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MaxIG

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  1. The headline news: The trade-war headlines are coming in thick-and-fast, with none of them truly substantial. Nevertheless, they have proven sufficient to belt market sentiment around, and dictate financial market activity, once again. A re-cap of the (dis-jointed) narrative is handy, for the benefit of context. Yesterday our time, markets trembled on news that, at one of his notorious “MAGA” rallies, US President Trump announced he thought the Chinese “broke a [trade] deal”. Stock markets fell. Then last night our time, markets bounced on news that US President Trump announced he has an “excellent” alternative deal with China, and he and China President Xi were in communications. Stock markets jumped. More volatility looks likely: It’s been something of a wild ride in financial markets in the last few days – perhaps made worse by the relative calm that has preceded this latest outbreak of trade tensions. The S&P500 is demonstrating much greater volatility now, with the VIX still elevated and trading around the 19-mark. More than likely, this patch of turbulence isn’t behind market participants yet. Of course, the next 12-18 hours will be crucial, as the 12:01AM (ET) deadline to strike a trade-deal nears. The balance of risks, at a cursory glance, looks as though one won’t arrive, and that means ****-for-tat tariff increases from the US and China tonight. Moves in markets sentiment driven: What this fundamentally means for financial market activity isn’t precisely known. Analysis on the subject seemingly relies on some crude and intuitive heuristics: the textbook suggest that tariffs lead to higher prices, lower consumption, less trade, and weaker economic growth. And rationally, this is probably true, and will manifest over time if tariff increases are implemented, and stick-around, long term. But for now, at least in the hard stats in the available financial data, the consequences of high barriers are yet to truly manifest in forecasts. The market behaviour witnessed this week is sentiment driven, meaning volatility will remain heightened while trade uncertainty exists. S&P500 closes above resistance: Given that the trade-war isn’t clearly manifest in fundamentals yet, the pullback in Wall Street stocks is more a function of market psychology rather than anything essential to the market, at least in the short term. Just as new all-time highs invited the herd into the market, and pushed the S&P500 into overbought territory, the re-inflammation of US-China trade tensions has prompted the herd to sell-out, dragging the market lower. Picking tops and bottoms, over whatever time scale, is a mugs game. But the fact the S&P500 has managed to close above 2855 support is a positive signal for market-bulls. Other market-risks being overlooked: Perhaps the biggest risk, given this preoccupation with the trade war currently, is that it ignores the more fundamental factors in the market. The biggest of these, as it purely applies to the longevity of Wall Street’s bull run, is of an interest rate shock from the US Fed. Granted, such a shock is a low probability. Regardless, given that the recent highs in US equities were engineered by central bankers’ dovishness, it pays to be privy to the relevant data - especially as it applies to inflation, which the Fed Chair Jerome Powell maintains is low only due to “transitory” factors. US inflation data tonight should be watched: That makes US CPI figures the crouching tiger of financial market risks this week. All of this hysteria related to what’s proven a mis-pricing of trade war risks has seemingly led to the ignoring of potential fundamental pressures. This isn’t to suggest that some sort of inflation shock ought to be expected from US CPI data. But based on economist estimates of the data, consumer inflation on a quarterly basis ought to print another robust 0.4 per cent tonight. One print won’t change the trend in the market; however, it could add to the story that market rate expectations are out of line with reality. AGB yields fall; weakens currency, strengthens stocks: Such an issue is unlikely to trouble the Australian economy. Inflation expectations have diminished greatly, and that factor, combined with concerns about Australia’s growth outlook in the fact of deteriorating US-Sino trade-relations, has seen 10 Year Australian Government Bond yields tumble to all-time lows this week. The fact has also driven the AUD/USD to multi-year lows in the past two-days; with both the lower yields and the lower currency a net-benefit to the ASX200. As far Aussie stocks today: SPI Futures are suggesting the index will open 9 points higher, ahead of a day highlighted by the RBA’s statement this morning. ALSO SOMETHING A LITTLE EXTRA TODAY: The Uber IPO tonight One of the more highly anticipated IPO’s in recent memory launches tonight: that of Uber Inc. In the last 24 hours, the company has reached a valuation for its IPO, publishing that it will float at $US45 per share. This equates to a raise in equity capital of about $US8.1b; and comes in at the lower end of analyst estimates. In the last month, IG has run a grey-market that’s allowed clients to speculate on what the market-cap will be for Uber Inc, come the close of it’s first post-IPO day’s trading. Using this order flow as a guide, IG’s grey-market price currently suggests that Uber Inc.’s market cap will come to about $US85b – well below the $US100b initially expected by equity analysts. Written by Kyle Rodda - IG Australia
  2. Trade-headlines determining sentiment once again: Judging by last night’s price action, trade for the remainder of the week is going to very “headline driven”. It’s an obscure way of saying a little bit nervous, a little bit jumpy, and probably a bit irrational. The reason for this judgement comes from market participants’ reaction to some pretty shallow, and conflicting news-stories overnight. As most traders have become used to when it comes to the subject, trade-negotiation news drove sentiment during US trade. And unlike the night prior, where traders became hung-up on bad-news, last night’s developments proved a dead-rubber for the stock market. Trump administration claims a deal is afoot: In another episode of “will-they-or-won’t they”, probably more befitting of a 90s sit-com plot-line rather high-stakes global diplomacy, the leaks provided to the press from the Trump Administration were rather constructive, and far less belligerent than those received at the start of the week. The conversation began with a Tweet overnight from US President Trump, announcing to the market that the Chinese delegation “are coming to the US to make a deal”. Those comments were promptly backed up by Trump advisor Sarah Sanders who announced that the administration had received word from the Chinese that they were ready to make a deal. US equities still sell-off into the close: The news, surely by design, broke at the start of the US session, and set-off a mini-flurry of buying in Wall Street stocks. And that behaviour held for the most of US trade. However, in what’s probably a sign of a general bearishness in the market currently, the S&P500 sold-off in the final 30-minutes of trade, dropping -0.60 per cent from the intraday high. That sort of selling into the close is a sign of a seller’s market currently; and it backs up the view upside momentum is global equities has stalled, if not reversed, for now. Momentum pointing to downside for stocks: Not to despair just yet, because the US equity market is pulling back from overbought levels. Nothing substantially fundamental has changed in the market yet, in the sense there’s few hard facts to suggest equities are entering another correction mode – such as those experienced a couple of times last year. Granted, the fundamentals aren’t overly strong to begin with; it’s just for now the behaviour of the marginal buyer-and-seller is driving price. Just as momentum-chasers stretched the S&P500 after it hit new all-time highs, it’s their departure from it that is generating the pull-back being experienced. A spike in the VIX fanning the fire: How far this wave lower will go is a difficult task to predict – no one can categorically state they know that, of course. But after a very big run-up in the US stock market this year, some further downside as the market recalibrates looks quite possible, judging by the emerging price trend. There are several other factors shifting the market about too, brought about by the surprise deterioration in US-China relations. The VIX has spiked, as the trade-developments drives an unwinding of what was historically high short positions on the volatility index – a dynamic that could exacerbate any further unwelcomed surprises in the market. Safe-haven currencies rally; AUD battles below 70: The trade-war nervousness and the drawdown in the equity market has prompted a play into safe-haven currencies. The Japanese Yen has gotten the biggest run-on, but the US Dollar has also strengthened, helped out by a lift in US Treasury yields overnight. That’s brought about another dip in the Australian Dollar, which looks as though its cleared-out the buyers at the 0.7000 handle – and is beginning to make itself comfortable trading with a “6” in front of it. This was despite a brief rally during Asian trade yesterday, after flows headed the Aussie’s way, from the Kiwi-Dollar, after the RBNZ cut its cash rate. ASX to open higher; China’s markets of interest: The lead handed to Australian markets by Wall Street has SPI Futures indicating a roughly 8-point jump at this morning’s open. Considering the S&P500’s drop into the close, though, perhaps this doesn’t give the most reliable indicator of what sentiment ought to be on the ASX today. It’s a much lighter day on the economic calendar today than yesterday or Tuesday. One eye should be kept on what happens in Chinese markets, as traders there appear pulled between this week’s trade-war politicking, and the prospect that any escalation in the trade-war will necessitate new rounds of monetary stimulus from Chinese policymakers. Written by Kyle Rodda - IG Australia
  3. Stocks sell-off in Europe and the US: Global equities appear in pull-back mode. Ignoring Asia’s solid-enough day, European and US stocks have tumbled. The Euro Stoxx 50 shed 1.78 per cent overnight, while the FTSE100 dropped 1.63 per cent, and the S&P500 has given-up 1.65 per cent. It looks as though just when one assumed the latest trade-war developments lacked true bite, the conflicts potential consequences have reared their head in price action. Trade talks this week take-on an even greater significance now. Stamped with the knowledge of how the herd is responding to the latest break down in US-Sino relations, traders will be hyper-sensitive to good or bad trade-talk news. Trade-war risk raises questions about fundamentals: It’s a part of why markets have behaved (quite) edgy overnight: trade-related news, and its all-important impact on market fundamentals, has proven had to quantify and predict. The last time trade-tensions were this high, commentators were wrangling with what the material impacts of the trade war would be. Would it derail global growth? How big of an impact would it have on inflation? What might it do to corporate earnings? There were few sufficient answers to these quandaries, and the trade-problem seemed to disappear as US-Sino relations improved last year. They’ll return to the fore now, with market participants no closer to and answer now than then. Stocks sell-off in the face of uncertainty: Those answers come with time, and it’s probably not the root of those questions necessarily causing the overnight sell-off, per se. In the short-term, where the vagaries of the market are overanalysed, and the day-to-day movements in the market are rationalized away, a simple dose of uncertainty is all it takes to move sentiment from something “bullish” to something “bearish”. The fact that market participants can’t answer some of the bigger questions relating to the trade war is worse than if they’d received uncomfortable answers to those questions. Faced with uncertainty, traders overcompensate for the lack of information by removing risk, and therefore assuming the worst. An overdue pullback? Hindsight is golden, and of course it makes a genius out of us all, but there were signs that the global equity rally has been getting long-in-the-tooth, anyway. And with last night’s relatively big sell-off, price action in US stocks is (for now) behaving as this is a healthy pull-back, rather than another correction. Indeed, all sorts of scenarios sit between those two extremes explanations, and the fortunes of global stocks for the rest of the week will probably manifest as one of them. But given the widely acknowledged disconnect between fundamentals and price, an adjustment in markets looks to be at hand. ASX to follow Wall Street’s lead: The SPI Futures contract is suggesting that the tumble on Wall Street will manifest across the ASX200 this morning. According to that measure, the index ought to give up about 67 points, come today’s open. It’ll likely be a broad-based day of losses too, given this information, as safety is sought, and profits are booked by investors. It continues a rather challenging start to the week for ASX bulls. The market was first harmed by the escalation in the trade war on Monday, taking the sheen off of economic growth optimism; and then was bottled yesterday afternoon following the RBA’s interest rate decision. RBA rate expectations legs the ASX: Mirroring the dynamic manifesting the world-over, Australian equities were undercut yesterday by the RBA’s decision to keep interest rates on hold, as the repricing of interest rate expectations pushed the marginal investor back into cash and bonds. It’s a dilemma for equity markets here, just like everywhere else: equity valuations have become more attractive for investors due to falling discount rates, rather than true profit growth. Furthermore, a natural lift in the Australian Dollar inhibited enthusiasm within the ASX, rallying towards the 0.7050 mark as traders priced-in a more hawkish RBA than what was expected. For the RBA, it’s all about jobs: The market is still expecting the RBA to more-or-less cut interest rates twice this year. Going into yesterday’s RBA meeting, that assumption was unlikely to reverse. However, it was all about the potential imminence of cuts, and with what was handed to traders from the RBA, bets on when cuts will happen has been deferred. There was plenty of detail in the RBA’s communications to the market in their statement yesterday, but the key point was this: the RBA acknowledges that inflation is low and economic activity is soft; however, while the jobs market remains tight, it sees no immediate need to cut interest rates. Written by Kyle Rodda - IG Australia
  4. A rocky start to the week: The first day of the week’s trade can be reasonably said to have ended – and it was a tumultuous one. US President Trump’s tweeting of new tariffs on the Chinese economy sparked a level volatility not experienced in the financial markets for several months. It certainly had the effect of waking some (perhaps) complacent market participants from their slumber. And although the panic has abated somewhat, sentiment has been dented again this morning, after an announcement from Robert Lighthizer this morning that US tariffs on Chinese goods will be increased this coming Friday. US trade showed greater equanimity: Wall Street was closed when this information became public. However, during US trade, the S&P500 progressively climbed over night, after gapping considerably at its open. On any other day, one would suggest that the action seen in US equities overnight was negative: the S&P500 is down just shy of 0.5 per cent, with market breadth a lowly 26 per cent. But considering the circumstances, along with lead handed to US traders from Europe and Asia, the price action ought to be viewed with a silver lining. The buyers in the market still seem to outweigh the sellers in the big picture, for now. Volatility is re-awoken: Volatility has spiked and remains elevated globally. That dynamic may linger for some time yet, too. Arguably, measures of volatility were mispriced anyway, with the VIX trading as low as 11 up until only recently. It’s at 15 now, after lifting above 19 at stages yesterday. The dust will settle this morning in Asia’s trade, despite this morning’s new trade-war developments. So much is being portrayed in futures markets: our ASX200 for one, after shedding 0.82 per cent in rapid fashion in yesterday’s trade, will regain 25 points at today’s open, according to the SPI Futures contract. Chinese stocks at the forefront: The real interest for macro-watchers today, though, will be how Chinese stocks perform. For reasons that need no explanation, they got whacked in Asian trade yesterday, with the CSI300 sustaining losses close to 6 per cent. The extension of this was an underperformance in risk assets everywhere. It was especially true for the Australian Dollar, which traded at an intraday low of 6963 overnight. Safe havens have naturally prospered in this environment, driving gains in high-grade government bonds, lifting currencies such as the Japanese Yen, US Dollar, and Swiss Franc. Letting the dust settle: For the discerning punter, today’s trade should reveal far more about the truth of the impact of US President Trump’s policies. The trade-war after all disproportionately impacted Chinese and European equities when trade-tensions were last this high. On top of this, it will be curious to see how participants in Chinese markets, who’d more-or-less priced out an escalation of a trade-war, approach equities. The turnaround in trade overnight (seemingly) came consequent to news that China would still be attending trade negotiations in Washington, with interest now as to whether this news alone is enough to settle bearish sentiment in Chinese markets. The RBA to seize focus this afternoon: All other news was practically washed out overnight by the reaction to US President Trump’s trade-war Tweets. But today, for Aussie traders, the RBA, at least momentarily, will be the centre of attention. For the first time in several years, market participants approach an RBA meeting with its outcome genuinely unknown. On the one hand, pro-cutters suggest that given the recent poor CPI data, and softer overall economic activity, the RBA should stick strictly to its mandate and cut rates. On the other hand, pro-holders possess a “wait and see view” suggesting more rate-cuts will yield diminishing (and insufficient) returns, anyway. What are the markets expecting? Interest rate markets are very marginally pointing to a hold decision from the RBA. Around 12 basis points of cuts are baked into the market right now. It’s expected to be a relatively volatile event no matter what: either the RBA cuts, and the market must rapidly price-in the extra 13 basis points of cuts not “in the market”; or they hold, and the market must price-out the 12 basis points of cuts. If the former proves true, the AUD and bond yields will likely tumble, and stocks should get a solid lift; while if the latter proves true, the inverse ought to occur. Written by Kyle Rodda - IG Australia
  5. A good end to last week; a rough start to this week: Markets are going to be digesting some conflicting information to begin the week. Wall Street ended last week’s trading with a boost, following another economic release, this time Non-Farm Payrolls figures, that could reasonably be dubbed “goldilocks”. However, the weekend proved to bring with it some tumult that market participants thought they’d left behind in 2018: an agitated North Korea has gone back to firing missiles into the ocean, and there’s been threats of higher tariffs from the US President on the Chinese economy. So, although the economic data delivered a small-dose of positivity, old risks have resurfaced to renew anxiety about the immediate future. US NFPs another “just right” print: Beginning with the good news for risk-assets: US Non-Farm Payrolls figures were met with a swell of bullishness on Friday night. After Thursday morning’s “less-dovish-than-expected” US Federal Reserve meeting, at which that central bank emphasized its belief disinflationary pressure within the US economy were “transitory”, traders had their focus-fixed on NFPs for signs that this bias may be true. Though not clear-cut, market participants had their fears allayed: the US economy added another whopping 263k jobs last month, pushing the unemployment rate down to 3.6 per cent, but wages growth missed forecasts, to print at 3.4 per cent on annualized basis. Markets dash inflation fears: It must also be said that the US labour market participation rate fell too, which tempered some of the market’s enthusiasm. Nevertheless, the thrust of the data was this: the risk of an inflation outbreak is low, it’s been inferred, and that was enough to reignite the bullishness that had been dulled by the Fed. Crucially, perceived lower risk of higher inflation, and therefore a hiking US Fed, in the short-term manifested US Treasury yields. They dropped across the curve, with the yield on the US 5 Year Treasury note in particular falling 5 basis points. A Fed hike considered no-chance: Interest rate traders have set their bets of a rate cut from the US Fed before the end of 2019 to a roughly fifty-fifty proposition. This is in fact lower than where implied interest rate probabilities have been in the recent past – a rate cut in 2019 has been priced as high as an 80 per cent chance. But as it pertains to riskier assets: the combination of strong growth, as expressed through jobs gains, coupled with market-measures of inflation expectations suggesting price growth below the Fed’s 2 per cent target, are pushing flows into US equities. Growth and consumer stocks lead Wall Street’s gains: Hence, the S&P500 added 0.96 per cent on Friday, recovering much of the losses sustained in the prior two-day’s of trading. Though volumes were below average, market breadth was substantial, with 83 per cent of stocks higher for the day. Arguably, the most telling feature of market behaviour post-US-NFPs was whereabouts on the sectorial map the gains were made. US tech-stocks are portraying investor’s appetite for growth, adding most (around 5 points) to the S&P500 on a weighted basis pm Friday. And the consumer discretionary sector was the best performing in relative terms, as real wages stay well supported in the US economy. Geopolitics re-appears as key market risk: Because of this lead from Wall Street, the last traded price in SPI Futures has the ASX200 adding 31 points this morning. However, the true extent of these implied gains has been thrown into question, after the weekend’s news flow hurled up a series of “bad” news stories. In an act that might be described as equivalent to a child “chucking their toys out of the pram” for attention, Kim Jong Un’s ordered the launch of new missile tests over the weekend. While last night, US President Trump has suggested increasing tariffs on China if no trade-deal is struck this week. Australian Dollar wears the brunt of “risk-off”: The immediate consequences of these developments has been a big gap lower in currency markets this morning – especially as it related to the Australian Dollar. Ahead of a week that will be significant for the little battler in its own right, the Aussie-Dollar has tumbled in early trading, to trade as lows as 0.6970 (the losses have been even greater in the AUD/JPY). Keep in mind Japanese markets are still on holiday, so liquidity is going to be thinner than it is ordinarily, and will exaggerate moves in financial markets. Market dynamics aside, the re-emergence of geopolitical risk will certainly drag on sentiment to begin the week. Written by Kyle Rodda - IG Australia
  6. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 12 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 ADM LN 9/05/2019 Special Div 16.4 STI UOB SP 6/05/2019 Special Div 20 SIMSCI UOB SP 6/05/2019 Special Div 20 MEXBOL GFINBURO MM 9/05/2019 Special Div 100 RTY COLB US 7/05/2019 Special Div 14 RTY TSBK US 14/05/2019 Special Div 10 RTY RILY US 14/05/2019 Special Div 18 How do dividend adjustments work? This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  7. Stocks fall as markets adjust US rate expectations: Traders have gone about repricing a world without the same imminence of rate cuts from the US Federal Reserve overnight. US Treasury yields have climbed markedly, during the North American session in particular, dragging with it stock indices. The S&P500 has traded 0.21 per cent lower, as traders apparently take their profits and adjusted their forecasts in line with the new dynamic. The action seen in the last 48 hours has given undue merit to the “sell-in-May-and-go-away” maxim; but however shallow the saying, profit-taking from all-time highs, and at that, overbought levels, has (ostensibly) proven the rational course of action for market participants right now. The necessity of a pullback in US stocks: It’d be of little surprise to any clued-up investor or trader as to why the markets’ pull back has transpired. Leading into yesterday’s US Fed meeting, the risk was widely called, and very well telegraphed by pundits. There was a sense US interest rate expectations weren’t on par with reality. But the short-term vagaries of market psychology drove rational folk to buy into the market, chasing momentum, after the S&P500 hit its all-time highs. The giddiness is over now, and what is being witnessed is a sensible recalibrating of market participants’ positions, more aligned with current market fundamentals. US inflation the key risk, ahead of NFPs: The pull-back in US stocks ought to be transient, provided inflation and inflation expectations don’t blow-out. The risk of this happening is quite low, although market measures of implied inflation have shifted higher in the past 24 hours. In light of this risk, the major event in the next 24 hours will be US Non-Farm Payrolls data, with key wages growth component of the data to be of most interest. A big beat on this number could add further to bets of higher inflation, and less accommodative monetary policy from the Fed — and therefore threaten to exacerbate the current market sell-off. US Dollar showing few signs of weakness: If we were to see an upside surprise in wages growth out of the NFP data, then it would likely only add to the might of King Dollar. The Greenback lifted across the board last night, courtesy of the rise in US Treasury yields. With the US economy the only major, developed economy looking in anything resembling a healthy state just at present, it’s difficult to imagine anything but a continuation of the Dollar’s upward trend. By extension, of course, this does not bode well for the Aussie Dollar: once again the local unit flirted with life in the 0.6900 handle overnight. The other macro-stories, ex-US: In the interest of balance, the US macro-story, while clearly the most significant, wasn’t the only thing driving market activity overnight. Numerous other (albeit lower impact) events transpired, and shifted market pricing around modestly. European PMI figures were dropped, and they were generally better than expectations, leading to a relatively (and only relatively) good day for the DAX. While the Bank of England met, and kept interest rates on hold at 0.75 per cent as broadly expected, but cut its inflation expectations in the process for the UK economy. The ASX to recover some of its losses: This morning, SPI Futures are suggesting a 7-point lift to the ASX200 at the open, belying the down-day across global equity markets. The weaker Australian Dollar might have something to with this, with few other clear, positive leads apparent for the market. The jump at the open will do relatively little to erase yesterday’s tumble, which saw the ASX200 drop 0.59 per cent. It was a sell-off with quite a level of breadth and activity behind it, too: volumes were above average for the day, and market breadth was a meagre 33 per cent. Bank shares giveth, and bank shares taketh: In a reversal of fortunes from the prior day’s trading, it was the financial stocks that drove the losses in the ASX200 yesterday. Stripping 22 points from the index, bank stocks took a spill after NAB missed profit expectations, reported a bigger than expected narrowing of its net interest margin, and slashes its dividend from $0.99 to $0.83 per share. Backing on from ANZ’s results the day prior, NAB’s earnings cast doubt on the hope of a trend-reversal in Aussie bank shares, with Westpac’s results on Monday now the next major for bank-share, and ASX200 traders. Written by Kyle Rodda - IG Australia
  8. A night loaded with information: The pointy end of the week is under-way, and if only relatively speaking, markets are moving on the back of several key stories. Naturally, the centrepiece of this is Wall Street; and there’s been a timely mix of corporate data, economic developments, central bank meetings, and politics for market participants to digest. The intra-day battle of these narratives has caused some modest, but interesting enough, price action in financial markets overnight; with Apple’s earnings beat, weak ISM Manufacturing PMI data, a more neutral US Federal Reserve, and sputtering trade-talks between the US and China combining to twist market sentiment in interesting ways. The Fed centre of market attention: Proving itself once more to be the gravitational centre of the financial universe, the US Fed meeting has had the greatest hold over market participants overnight. The Fed delivered the news that many traders had been expecting: it doesn’t possess the “dovish” disposition that interest rate markets are implying. While the Fed did effectively downgrade its inflation forecasts, and dropped the interest on excess reserves to 2.35 per cent, Fed Chair Jerome Powell went to lengths to implore in his press conference that the Fed remains truly patient. That is: interest rates could move either higher or lower from where they are now. Markets sell-off on Powell’s neutral tone: After somewhat of a tussle, intraday price action suggests a market that has bought into Fed Chair Powell’s words. Having eked out another small gain to its all-time highs, touching 2954 in early North American trade, the S&P500 has sold of post-Fed meeting, to have shed in the realm of 0.7 per cent in the final two hours of the Wall Street session. Predictably, the US Dollar has rallied as traders unwind some of their bets on interest rate cuts from the Fed this year, leading to a lift in US Treasury yields at the front end of the US yield curve. Weak US economic data compounded sell-off: As it stands right now – and this reflects the knee **** nature of the price response – markets have an implied probability of 19 basis points of cuts from the Fed by year end. It’s worth noting, that although the Fed was the primary concern for markets last night, econo-watchers were taken aback by some poor US economic data early in the session’s trade, and probably compounded the impacts of the Fed’s “neutral surprise”. US ISM Manufacturing PMI numbers were released, and showed a significant miss: it printed at 52.8, versus expectations of 55.0 – the lowest print of this measure in 2-and-half years. US earnings lose some of their shine: The Fed, and to a lesser extent the ISM PMI numbers, have taken the steam out of what has been an otherwise solid earnings season. For one, US futures had been priming market participants for a bullish day on the market yesterday, after market bellwether Apple Inc exceeded expectations in their earnings Overall, US earnings have been positive, at least in relation to what has been priced in by the market leading into reporting season. But the little retracement in US equities last night betrays how much this market still relies on cheap money, and favourable discount rates, to sustain itself. ASX to follow Wall Street: Taking Wall Street’s lead: the ASX200 ought to shed 30 points this morning. The ASX is in the throes of its own earnings season; and thus far, it too has provided investors plentiful information. But for the index trader, this reporting season centres around the banks, and how their earnings drive bullishness of bearishness in the overall ASX200. And so far, after the ANZ reported yesterday, the impact has proven the former. Likely owing to a bit of “buy the rumour sell the fact” activity, the financials sector lifted the overall ASX200 yesterday, adding 30 points to the index. The banks in the bigger picture: For macro watchers and traders, despite the short-term lift in bank shares yesterday, the question regarding the banks pertains to whether what was revealed could spark a turnaround in trend in their share prices. The answer to this, which will be further illuminated when NAB reports today, isn’t compelling: in the big picture, the banks have traded lower for several years in-line with credit growth and property prices — two things the ANZ in its half-year results said it expects to be a challenge for the bank, and by extension the Australian economy, going forward. Written by Kyle Roddda - IG Australia
  9. MaxIG

    APAC brief - 1 May

    A flat, but generally positive, night’s trade: Wall Street closed flat to slightly higher overnight, in a day of soft activity that might well be chalked up to the numerous event risks awaiting markets in the second half of the week. The key stories in European and North American trade centred around European growth data; along with the ongoing US earnings season. And on balance, belying the lukewarm day in global stocks, the news was relatively positive. European economic data broadly beat expectations, resulting in a lift in the Euro and European yields; and after the US close, Apple Inc reported, and is trading higher in post-market trade. Chinese economic numbers disappoint: The big news in the Asia region yesterday was China’s highly anticipated manufacturing PMI numbers. Recall: it’s been this data-point that has been the centre of fears about China’s economic slowdown – and has been used as the barometer for policy makers success in re-stimulating the Middle Kingdom’s economic activity. For one, yesterday’s print was underwhelming. Anticipated to print at 50.5, it came in at 50.1, stoking concerns that manufacturing in China could be slipping back towards a “contractionary” condition – that is, a print below 50, and forecasts a potential slip in activity in the broader Chinese economy. What’s true for developed markets is true for China: Revealing investors priorities, however: the weaker data prompted a run higher in Chinese stocks, as markets bet on the need for more stimulus from China’s policymakers. Just like it has been, and continues to be the situation in developed markets, bad news is good news for risk assets. Poor economic data and the subsequent belief it necessitates fiscal and monetary stimulus drives flow into the stock market; while good economic data and the subsequent belief it implies a removal of fiscal and monetary stimulus drives flows away from the stock market. ASX pulls back from 11-year highs: The ASX200 caught little of China’s rally yesterday, giving up 0.5 per cent during the session. It was an overall lack lustre day. Last week’s gainers, those in interest rate sensitive sectors like that of real estate and utilities, declined, as bond yields recovered some of their losses. And energy and materials stocks seemed to suffer from a fall commodity prices. Although numerous causes for the broadness of yesterday’s selling has been concocted, much of it seems a function of a small market pull back, after the ASX200 clocked its 11-year highs last week. ASX primed for bank earnings: SPI Futures are indicating today that the ASX200 will open 15 points higher this morning. A possible inhibitor of upside in the market this week is that we are on the cusp of our big banks’ confession season. The micro details of each bank aside, the macro outlook for the banks have improved recently, in response to a healthy steepening in bond yield curves. It’s well known the ASX struggles to prosper without the help of bank shares, so for market-bulls, some positive surprises from the banks this earnings could be the catalyst for a new push higher in the ASX200. The Fed: markets’ main event: All eyes now turn to the US Federal Reserve. They’ll meet tonight (AEST) and will all but certainly keep interest rates on hold. Market participants instead will be keeping tuned to what the Fed has to say about the outlook for the US economy. Despite reasonably solid economic data lately, markets are still pricing in a full cut from the Fed within the next 12 months. It’s this assumed dovish bent by Fed that’s in large part sustained risk-assets so far this year — and underwritten Wall Street’s record run in the past four months. Have markets mispriced US rates? The risk tonight is that the Fed is more optimistic than expected: a dynamic that could force the adjustment of rate expectations and take the steam out of global equities. A pressing need to move to anything resembling a rate hiking bias by the Fed is absent, of course; especially given last year’s market tumult in response to a “hawkish” Fed. But the core question is whether the presumption of such a dovish Fed is accurate. This fact is less certain and could be contradicted by the central bank’s communications with the market tonight, meaning a potential reshuffling in markets consequent to tonight’s meeting. Written by Kyle Rodda - IG Australia
  10. MaxIG

    APAC brief - 30 April

    Wall Street adds to its record-highs: The first day of the financial week has been done and won, and its resulted in another small victory for Wall Street indices. US stocks have added to their record highs overnight, as market participants become increasingly bullish across asset classes. The story wasn’t quite so rosy for markets in other geographies yesterday: Asian equities generally slid amid low activity, while European stocks were positive, yet tepid in their trading. Still, it seems, the one clear bright-light in global financial markets is in the US, with the question once more becoming: how long can this latest bull-run last? Momentum picking-up in US equities? There remains a general reluctance from market participants (to use an American idiom) to drink the Kool-Aid in this market. The fundamentals, though solid-enough, don’t seem to justify it entirely. Valuations aren’t stretched, but they are largely as attractive as they are due to discount factors, rather than true earnings growth. Nevertheless, perceptions are shifting, with some of that FOMO-money, long sitting on the sidelines in this rally, apparently making its way into US equities. The great momentum play stocks, are exhibiting some of the behaviour they did during last-years run-up, suggesting a growing exuberance in the market. US tech playing catch-up: As one with a clear enough memory may recall, the centre of last year’s flow chasing rallies and busts was the US tech-sector. Perhaps remarkably, and reassuringly for the bulls in the market, although valuations across the S&P500 has crept towards levels reminiscent of October last year, valuations in tech stocks have so far lagged the broader market, this time around. It’s a state of affairs that’s rapidly changing, but using the NASDAQ as the barometer, valuations in US tech, at 35:1 price-to-earnings, is still well below the eye-watering 48:1 and 53:1 P/E ratios registered in October 2018 and December 2017. Treasuries fall, despite no-change to the rate outlook: Another area in which the eagerness to chase risk is manifesting is in the US Treasury market. Bond yields are ticking higher across the curve, without much of a fundamental macro-economic catalyst, as traders sell safe-haven assets to join the equity market rally. US 10 Year Treasury yields climbed around 3 basis points overnight, to trade around 2.52 per cent, and the US 2 Year note’s yield edged 1 point higher. Despite still looking very bent out of shape, the slight steepening of the yield curve speaks of a market increasingly comfortable in the long-term growth outlook for the US economy. Global inflation risk generally low: Part of this dynamic can be explained by the actions of the Fed, coupled with the low inflation environment the global economy is apparently mired within. This perception could change quickly, depending on what comes out of Thursday’s US Fed meeting. However, there’s little justification that it ought to, and this was backed-up by yesterday’s key macro-economic release: US PCE inflation figures. That release revealed once more that price growth in the US economy has continued to recede: annualized core inflation is at a stubbornly low 1.6 per cent, implying the Fed possesses little need to return to a rate hike bias. Financial conditions supportive; eyes on China today: So, little concern right now exists that financial conditions globally may tighten and strangle the risk-on run. It’s probably in part why the VIX remains so supressed: liquidity isn’t seen to be much of a problem. But though accommodative monetary conditions will continue to underwrite market strength, some semblance of fundamental growth will be required to keep the market-moving forward. And today, the next little leap forward will come in the form of Chinese economic data: the market moving Chinese Manufacturing PMI data is released today, with market-bulls eager to see whether the “rebounding Chinese growth” story still holds merit. ASX200 to open lower: The revelations contained within the Chinese Manufacturing PMI numbers will likely be the ASX’s key determinant of activity today, in the absence of any other tier-1 data. Otherwise, Wall Street’s flattish finish, that saw the registering of a new all-time closing high at 2943 for the S&P500, will translate into a 3-point drop at the open for the ASX200, according to the SPI Futures contract. Aside from these two variables, market participants will be keeping an eye out for Australian Private Credit figures this morning; while action in bank shares may also be worth watching, ahead of the half-yearly reports from the ANZ, NAB and Westpac. Written by Kyle Rodda - IG Australia
  11. 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.
  12. MaxIG

    APAC brief 29 April

    US GDP data capped-off last week’s trade: Trade closed last week on something of a puzzling note. The attention, from a macro-economic point-of-view, was fixed in on US GDP data. Amidst all the fears of slower global growth on one hand and hope for a nascent global economic turnaround on the other, the US growth figures were being viewed as a tangible insight into the cogency of each point of view. Ultimately, the data provided little support for one over the other – and perhaps even deepened the divide. The headline figure was good for the bulls, however below the surface, there was plenty for the bears to find vindication, too. US economy in a mixed state: The news flow, naturally and rightly, focused on the headline figure: against an expectation of a 2.2 per cent print, it came-in at a robust 3.2 per cent, reversing (apparently) a multi-month decline. The underpinning driver of the strength was in the exports and inventories component of the data, which greatly exceeded expectations. However, for market participants, there were some far more significant details in the fine-print to drive market action. Consumption was much weaker than expected, adding to concerns that the US consumer may be displaying some late-cycle behaviour; while the price-growth component revealed softening price pressures within the US economy. S&P500 rallies as US Treasury yields and USD fall: It’s for this combination of reasons that US stocks rallied, and the US Dollar and US Treasury yields fell, throughout Friday’s North American session. The S&P500 put in a solid performance, on heightened activity, as the confluence of better than expected earnings, stronger than expected economic growth, lower bond yields, and a weaker currency bolstered equities. In fact, the day’s positivity was so much so that the S&P500 managed to register another small milestone: it finished Friday’s trade once more by clocking a new record closing-high; and now sits 3 points shy of its all-time record intraday high of 2942. A “just-right” bowl of porridge? To employ something of a cheesy (fairy-tale themed) cliché: overall, the US GDP data was perhaps the “goldilocks” print for which market participants had been hoping. Economic growth, on the aggregate, is solid, while little justification exists for the US Fed to reinvite “rate-hike” considerations into their policy-mix. The favourable financial conditions that has returned the US stock market to new highs will remain; while there appears enough steam in the US economic engine to sustain earning’s growth, for now. And it’s fitting this view is consolidating now: its mettle will be tested by tonight’s US PCE inflation report and Wednesday’s Fed meeting. Traders still pricing in a cutting Fed: As it is the world-over: traders are seeing limited risk of inflation, and therefore interest rate hikes, in the US economy. Following Friday’s GDP report, US 2 Year Breakevens have continued to fall – trading now in the realms below 1.8 per cent. Incidentally, it is that figure that the last PCE release revealed US price growth to be. Expectations have built that tonight’s set of numbers will reveal a fall in inflation once again. And it’s clearly manifested in the implied probabilities of US rate cuts: interest rate traders have factored in 22 basis points of cuts from the Fed by the end of 2019. US Dollar falls; AUD rallies: Much like the action in stocks and bonds, currency markets have traded in line with the growth-positive, low rate-hike-risk theme. Of course, the most conspicuous manifestation of this has been in the US Dollar, which depreciated markedly on Friday evening. The ultimate beneficiaries of the weaker greenback were growth-tied currencies — meaning our Australian Dollar has bounced off its lows. On balance, it’s difficult to imagine the A-Dollar regaining too much ground while markets effectively price in two RBA cuts this year. However, data permitting, a modest foray back through the 0.7000 handle can’t be precluded right now. ASX200 to open today’s trade flat: For all of Wall Street’s heightened optimism, somewhat unlike last week, Australian stocks will forego its bullishness at the outset this morning. SPI Futures are indicating a 2 point drop this morning, backing up a similarly flat Friday. The session on Friday was largely a benign extension of Wednesday’s trade: interest rate sensitive stocks, such as those in the utilities and real estate sectors, found most buying activity. However, perhaps due to weakness in Chinese markets, coupled with a fall in commodity prices, the materials and energy sectors weighed on the index, resulting in a tepid gain of less than 0.1 per cent on Friday. Written by Kyle Rodda - IG Australia
  13. A mixed day for global stocks: It’s been a mixed 24 hours for global markets. A series of conflicting messages are being delivered to traders, after the release of some major corporate reports in the past 24-48 hours. Market participants are truly in the meatiest part of earnings season now. The trader’s eye has been fixed on earnings from US tech and industrial giants yesterday and overnight; with the former, thanks to Facebook and Microsoft, beating expectations overall, but with the latter, courtesy of Caterpillar and 3M, undershooting consensus estimates. It’s all culminated in a high activity, but effectively flat, day for the S&P500, which has added trade 0.1 per cent. ASX200 seemingly to follow suit: Given the mixed lead delivered by Wall Street (and that of Asian markets yesterday, for that matter) SPI Futures are pointing to a slim 3-point gain for the ASX200 this morning. Two trading days in a row like that which was experienced on Wednesday may be difficult to come by, especially given the lack of a clear catalyst, for now. Perhaps its slightly academic, but the question for many now is how long this rally for the ASX200 can last. With new 11-year highs made, technical levels become difficult to ascertain. However, one useful guide may be the index’s multi-year trend channel: it suggests there remains room for the ASX200 to test higher levels from here. Wednesday’s CPI numbers: To jump back slightly to Wednesday’s trade, local market participants had their attention firmly fixed on Australian CPI numbers and that data’s implications for the AUD and RBA monetary policy. After a considerable miss last week in New Zealand’s CPI numbers, traders were wary as to whether comparable disinflation was emerging within the Australian economy. These suspicions proved valid: the numbers greatly underwhelmed: inflation printed flat on a quarterly basis, taking the year-on-year figure to 1.3 per cent. The data missed the consensus estimate for annualized price growth of 1.5 per cent – and came in markedly below the RBA’s target rate of inflation of 2-3 per cent. AUD drops with AGB yields: Needless to say, markets reacted violently to the news, as traders rushed to reprice their outlook for Australian interest rates. The already sickly Australian Dollar dived over 1 per cent, tearing through a handful of resistance levels within the 0.7000 handle, to trade as low as 0.6964 overnight, before finding technical support. The moves in Australian Government Bond yields were probably even more remarkable: they plunged by as much as 15 points around the front end of the yield curve, and by as much as 10 points around the middle-to-back end of the curve, with overall yield bending into even greater inversion. Markets betting on two cuts from RBA: Naturally, the fall in the A-Dollar and bond yields was anchored in changing bets about what the RBA ought to do with interest rate policy – and perhaps more importantly, when they might do it. Traders have priced-in almost entirely 2 rate cuts from the RBA in 2019, with a cut fully priced in for the month of July. Remarkably, traders are also betting that the central bank’s meeting in May is more-or-less a “live” meeting. Implied probabilities currently suggest a fifty-fifty proposition that the RBA cut rates at that meeting – even despite the fact it will be held in the shadows of the Federal election. The USD also weighing on AUD: It’s worth noting too that, in the broader currency complex, weak domestic macroeconomic fundamentals isn’t the only factor enervating the AUD. The USD has touched two-year highs in the past several days, owing to several fundamental and technical drivers. Primarily, the greenback has been bolstered by further poor data out of Europe, which has seen the Euro test life in the 111-handle again. The other, perhaps more curious driver, of green back strength right now, is tied back to circumstance: with Japan about to head into an 11-day public holiday, traders are seeking USD denominated assets in anticipation of a period of (relatively) low liquidity. The ASX rally helped by CPI numbers: For all the bearishness when it comes to currency and rates markets, the ASX200 is thrived courtesy of the weaker Aussie Dollar and lower discount rates. The ASX had already followed through with Wall Street’s lead on Wednesday by the time CPI data was released. However, the extra leg up that came from the softer inflation numbers and the subsequent expectation of a cutting RBA was the extra fuel to lift the ASX200 to an 11-year high. Much like equity indices across global markets presently, momentum for the ASX is apparently tilted to this upside, even in light of what are currently mixed fundamentals. Written by Kyle Rodda - IG Australia
  14. 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
  15. 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.
  16. MaxIG

    APAC brief 23 April

    Traders have plenty to catch up on: As one might expect after (effectively) four days-off, there’s plenty of macro-economic news for Australian market participants to catch-up on following the Easter-holiday break. Chinese and Japanese markets have traded without interruption; while the US jumped back in to action overnight. And although price action won’t be the cause of any conniptions across trading floors this morning, there’s still enough information there to inspire a few novel ideas in the minds of traders. It will be this digesting of old news that will be the most significant determinant of market activity this morning: the corporate and economic calendars are rather bare to begin the week. Stocks tread water as US earnings news pauses: SPI Futures are pointing to a very modest jump for the ASX200 this morning of 5-points, after a more-or-less flat session on Wall Street. The S&P500 added a paltry 2-points, or-so, during North American trade, as the steady flow of corporate earnings that began last week was suspended for the holiday-break. The relative lull in price action speaks-of a market primarily preoccupied with company earnings – despite ample market moving news impacting individuals market sectors. As has been said before: traders are searching for validation from US corporates that earnings, along with global growth, can be expected to turnaround. Data supports US economic outlook: To an extent, such a view is being priced-in marginally, at least as it applies to the US economic growth. US GDP figures will punctuate the end of this week’s trade; but in the lead-up, rates and bond markets have been slightly upgrading their outlook for US growth. Much of this centred on the US Retail Sales print last Thursday night, which surprised considerably to the upside, and alleviated some of the concerns relating to the state of the American consumer. After March and early April’s rally, US Treasuries are retracing their gains, as traders moderate their bets of cuts from the US Federal Reserve. Bond yields lift on hopes for global growth: Currently, the 10 Year US Treasury note is yielding just shy of 2.59 per cent – up significantly from the March low of 2.36 per cent. Moreover, the implied probabilities of a rate-cut from the US Fed before the end of 2019 has fallen from an almost 80 per cent chance, to a 50-50 proposition as it currently stands. The factors driving yields in US Treasuries haven’t quite translated equally into other safe-haven government bonds: though higher, weak European manufacturing PMI numbers last week have weighed on German Bunds, while soft UK inflation numbers last week have kept UK Gilt yields in check. US Dollar maintains a bullish bias: Naturally, the outperformance of US Treasury yields relative to government debt of similar quality has lifted the US Dollar. Albeit still its end of February highs, the US Dollar Index tested 97.50 during Friday night’s trade, as traders backed out of the Euro and Pound. The combination of a strong US Dollar and generally higher global bond yields has legged gold prices, which broke and held below significant support/resistance at $1280 per ounce. Of course, the stronger greenback hasn’t spared our Australian Dollar, with the local unit abandoning its “growth-proxy” and iron-ore price led rally, to trade back in-line with yield differentials. Chinese policymakers to temper stimulus: As far as the Aussie-Dollar, and other global-growth exposed assets goes, upside momentum has been dulled over the weekend, on decreased expectations of future Chinese monetary stimulus. The dynamic can be witnessed in Chinese equities, too, which shed over 2.24 per cent yesterday. Illustrating well the modern central bankers’ essential-dilemma: Chinese stocks pulled-back, and their bond yields climbed, on news that China’s policymakers will likely temper the extent of their stimulus efforts in response to improvement’s macro-economic fundamentals. The tight-rope walk raises the possibility once more of volatility in China’s markets, as policymakers balance the need for short-term stimulus, with necessary long-term structural reforms. Oil prices rally on Iran sanctions: The final development worth being wary of from the long weekend’s market news-flow was action in oil markets. Prices have rallied in response to news that the US would be ending waivers to other oil importing nations purchasing Iranian oil. Already in a steady upward trajectory courtesy of managed production cuts from OPEC, the price of Brent Crude has spiked 3 per cent, lifting stocks in the US energy sector overnight. Of greater import, so to speak, to market participants is the impact oil’s rally may have on global interest rates, as traders ponder the potential impacts of higher energy prices on future inflation. Written by Kyle Rodda - IG Australia
  17. China’s data inspires relief: The Middle Kingdom was at the centre of financial market focus yesterday. Informally dubbed the “monthly economic data-dump”, market participants were granted the opportunity to test the thesis that the global economy’s Q1 malaise is turning around. And though it was only one set of numbers, the answer received from the Chinese data to this quandary was to the affirmative. China’s GDP figures beat economist’s estimates, printing at 6.4 per cent against the 6.3 per cent forecast; and the litany of other data-points, most notably retail sales, industrial production and fixed asset investment, all either exceeded forecasts, or showed signs of improvement. The global economy’s resurrection? The Chinese data has added further credence to the notion that China’s economy, and therefore that of the rest of the globe, isn’t about to fall off the cliff. Judging by the improvement in the numbers, policymakers intervention and receptiveness to market and economic trouble, not just in China but globally, is apparently feeding through into economic activity. Although global equities, and especially Chinese equities, resisted reacting to the good news – the lower likelihood of greater monetary stimulus can explain that one – growth exposed assets conveyed the market’s greater optimism and risk appetite, boding well for risk-assets into the longer term. Traders bet on economic turnaround: As always, we need not look any further than our Australian Dollar to judge the merits of this case. Granted, it’s cooled its intraday rally somewhat now, but the local currency spiked upon the release of the Chinese data yesterday, breaking through (briefly) its 200-day moving average, and experimenting for a while with a life above the 0.7200 handle. The enthusiasm for the Australian Dollar was tempered overnight, as traders factored in more fundamental concerns pertaining to the Australian economy into market pricing. Nevertheless, the brief spike in the market’s favoured growth proxy proved that traders aren’t averse to placing bets on a global economic turnaround. Sentiment overriding A-Dollar’s fundamentals: Sticking to the Australian Dollar, and a reflection on the currency’s fundamentals portrays the opposing forces driving its price action, at present. In fact, market-action yesterday reflected the “growth-proxy” versus “weak-fundamentals” dilemma well – with the latter proving an inhibitor of the enthusiasm demonstrated by the former. Prior to the Chinese data release, the Aussie-Dollar looked ready to shed its recent gains, after New Zealand CPI figures notably missed economist’s estimates. The response from traders to that release was to price-in more aggressively rate cuts from the RBNZ and, due to belief the New Zealand and Australian economies share major commonalities, the RBA, too. Iron ore retraces its gains: Another driver of A-Dollar upside went missing yesterday, too: iron ore prices have rapidly retraced their recent gains, falling over 7 per cent from its recent highs. The tumble in the price came counter to the intuitive logic that perceived improvements in the global economy ought to lead to a lift in commodity prices. Proving once more that iron ore’s rally has been a function of supply shocks rather than economic fundamentals, the market sold contracts for the mineral after news hit the wires Vale would be reopening one of its major Brazilian mines, potentially marking the beginning of the end of underproduction in that market. Fall in iron ore prices drag on the ASX: Naturally, iron ore’s fall legged materials sector stocks yesterday. It was one factor, combined with the rallying Australian Dollar and slight lift in discount rates, that lead to an overall fall in the ASX200. The theme seems likely to continue today, too. According to the SPI Futures contract, the index ought to drop about 21 points at this morning’s open. Today may prove one of those days where the markets direction is determined by the resilience of the banks: financial stocks added 17 points to the ASX200 yesterday, masking a weak day for Australian stocks, which traded on less than 40 per cent breadth. A busy day leading into the long weekend: Trade across the rest of the globe in the next 24 hours may well be dictated by pre-positioning for the Easter weekend holiday. Wall Street trade was characterized by relatively higher activity overnight, but the results were underwhelming, with the S&P500 dropping 0.23 per cent, and (fittingly) closing bang-on 2900. Despite the assumed reluctance from traders to make big bets leading into a long weekend, economic data will be dense: Australian employment figures are released this morning, before focus turns to a swathe of high impact European PMI numbers, and US Retail Sales data tonight. Written by Kyle Rodda - IG Australia
  18. ASX to keep trading on its own themes: SPI Futures are presently indicating an 18-point jump at the open for the ASX200. Once again, Australian equities look as though they’ll march to the beat of their own drum today. It comes on the back of a reasonably solid day for the ASX yesterday – though admittedly it was another day of relatively low activity. A general driver for the session’s activity was hard to pinpoint, perhaps fortunately, with the market trading much more on the basis of the myriad micro-concerns impacting individuals shares and sectors. It may be a dynamic that set not to last, as market participants prepare for a significant “macro” day today. A dovish tilt from the RBA? Not that such themes were entirely absent in the local market yesterday, just that they proved insufficient to markedly change the narrative for the ASX. The RBA’s meeting minutes were released yesterday, and more-or-less confirmed the suspicions of market participants: the central bank is entertaining the idea of possible interest rate cuts in the future. Always the first to take the conservative route, the RBA was clear to state it merely discussed under what circumstances a rate cut would be necessary and were explicit in their view that such a set of circumstances aren’t present within the Australian economy right now. RBA keeping their powder dry: As is reasonably well known, the RBA’s central thesis is that although global growth conditions are softening, and that there remains major domestic economic headwinds, while the labour market keeps tightening, there exists no immediate need to cut interest rates. Furthermore, the RBA outright acknowledged, in perhaps what is a small hint at government policymakers, lowering interest rates wouldn’t deliver the same impact to economic conditions as they had in the past. Nevertheless, traders concluded from the simple recognition of the possible need for further monetary stimulus in Australia’s economy as a sign that the RBA is losing confidence in the local growth engine. AGBs out of step with global bond markets: The result was a brief fall in the Australian Dollar following the release of the RBA’s minutes, as traders repositioned their bets on the future of Australian monetary policy. Having unwound recently positions that the RBA would need to cut rates by August this year in response to a moderating of global growth fears, yesterday’s minutes forced the market to increase the implied number of interest rate cuts before the end of 2019 to about 29 basis points. The knock-on effect saw AGB yields fall, out of step more broadly with bond markets, which experienced a general climb in bond yields yesterday. Growth concerns diminish; but risk appetite neutral: As might be inferred from the moves in bond markets, trade overnight was characterized by a further diminishing of fears about the outlook for global growth. US 10 Year Treasury yields were up by 3.6 basis-points to 2.59 per cent, and 10 Year German Bunds maintained its (albeit slim) positive yield. It was by no means a total risk-on day, however: stocks were up globally, with the world-indices map a sea of green indeed; but looking at the S&P500 in particular, it was only 0.05 per cent higher for the Wall Street session, as investors digest US earnings season bit-by-bit. China to dominate today’s proceedings: A very significant read on the state of the global economy comes today: the so-called “monthly Chinese economic data-dump” is delivered– and this time around, it includes the Middle Kingdom’s GDP numbers, too. The turnaround in fortunes for global risk assets lately has largely come in shifting perception about China’s economic wellbeing. There is greater hope that China’s economic slowdown, which had rattled market participants in the first quarter, has bottomed-out. Core to further upside for risk assets, improvements in China’s embattled economy is a necessary precondition for optimism towards the macroeconomy and for global stocks to maintain their trend higher. Chinese equity markets’ catch-22: So, equity markets in developed economies need to see strength in China’s economy to sustain themselves. However, and perhaps somewhat ironically, the case isn’t as clear cut for China’s financial markets. Chinese equities have outperformed global peers year to date, as markets position for looser financial and fiscal conditions to support growth in the Chinese economy. Less a reflection of strong fundamentals, it’s been this loosening of fiscal and monetary policy that has driven capital flows into riskier assets. Being this way, strong economic data out of China may reduce the requirement for such accommodative policy-settings and inhibit short-term upside in Chinese stock indices. Written by Kyle Rodda - IG Australia
  19. Earnings optimism tempers the markets’ mood: Financial market participants curbed their enthusiasm yesterday. Friday’s brief excitement on Wall Street relating to a handful of earnings beats from some of the US’s big banks failed to translate into meaningful momentum to begin the new trading week. Such a dynamic was also evident throughout the Asian session. The ASX200 closed flat for the day, and Chinese stocks rallied and retraced all in the space of a few hours. The Nikkei was higher for the day; however, that was largely due to a markedly weaker Japanese Yen, with that currency unable to reclaim its losses after Friday’s risk-on move. Sluggish trade on Wall Street: The activity on Wall Street overnight was very much of the “let’s-now-wait-and-see” variety. The behaviour is sensible and based on a sound enough logic. Earnings seasons are a long-slog, with the possible arduousness of this reporting period even greater given the prevailing global economic backdrop. The return of thinner trade conditions, which of course were attributable in part to a level of Monday-itis, betrayed this cautiousness during the North American session. Volumes were below average, and market-breadth was meagre: 38.8 per cent of stocks were higher across Wall Street, with only 4 out of 11 sectors registering gains for the session. The next bullish impulse being sort out: If traders are unwilling to carry-through with their bullish bias, it bears questioning what presently stands in their way. The obvious answer is a general uncertainty as to whether US stocks will outperform their lowly Q1 earnings estimates; and whether an improvement in forward guidance is delivered by US corporates. But where might the substance of this answer be discovered? If last night’s trade is any indicator, it won’t be US bank stocks. After JP Morgan’s surprise beat on Friday night, the numbers released by the likes of Citi and Goldman Sachs, though solid, didn’t engender quite the same excitement. Markets wait for bellwether earnings: Instead, the meatier part of earnings season will come when market participants receive updates from the major tech-giants and big industrial companies. The rationale for this view is simple enough: the two key sticking points for the market at-the-moment pertains broadly to risk appetite and macroeconomic growth. As last year’s record run and violent correction will attest to, the US tech sector is the bellwether for what desire there is to punt big on growth-stocks. While the powerhouse American industrial companies will provide the ultimate read on what impact the slow-down in China and Europe is having on corporate profits. ASX likely to keep doing its own thing: The problem is market participants must wait a few days-to-weeks to receive clarity on these matters. For now, traders turn to the Asian session, and that of the ASX in particular, with few chunky leads to determine this region’s early fortunes. SPI Futures for one are pointing to a negative start for Australian equities, with that contract predicting a 16-point drop at the open. It backs up another day where the ASX traded seemingly according to its own will: a lift North American banks perhaps support our own somewhat, however the ASX200 experienced a meandering day, trading in a narrow 20-point range. RBA Minutes the key risk event today: Event risk during Asian trade today is relatively light from a global perspective. But for those with an interest in the Australian-macro landscape, RBA Minutes will be one to watch. Since the RBA’s monetary-policy-decision a fortnight ago, traders have moved gradually to temper their bets on the extent of rate cuts from the central bank in the year ahead. By way of virtue of diminishing fears about the state of health of the global economy, traders have reduced the number of implied interest rate cuts by the RBA from about 1-and-a-half to just over 1 before the end of 2019. Australian Dollar feeling the love: The restored confidence in the global macro-economic outlook has manifested in the Australian Dollar. Though its begun the week listless, the AUD has held onto its short-term trend, to be currently trading just below a few significant resistance level at the prices 200-day moving-average. Despite the yield story apparently unsupportive of the move in the currency, the climb in iron ore prices combined with speculation of further improvements in the global economic outlook is apparently underpinning Aussie Dollar strength. A break over the currency’s 200 day moving-average may well indicate a further run higher for it is afoot. Written by Kyle Rodda IG Australia
  20. Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 15 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 MEXBOL WALMEX*MM 23/04/2019 Special Div 35 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.
  21. Activity lifts to end last week: A risk laden week has ended with a pop. Asian and European trade was solid, albeit dull. However, it was a clear-cut-case of risk-on during the North American session. The new fuel to the S&P500s fire came as US earnings season kicked-off in earnest. JP Morgan, and a handful of America’s other big-banks, reported and generally surprised to the upside. The catalyst served two purposes: one, it supported (granted prematurely) the view that assumed earnings growth across US equities may be too low; and two, it pushed the S&P500 above key technical levels – notably, psychological resistance at 2900. Traders are US earnings focused: That milestone, which has been clocked on three occasions in less than 18 months now, triggered a lift in trading volume that had otherwise alluded US stocks last week. As its been stated before: this is a stock-market primarily concerned now with earnings growth, before anything else. And the reasoning is logical: whether right or wrong, markets have priced in a dovish Fed, and something of a bottoming in global growth. Now what’s needed is a validation in the earnings outlook; less one that applies to the current earnings season, and more those of which to follow in quarters ahead. Market internals validate momentum: The first signs of that were delivered on Friday evening, so markets flicked the risk-switch. Once again: there was a marked increase in trading volumes during Wall Street trade, providing a very short-term confirmation signal that substance exists behind the market’s latest foray higher. Intra-day breadth was also solid, with 76 per cent of stocks, and 10-out-of-11 sectors, gaining for the session. This adds to the already bullish breadth signals in other, deeper measures of market internals. For one: the NYSE advanced-decline measure has remained, and again turned positively, to the upside, reveal solid momentum in the market. Fear-falling; but anxiety remains: Thus, with 2900 broken on the S&P500, barring any external shocks, the rest of the earnings season on Wall Street will probably end-up a day-to-day countdown to a new record-high for the S&P500. With all the excitement that captured market-participants on Friday, the VIX has plunged to new year-to-date lows. While the drop in the “fear-index” can easily be explained away, it probably doesn’t reflect the true-trepidation in the market at-the-moment. The rationale for very subdued implied volatility is very comprehensible. Nevertheless, memories are crystal-clear of what happened the last couple of times the S&P500 traded this high with volatility so-low. The bears are still hungry: Vol-canos, vol-pocalypses: they were two of the portmanteau floating around after big-spikes in the VIX last year following short periods of suppressed implied volatility. Hence, although US stocks sit nominally less than 40-points from new records, historical memory, mixed with market-fundamentals that are less favourable to those that supported previous record highs, has this latest record-run viewed through jaded-eyes. Despite constantly being proven wrong, the necessary pull-back in US stocks during Wall Street’s big V-shaped recovery still ought to be upon us, according to bears. Market participants’ complacency, as betrayed by the VIX, will only contribute to another correction and volatility break-out in time. The missing agitator: It’s true that the S&P500 is edging towards overbought levels when looking at a medium-term time frame. However, although the global economy is lacking the fecundity present in previous record-breaking rallies, a few ingredients that were present in recent sell-offs are missing. First of all, price-to-earnings ratios aren’t as stretched as they were in October and February last year. But more importantly, the key impetus for those two sell-offs will probably remain absent this time around: discount rates, although edging higher on Friday, are unlikely to rain-on-the-parade, with the US Federal Reserve all-but locked into keeping interest rates on hold. The ASX’s loose relationship: So: with this in mind, entering the week, and a period of high-impact corporate data, risk-assets sit cautiously on the precipice. The gravitational centre of financial markets is Wall Street, and consequently, its internal dynamics will be a large determinant of how markets trade this week – and for a little while yet. Of course, its influence will be of varying significance depending on the market in question. For one, the ASX200 is an index that has recently moved in relation to the S&P500 like Pluto does to the Sun. Today, even despite Wall Street’s bullishness, SPI Futures point to a flat start for the ASX. Written by Kyle Rodda - IG Australia
  22. MaxIG

    APAC brief - April 12

    A week that’s (so far) under-delivered: Anything can happen in the space of 24-hours in financial markets. But as we enter the final day of trade in global markets for the week, activity today is shaping up as being just as tepid as that which we’ve experienced in the week’s first four days. It was hoped some new, market-moving information may have been delivered in what was a back-loaded week. Afterall, there was no shortage of event risk. However, thus far, despite a litany of risk events, many of which yielded positive outcomes, market participants have responded to the stories with a shrug. Market fundamentals take priority: Hence, we meander into this Friday having acquired some useful information about the world, but little in market pricing to show for it. It’s been said before (in fact, it’s been said a lot this week): market participants have developed a singular fixation on upcoming US earnings. And perhaps rightly, and comfortingly so: in a world where markets are dominated, even distorted, by macro-drivers and central bank policy, right now, company fundamentals matter more. It may seem trite to suggest so; however, it would be imprudent to underestimate how overwhelmed fundamentals become in a market dominated experimental monetary policy. Corporate earnings to be a risk barometer: The matter is now, that with Wall Street perched inches away from record highs, and the world’s other major indices well-off their lows, market participants need evidence to justify such a phenomenon. At that, it goes beyond just a micro-level concern of shareholder earnings. With the major risk to global markets the prospect for an uncomfortable economic slow-down, the forward guidance provided by US corporates will be used to form an abstract story for macroeconomic outlook. Market participants know that in the short term, the current state-of-affairs is unfavourable; what the bulls wish to see now is evidence of strength in the long-term. When the micro becomes the macro: A such, the micro-matters become important for macro-watchers, too. Arguably, this week has proven that, in a reversal of the status quo, micro-concerns have superseded those of its overbearing bigger-brother. The state-of-play now is markets have practically discounted fully the 4-and-a-half per cent fall in earnings growth projected by analysts for the quarter. What matters now is how future guidance is modified in response to the commentary and financials put forward by corporates. If that becomes downgraded out of earnings season, too, then Wall Street’s, and global equities big V-shaped recovery may come into question. A faith in the market’s high priests: The bar is still set quite high, with a nearly 7 per cent rebound in earnings on a quarterly basis expected come next quarter. This will come seemingly without a major boost to corporate America’s top line. Much of the rosiness in this outlook is embedded within a hope, however reasonable, that the recent monetary-dovishness and fiscal intervention from some major economic players will reignite global growth. From the Fed’s dovishness, ECB’s return to a completely neutral policy bias, and massive fiscal intervention from China’s government and PBOC, the concerted efforts of policymakers are expected to succeed in turning global growth around. Bonds recalibrating to growth expectations: Market participants are more optimistic that the worst of the turbulence experienced in the global economy in Q1 is behind us. That’s being revealed in a recalibrating in global bond markets, in response to some reasonable economic data. US Treasury yields are lifting across the curve, following the face-ripping rally in bond markets only a fortnight ago, in response to a tempering of expectations of monetary policy easing by the US Federal Reserve. Though the next move from the Fed is expected to be a cut, the odds this will happen before the end of the year is now about 50/50. What will the impact be on the ASX? The correlation between the ASX200 and S&P500 isn’t terribly strong. SPI Futures are betraying this today: the S&P closed flat today, but the ASX200 ought to open 21 points higher. The local share-market has traded on its own themes of late, ranging from the oft-cited lift in iron ore prices, and the weakness in bank stocks in response to local property market weakness. Global growth remains a sensitive-point for the ASX, nevertheless, with the chances the bifurcation in Australian and US markets possible enough in the situation that US reporting season surprises to the upside or downside. Written by Kyle Rodda- IG Australia
  23. Event risk passes with no surprises: The litany of economic data provided market participants the green-light they were looking for; but so far, the price-reaction, while bullish, has been subdued. Relative to the past 100-days, volume on Wall Street, and a majority of developed markets, has been thin overnight. It’s giving the impression of a stock-market bereft of conviction, as nervousness sets in as the S&P500 edges towards new record highs. Admittedly, much of this phenomenon could be attributed to the upcoming US reporting season: while risk-taking is being encouraged by policy-makers, a true validation in corporate fundamentals needs to accompany the oft-touted accommodative global monetary policy settings. Fed the highlight overnight: Nevertheless, the knowledge that monetary policy from the world’s largest central banks will remain supportive is a necessary precondition to any rally in equity-markets. Last night’s trade, and the data that was released and monitored within it, spoke of such a necessity. Naturally, it was the words of the Fed that held the greatest weight – this time, contained within their latest monetary-policy minutes. The information contained within them wasn’t new; however, it did confirm the stance makes have recently savoured. The majority of the Fed saw the need to remain qualifiedly “patient” in the face of “significant uncertainties”. US inflation-risk still low: The Fed’s dovishness was backed by US CPI overnight, which acted as tangible evidence for that central bank’s policy stance. Though headline inflation beat economist’s estimates, this was largely due to energy price volatility, with the “core” component of the number falling to 2.00 per cent on an annualized basis. The data itself saw the bets of interest rate cuts in the US increase marginally, prompting a fall in US Treasury yields across the curve. Moreover, 5 Year US Breakevens, while ticking slightly higher overnight, point to US inflation remaining below the Fed’s “symmetrical” 2 per cent target rate. ECB played second fiddle: Not to be outdone, the ECB met last night, too, and delivered approximately no surprises. Another rubber-stamping of the global monetary policy outlook, it seems. The ECB had already told the markets that it sees the need for a maintaining of its interest rate settings well into the future. The effect on Euro-zone rate expectations was practically the same as those in the US economy. Tighter policy settings from the ECB before year end has been all-but priced out; with negative interest rate policy, as well as many of the ECB’s more exotic policy tools, apparently here to stay for the foreseeable future. A nonplussed currency complex: As the race to the bottom in global interest rates resumed, currency markets appeared to have a little trouble working out what it all means. The US Dollar was the primary laggard in the G4 currency-complex, as the Fed seemingly won this round of Who can be the biggest dove? The Euro was up slightly against the USD; however, it was down against most its major crosses. The Yen climbed, but not as anti-risk trade. As it relates to the AUD, it climbed higher in the 0.7100 handle, as the yield differential between the US and Australian government bonds narrowed. A down start for the ASX, following a flat day: For what was a generally positive, albeit lukewarm lead from Wall Street overnight, SPI Futures are pointing to an 11-point drop for the ASX200 at today’s open. Trade was as flat as a tack yesterday, lifted only by a bounce in bank shares, partially (and arguably) due to a component in yesterday’s consumer sentiment data that suggested a shift in confidence towards the housing market. Otherwise, a stall in the astronomical rise in iron prices, and a pullback in oil prices, weighed somewhat on the market – though that dynamic may be due to change judging by last night’s commodity price action. A clear-cut lead hard to find: Today’s trade on the ASX may well be judged in large part on how the market reacts to the prospect of an announced Federal election date. SPI Futures fell into that market’s close, suggesting that the story may hold some weight. Otherwise, in the Asian session today, Chinese CPI data is the key release for market participants and will again be judged on what it says about China’s consumer demand, and the prospects for further fiscal and monetary intervention by policy makers. Thematically, cross-market moves suggest that there exists a present appetite for growth and risk, even if that comes without remarkable conviction. Written by Kyle Rodda - IG Australia
  24. MaxIG

    APAC brief - 10 April

    Waiting, waiting, waiting: Another uneventful night in global markets, traders have apparently occupied themselves positioning for the ramp-up in economic data in the next 24 hours. Equity indices pulled back in North America and Europe, as global safe-have bonds caught a bid. Commodities fell across the board, naturally with the exception of gold, which ticked higher on haven-demand. The G10 currency complex was lifeless, with the Japanese Yen edging higher as the carry trade was unwound on anti-risk sentiment. And in line with overnight trade, after a flat day yesterday, SPI Futures are indicating the ASX200 will drop 15 points come the open this morning. IMF rubber-stamps growth outlook: The macro-event that caught most attention last night was the IMF’s anticipated downgrade to global growth. Given the loaded calendar from now until Friday, perhaps that update was an appropriate precursor to the litany of risk-events. As can be inferred from the description of overnight price action, the release wasn’t met with a great deal of surprise, reaction or volatility. However, the message was stark, and worth noting. In the wise-old-eyes of the IMF, global economic growth ought to slow down to 3.3 per cent in the year ahead – a revision lower of its previous estimate in January of 3.5 per cent. Slow-down to be fleeting? Despite all their resources and soft power, the IMF told market participants something that they sort of already knew – and more importantly, had already priced-in. Higher trade barriers have sapped trade-flows and growth in emerging-markets. The consequences have flowed to developed economies – especially those of the European Union, which collectively will slow down to 1.3 per cent this year. For all this knowledge, risk assets remain supported. Maybe it’s this silver lining that’s keeping hope alive: although certainly below what its been in the past, forecasts suggest that the global economy will recover into the back end of 2019. Bonds flashing amber signals: The growth picture beyond that is a little sketchy, though on-balance its probably not a positive one. It is a matter of debate as to what this all may mean in a contemporary context, but at least a recognition of what rates-markets may be suggesting about the longer-term growth outlook should be discounted. Yield curves across developed economies still portray an ugly kink in the 3-to-7-year sections, implying a marked economic slowdown, along with subsequent central bank policy intervention, the world over at around that time-period. Generally, market participants do seem cognizant of the fact, and are treating it with merit. Make hay while the sun shines? But its material consequences aren’t yet being felt: it’s a case of make-hay-while the sun shines. And as far as risk assets go, the momentum on Wall Street Indices, and to a lesser extent the ASX200, can be somewhat attributed to this short-termism. Earnings growth prospects for the next quarter and next half are dim. Wall Street earnings season is practically upon us, and the series of revisions that have taken place since the start of 2019 has led to the consensus view earnings growth will have contracted by over 4 per cent; in Australia, earnings growth is expected to stagnate. Earnings forecast to improve, eventually: However, the bigger picture view is that earnings growth will turnaround. And in no small part it seems, markets are banking on a central-bank engineered turnaround in the global economy before year end. More than just a fall in discount rates, the projected recovery in sales growth across the S&P500 speaks of a belief that demand can be sustained enough to keep delivering growth to US corporate’s top line. It’s here where the bulls and bears become divided: sure, a chase for yield and capital growth will support flows into equities, but is a lift an improvement in fundamentals really that likely? The week to finally pick-up: It all rests on the fortunes and policymaking of the global economy’s triumvirate, of course: the US, Euro-zone and China. And the reason why the back-end of this week is significant is that key data is released out of all three that will illuminate whether markets are correct with their current bullish-view. The ECB meet this evening, with their thoughts on the continent’s short-term growth to be closely perused. US CPI and FOMC Minutes will be assessed in the context of confirming whether US interest rates will remain accommodative into the extended future. And Chinese CPI and trade balance will be carefully monitored when it arrives, too. Written by Kyle Rodda - IG Australia
  25. MaxIG

    APAC brief - 9 April

    An uneventful day on Wall Street: A flat, somewhat mixed, and low activity day on Wall Street, market participants seem to be eyeing events later on in the week. After Friday’s Non-Farm Payroll induced rally, traders have apparently looked-down below their feet, realized how far this market has climbed, and decided a fresh-wind is required before scaling to new record-heights. Such a milestone stands only 1-and-a-half per cent away for the S&P500; and sensibly, the market is in no rush to get there. Generally, though, the chatter in the commentariat betrays an overall confidence that the S&P will get there. As has been said a-plenty before: market conditions are looking quite “Goldilocksy”. Only a little more fuel is required to propel US stocks to where bulls wish for them to be. A backloaded economic calendar: The reasoning behind the lukewarm day on Wall Street overnight, aside from just being a Monday, is the economic calendar is backloaded this week. There seems to be a reluctance to get ahead of the data; with the preference being to position for it and react to it as it comes. US CPI data and FOMC Minutes will be the releases for US markets, and will, for the bulls, ideally confirm without qualification the Fed’s need to stay-put on interest rates. But Brexit-drama will also be closely monitored, as we creep ever-closer to the April 12 Brexit-deadline; as will the IMF’s economic updates due mid-week, and the ECB’s Monetary Policy meeting, for insights into the global growth outlook. Currency traders positioning for event-risk: In contrast to stock-indices, shuffling in currency markets was more pronounced on the litany of macro-headline risk. The central thread to the moves was a fall in the US Dollar, though much of this move came as an extension of positioning in the Euro ahead of Wednesday’s ECB meeting, just as much as it was a positioning for CPI data and FOMC minutes. Growth appetite is generally higher, it must be said though, with commodity currencies, such as the AUD, NZD, CAD, and NOK rising – the latter two owing to a spike in oil prices – and safe havens like the Japanese Yen and Swiss Franc falling. US earnings to determine Wall Street’s fate: Looking slightly higher above the fray, and US earnings season is coming-up, and may centre market-participants’ minds a touch. Not that any tremendous surprises are forecast; though earnings growth is expected to have softened a little this past quarter. That much won’t derail markets, and estimates are that a healthier growth in US corporate earnings should return as 2019 unfolds. Only the severest miss in earnings growth would curtail the recent bull-run across the S&P500. And not to mention that, with the US Fed keeping yields and discount rates low, the price-to-earnings ratio across the index remains relatively attractive, while dividend yields are also becoming of greater appeal, too. ASX facing domestic headwinds: A similar dynamic could conceivably prevail across the ASX200 in time, though some headwinds might keep momentum subdued. The ASX is showing a high correlation with iron ore prices at-the-moment, as the materials sector underpins the market’s gains. Though welcomed, the rally in iron ore is on shaky ground, given its being driven by supply disruptions rather than global economic growth. There are other areas of upside in the index it must be said: namely in biotech, which has benefitted from the recent turnaround in risk-appetite. However, not to be forgotten, the uncertainty in Australia’s property keeps weighing on the financials sector; as is the global slipping in long-term bond yields, which is keeping upside financial stocks globally limited. ASX in the day ahead: Nevertheless, looking just to the day ahead, and SPI Futures are indicating that the ASX200 will open around 8 points higher this morning. A clear indication of where the market might go today is missing currently. It comes on the back of a day which witnessed a very broad-based rally for Australian stocks. Lo-and-behold, it was another big rally in iron prices, and a slight lift in industrial metals generally, that underpinned a run-higher in mining stocks, and the overall ASX200. But breadth, too, was strong overall: 72 per cent of stocks were higher on the day, with the communications and financials sectors the only laggards for the session. Oil price rally accelerating: One theme to follow today will be the renewed rally in oil prices to begin the week. Supply-side risks have led the price higher once again; this time, courtesy of internal political instability in Libya. Actual supply disruption is yet to be confirmed, making the spike in prices sensitive to rapid retracement. According to the daily RSI, while upside momentum remains strong, the market is flashing signs of being overbought. However, given the current geopolitical dynamics, ahead of key OPEC meetings this week, future production cuts from major oil producing countries is still being priced-in. The WTI futures curve went into backwardation overnight, reflecting the pricing-in of perceived oil undersupply in the medium term. Written by Kyle Rodda - IG Australia
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