91.3 per cent of stocks higher, and every sector in the green for the session.
    The ASX200 set to follow: Friday’s solid session in US stocks has the ASX200 poised to jump 43 points at the open, according to the last traded price in SPI Futures. The ASX enjoyed its own strong performance on Friday, though it lacked the substance of its US counterparts. Like Wall Street, every sector gained ground on the day. But breadth and volume weren’t a shadow of US markets – in line with the trend of recent weeks. IT stocks were the only sector to attract meaningful interest, largely by way of virtue of a 11 per cent rally from Afterpay Touch Group, after it updated its underlying sales numbers. The ASX200 will eye its 200-day EMA in the day ahead at 5909, a level the index ought to exceed at the open according to SPI Futures.

    China in the spotlight: For all the excitement that markets have achieved the turnaround they were looking for, the week ahead hurls-up several challenges to this narrative. The macroeconomic drivers of market sentiment remain the dual concerns of global growth and US Federal Reserve monetary policy. The biggest risk to global growth comes from China’s economic slowdown – and how the trade war is exacerbating that. Deep insight into the Chinese economy’s state-of-affairs will come today: a major data-dump from the Middle Kingdom arrives today, with GDP figures headlining the lot. Much of the upside experienced in markets recently has come from hope and speculation that the Chinese (and therefore global) economic outlook is better than previously expected. The data from China today will put this hope to the test.

    Australian Dollar: As it always is on these occasions, the Australian Dollar will likely prove to be the barometer for sentiment relating to today’s data from China. There’s been relatively thinner commentary about currency markets, and the A-Dollar by extension, in financial markets recently. There was the flash crash which generated headlines, however putting that aside as a temporary quirk of market malfunction, volatility in currency markets has been quite subdued. Realized volatility in the AUD/USD is presently 5.45 – a very low reading, especially for currency so exposed to risk/growth dynamics – with the pair trading within a 100-point range for best part of 2 weeks. Though by no means guaranteed, perhaps today’s Chinese growth figures will ignite some of the action speculators are craving.
    Other risk events: US markets will be closed on Monday for the Martin Luther King Day public holiday. Several of the secondary and tertiary risk-factors moving markets will keep relevance in the next 24 hours. Brexit will hit the headlines as UK Prime Minister Theresa May prepares to table alternatives to the House of Commons after last week’s failed “meaningful vote”. The US Government shut down will drag on further, after Democrat leaders declined to cooperate with President Donald Trump’s latest salvo to end the stand-off over the funding of his border-wall. And the international economic elite will gather in Davos this week for the World Economic Forum, where issues such as global trade and the normalization of global monetary policy will be the hot topics.
    Written by Kyle Rodda - IG Australia
  22. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 11 Feb 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends this week
    RTY APAM US 13/02/2019 Special Div 103 RTY PRK US 14/02/2019 Special Div 20 RTY PFS US 14/02/2019 Special Div 20 RTY PZN US 14/02/2019 Special Div 46 RTY TLYS US 14/02/2019 Special Div 100 RTY MC US 15/02/2019 Special Div 125
    How do dividend adjustments work? 
    As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  23. MaxIG
    US NFPs: The final bastion of global economic growth is showing cracks in it walls. Arguably last week’s key-release, US Non-Farm Payrolls disappointed market participants over the weekend, printing well below expectations. It wasn’t a clear-cut, poor print. The unemployment rate dropped to 3.8 per cent and wage-growth climbed to 3.4 per cent. The shocker was the headline number: forecast to reveal a jobs-gain of 180,000, the US economy only added 20,000 last month. It’s given rise to concerns that, given how low the unemployment rate is in the US, and that wages are finally picking-up, the long-thriving US labour market has finally reached full capacity for this economic cycle.
    US stocks fall, but losses were limited: That would be bad news for the US and global economy. Despite this gloomy picture painted by NFPs, and an initial knee-**** reaction, traders sought to see through the data. It was a bad day, ending a bad week, for risk assets on Friday – that’s no question. But given that the weak US jobs figures punctuated a series of weak global economic data, which solidified the fear the global economy is sharply slowing, the reaction in markets was fairly contained. Global stocks certainly put in their worst weekly performance for the year. However, Wall Street’s daily losses were contained to a relatively modest 0.21 per cent, if judged by the S&P500’s performance on Friday.
    Central banks to the rescue? Could traders be betting that central bankers, in the event of a marked slow-down, will come valiantly to save markets from any economic malaise? Quite possibly. Interwoven between underwhelming economic data out of Asia, Europe and North America have been speeches and meetings from the world’s most powerful central bankers urging calm. Even more importantly, at least as it applies to market participants, central bankers have worked hard to deliver assurances that they’ll deliver policy support, if necessary, to curb any economic slow-down. Market pricing has reacted accordingly: global bond markets continue to rally, as traders price in that the next move from likes of the ECB, Fed and PBOC will be to ease policy.
    Interest rate markets: The most noteworthy move in the implied probability of rate cuts has been in US interest rate markets. Following Friday’s disappointing US Non-Farm Payrolls release, bets of a cut from the Fed before the end of 2019 leapt from practically zero, to about 20 per cent. US Treasury yields tumbled consequently, taking the US 10 Year note to 2.62 per cent and US 2 Year note to 2.46 per cent, -- taking yields on European and Asian bonds with it. Gold rallied back to just shy of $US1300 on this basis, and growth-sensitive commodities like oil, copper and iron ore tumbled. Credit spreads also expanded, with junk bond spreads touching levels not registered since the start of February.

    Higher geopolitical risk: This "risk-off" off dynamic, as one might label it, is finding itself compounded by the return of geopolitical risks. Over the weekend -- and this will likely carry into the week ahead -- critical impasses have apparently been reached in both Brexit and US-Sino trade-war negotiations. Regarding the former, the Pound tumbled ahead of this week's historic Brexit vote, after UK Prime Minister Theresa May threatened that Brexit may not eventuate if MPs don't back her deal with the European Union. As far as the latter goes, assertions from top-Chinese trade officials that any trade-war deal would need to be "two-way, fair and equal" slightly dented hopes that a resolution to the trade-war was imminent.
    ASX comes under pressure: The overall bearishness that coloured market-sentiment on Friday, and over the weekend at that, will translate, according to the last traded price of the SPI Futures contract, in a 14-point fall for the ASX200 at this morning’s open. This follows a day on Friday of broad-based losses on the ASX, as Aussie shares succumbed to the pressures that had already enervated their global counterparts, to fall nearly 1 per cent for the session. Granted, it was a day of low activity in the market, as volumes traded slightly below average. But the breadth of losses were noteworthy, with 83.5 per cent of stocks lower for the day, and every sector in the market finishing in the red.
    Banks and miners lead losses: Non-cyclical stocks put up a fight in early trade, which benefitted from a degree of sectoral rotation, combined with a continued fall in discount rates. The bearish tide eventually washed buyers out of those sectors, too, however. Financials were by-far the worst performing, subtracting 31 points from the index on Friday, as a parliamentary standing committee grilled the heads of CBA and Westpac, and reminded markets that political risk hasn’t yet disappeared for the banking sector. Finally, the big pull back in industrial metal prices and oil, which had recently rallied courtesy of a de-escalation in trade-tensions, dragged mining and energy stocks lower, sucking a combined 17 points from the ASX200.

    Written by Kyle Rodda - IG Australia
     
  24. MaxIG
    Written by Kyle Rodda - IG Australia
    ASX200 yesterday: It was a tale of two halves for the ASX200 yesterday, dipping at the open before roaring back to close the day’s trade 1.3 per cent higher. The dour beginnings came on the back of reports from Bloomberg – now well known – that the Trump Administration would be seeking to slap tariffs on (in effect) all Chinese imports into the US, if a deal couldn’t be achieved between US President Donald Trump and Chinese President Xi Jinping at next month’s G20 Summit. In a testament to the jumpiness of financial markets the world over currently, the tone changed in global markets upon the release of news that, in an interview with Fox News, US President Trump believed there was a “great deal” in the works between the US and China.
    Sentiment in Asian trade: A highly ambiguous statement. Nevertheless, market participants – clinging onto every shred of hope – took the comments, bound them to their sense of optimism, and ran Asian equity indices generally higher. Breadth on the ASX200 was at a noteworthy 75 per cent, though on volumes slightly below last week’s average, with the major momentum/growth sectors topping the sectoral map. The financials, as is always required, did most of the heavy lifting, adding 30 points to the index, in part in preparation for upcoming company reports from the Big 4. The Australian market has now pulled itself out of oversold levels, to break-trend on the RSI, and in doing so, establishing the foundations for a challenge of a cluster of resistance levels between 5780 and 5880.
    Corrective bias remains: No doubt, it was a praise-worthy performance from the ASX200, but Australian investors are far from out of the woods yet. Putting aside the major global drivers dictating the fate of equity markets the world over, the simple price action on the ASX200 index doesn’t yet indicate an end to the recent bearish streak. If anything, at least as it currently presents, the technical indicators play into it. The push into oversold levels necessitates a recovery in the ASX, as bargain hunting buyers galvanize a bounce higher. There’s some way to go before a reversal in the recent short-term trend lower can be definitively considered finished. A clean break through 5930 and a solid hold above 5780 would be the categorical sign required before this can be stated. Until then, abandoning a bearish perception of the ASX may well be premature.

    ASX200 drivers: As if often stated, the overall activity in the ASX200 is determined by an oligopoly of banks, a slew of mining companies, a couple of supermarkets and a much-loved biotechnology firm. The banks have received a leg-up thus far this week, as investors ignore regulatory risk and a property to slowdown to buy in ahead of a series of bank earning’s reports. The miners are being slayed by increased concerns about the impacts of tariffs on global growth, though increased fiscal stimulus from the Chinese and its knock-on effects to iron ore prices could be their salvation. Woolworths and Wesfarmers are performing solidly, though not well enough to carry the entire market higher. While a diminishing appetite for growth/momentum stocks has led to losses of over 5 per cent for market darling CSL over the past 3 months.
    Global macro and share market trends: Reviewing the fundamental macro forces required to stimulate the market perhaps reinforces the notion that the ASX200 still has some correcting to do. Although equity markets have experienced a relatively strong start to the week, the risks that catalysed the recent correction in segments of the market have not disappeared. Much of the reversal can be attributed to a belief amongst investors that the recent share market volatility will force the US Federal Reserve to soften its hawkishness and increase US interest rates at a slower pace.
    US Treasury markets reflect this, with the yield on the rate-sensitive US Treasury note falling from +2.90 per cent to as low as 2.81 per cent this week, as traders decrease their bets on December Fed-hike to 70 per cent. Indeed, it remains a possibility that a “Powell-put” under the US (and therefore global) share market may emerge, but the remarkably strong fundamentals in the US economy still imply a need for the Fed to hike interest rates – a dynamic that, if it materialized, will sustain volatility and further equity market adjustment.
    Overnight in Europe and America: To lower the eyes and turn focus to the day ahead, SPI futures are presently indicating a 9-point drop at the open for the ASX200. Futures markets have pared losses late in US trade, following a late session run on Wall Street that has seen the Dow Jones climb an impressive 1.86 per cent, the S&P500 rally 1.26 per cent, and the NASDAQ jump 1.56 per cent – though the latter may find itself legged in afterhours trade as investors digest Facebook results. The rally in the North American session followed-on from a soft day in European shares, which were mired by news of a potential ratings downgrade of UK debt by S&P, along with mixed economic data releases across the Eurozone. The USD climbed because of this imbalance between European and American sentiment, pushing the EUR below 1.1350, the Pound into the 1.27 handle, and gold prices to US$1223 per ounce.
    Australian CPI data: The trading week hots-up from today onwards, in preparation for several important fundamental data releases. Domestically, none will come more significant than today’s Australian CPI print, from which market participants are forecasting a quarterly price growth figure of 0.5 per cent. That number, if realized, won’t be enough to crack the bottom of the RBA’s inflation target band of 2-3 per cent, and will, in effect, affirm the central bank’s soft inflation outlook and dovish rate bias. As always, a figure of extreme variance to either side of market consensus could shift the Australian Dollar and interest rate markets. Traders remained wedded to the idea that the RBA won’t hike interest rates until early 2020: an extreme upside surprise in today’s CPI could see this adjust and spark a run higher in the AUD/USD towards trend channels resistance at 0.7200 – though this outcome is highly unlikely.

  25. MaxIG
    Weaker sentiment: Risk aversion continues to plague global markets. Despite some positive developments on Friday regarding the US-China Trade War and US Federal Reserve policy, confidence appears to be lowly, resulting in a general flight to safety. It was telling that the NASDAQ couldn't close higher along with the Dow Jones and S&P500 on Friday: the desire to jump into growth stocks keeps diminishing in this market. It raises the risk that market participants have internalised the idea that now is not the time to be chasing capital gains in high-multiple shares. The momentum chasers are being unquestionably washed out of the market, with punters changing strategy from one of "buy the dips" to "sell the rally".
    Missing conviction: It can be at these points in which moves to the downside are exaggerated because of an overall bearish bias. Assessing volumes are a terrific indicator of this, and currently and on balance, the days when Wall Street closes higher has generally coincided with days when volumes are relatively thin. The dynamic implies a lack of conviction from the buyers and sets up opportunities for aggressive sellers to profit from rallies in the market. The ASX200 demonstrated this well on Friday, where after a rather volatile week that ended with the index closing 0.10 per cent lower, intraday rallies in Aussie shares were flimsy and quite fleeting, revealing a tangible unwillingness by traders to take long positions in this market.
    Less information, more volatility? It will be curious to see how this theme holds in the week ahead. There is such a dearth of fundamental data: the economic calendar is light and US earnings season is effectively done-and-dusted. Traders will have no choice but to focus on the handful of significant geopolitical stories playing out, all in the backdrop of continued speculation about the very core concerns regarding US interest rates. It's a recipe with all the ingredients for a volatile week, if market participants struggle to price in the many vacillating variables moving markets. Watching how the VIX behaves will be the starting point for many-a trader, to get a gauge on to what degree fear and uncertainty exists.

    Geopolitics: It's conceivable that a new development in Brexit and/or the Trade War could shift sentiment very rapidly. There is a sense a breakthrough -- whether positive or negative for markets -- is upon us in both of those issues. Theresa May's Prime Ministership and her Brexit deal will face an existential threat this week, the possible outcome being a successful no-confidence motion in the Prime Minister, and subsequently the death of her Brexit deal. Trade War negotiations have ostensibly improved, however there are many mixed messages coming from both the US and Chinese governments regarding what this month's planned meeting between Chinese President Xi Jinping and US President Donald Trump at the sidelines of the G20 will yield.
    Slight to safety: An absence of certainty and clarity on both subjects has traders seeking safety. US Treasuries have rallied, with the yield on the 10 Year note falling to support at 3.07 per cent, a break of which could open downside to 2.95 per cent. The Japanese Yen has also been bid-up, closing last week's trade at 112.83, while the EUR bounced back above 1.14 -- and the GBP recovered some of its losses -- causing the US Dollar Index to pull back. Gold prices have spiked consequently, trading at $1222 per ounce. Other commodities have been supported by a lift in optimism regarding the trade war, with Copper and aluminium closing last week high, however oil prices still appear vulnerable to the downside, as concerns of a global over supply persist.
    The Aussie pops: Bringing it back closer to home: the Australian Dollar has been a major beneficiary from the weaker greenback on Friday. The Aussie Dollar has broken resistance at 0.7310, to open upside now toward the 0.7450 mark. The trend of US Dollar strength ought not be considered over yet: the yield advantage of holding US Dollars remain and looks likely to persist as the Fed maintains its rate hiking cycle. The tremendous amount of short positioning in the Australian Dollar (still), however, means that a continued pop higher in the A-Dollar is possible, before the more structural factors relating to interest rates differentials reassert themselves. In the week ahead, any sign of a step forward in trade negotiations could fuel an Aussie Dollar rally, with the inverse naturally true if trade negotiations sour.

    ASX today: Finally, the price on SPI futures is indicating a 17-point jump at the open for the ASX200. As alluded to earlier, a read on volume could be valuable today, especially if the market experiences upside. Of course, being a Monday, it will likely read lower irrespective, so perhaps the question should be to what extent volume deviates from the norm. The short-term trend is lower for the Australian share market and should probably considered so until a significant run back and beyond 5930 is achieved. A reason to buy into the market will be required to achieve this - something today is unlikely to deliver.
    Looking at the key sectors that drive the ASX200 and the narratives shaping their activity, briefly: the financials could find themselves supported today by a small army of bargain hunters, but another poor showing from Aussie property on the weekend plus more from the Royal Commission this week could drag on the banks; a sluggish day for the NASDAQ on Friday could indicate weakness in the high-multiple healthcare stocks; while the modest lift in commodity prices to end last week, along with the very slightly brighter outlook in the trade war, may benefit the miners.

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