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MaxIG

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  1. MaxIG

    APAC brief 28 Mar

    By MaxIG,

    The see-sawing market: The one-day-up, one-day-down pattern of trade on Wall Street continues. It’s playing-out so elegantly, it’s almost absurd. Yesterday was a “down” day, as market participants evacuated equity markets to seek shelter in safe-haven government bonds. In contrast to the day prior, breadth has been universally low, with practically every sector in the S&P500 trading lower. The same simple binary that’s driven market activity for weeks is behind this dynamic: a competition between fears regarding the slowing global growth outlook, and the appeal of risk taking in a financial market environment plagues by tumbling yields. The pattern is showing few signs of abating and speaks of a market that is consolidating before a clearer-cut direction is formed.

    Asia set for mixed trade again: Wall Street’s lead is manifesting as a mixed-picture for Asian markets today, according to futures. Provided this materializes, it will be an extension of the region’s equities own theme. Yesterday’s trade was tepid for Asia too, resulting in an ultimately flat day for the ASX200, a solid day for Chinese and Hong Kong markets, and soft day for the Nikkei. As it presently trades, SPI Futures are suggesting that the ASX200 will open slightly lower this morning, if not flat; as will the Hang Seng and Nikkei; but the CSI300 ought to open a touch higher – though this is based on a future’s price that reflects price action from yesterday evening’s trade.
    Clutching for clarity: Given the overall soft-day for Wall Street stocks, combined with what’s expected to be a more-or-less flat start for the ASX200, the themes to follow for the day are currently a little obscure. After a stabilization in bond yields in the day prior’s trade, the financials sector kept the ASX200 in the green yesterday. For one, it’s an upside-drive that may go missing today, as global financials stocks pullback courtesy of another tumble in yields. Iron ore prices are down, but industrial metals are collectively higher, implying the macro-picture won’t be the key determinant behind the material’s sector trade today. Oil prices are also lower after a bigger than expected build in US crude inventories, boding poorly for energy stocks.
    Markets’ missing momentum: The defensive sectors may have another day in the sun instead. After the aforementioned bounce in bond yields, utilities were the laggard in yesterday’s trade, trading 1.34 per cent lower on 0 per cent breadth. Nevertheless, even some intraday rotation within the ASX200 will give little catalyst to spark a run higher in the index. Like many stock indices the world-over presently, the market has become mired by slowing momentum. Market internals haven’t been over-stretched by a great measure of late, but right now, they are showing a market missing real enthusiastic sentiment. It could mean a pause, before another run, or a brief pullback is coming. Positioning according to the pull/call ratio is neutral, however trending lower.

    Weaker AUD supporting stocks: One saving grace for the ASX200 is the weaker Australian Dollar, which took another dive yesterday. Having crept higher in recent weeks, the AUD was floored yesterday, after the RBNZ, during their monetary policy meeting, took a much more dovish stance than expected. They stated their expectation that their next move would be to cut rates. The Kiwi-Dollar got flogged and the Aussie-Dollar chased it lower, as markets not only increased bets of an imminent interest rate cut from the RBNZ, but also the RBA. The dive in the currency was ultimately the key driver of the modest gain registered by the ASX200 yesterday: and once again may be required today to see further short-term upside for the index.
    What it sounds like when doves cry: The RBNZ joining the growing party of central bank speakers talking-down economic prospects was the likely cause of yesterday’s run into government bonds. That, as well as a speech from ECB President Mario Draghi, in which he expressed his pessimism about hitting that central bank’s inflation target. German Bund yields swan-dived last night consequently, with the 10 Year Bund yield falling to -0.08 per cent – below that of its JGB equivalent for the first time in several years. US 10 Year Treasuries fell again below the Federal Funds rate at 2.4 per cent, as markets price in nearly 1-and-a-half interest rate cuts from the US Federal Reserve before January 2020.
    May maybe about to call it a day: The Sterling proved resistant to this tide in the G10 currency complex overnight, trading on further Brexit developments instead. The Cable climbed on news that UK PM Theresa May would tender her resignation once Brexit was decided. This in and of itself didn't inspire the rally in the Pound. Rather it was the more conservative wing of the Tory party's response to it that bolstered sentiment. Reportedly, they've shifted their support towards favouring the PM's deal, on the basis she'll abdicate here position upon its passing. Traders are pricing in now an increased chance of a breakthrough in Brexit negotiations, that will ensure that an orderly enough Brexit will transpire before the April 12 deadline.
    Written by Kyle Rodda - IG Australia
  2. MaxIG

    APAC brief - April 12

    By MaxIG,

    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
  3. MaxIG
    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
  4. MaxIG

    APAC brief - 10 April

    By MaxIG,

    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
     
  5. MaxIG

    APAC brief - 9 April

    By MaxIG,

    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
  6. MaxIG
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 8 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 SIQ AU 12/04/2019 Special Div 28.5714 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. 
     
  7. MaxIG
    A “Goldilocks” end to the week: Sentiment was nicely boosted to end the week last week. US Non-Farm Payrolls printed as closely to a so-called "goldilocks" figure for risk assets as you're ever liked to see. The data revealed the US economy added 196,000 jobs last month, against an expected figure of 172,000. It was enough to keep the unemployment rate to its very low levels of 3.8 per cent. But the real kicker for market-bulls was the earnings component: wage growth missed estimates, revealing a monthly increase of 0.1 per cent, versus expectations of a 0.3 per cent expansion. The result from the NFPs achieved two things: a reassurance that growth in the US economy, while possibly late cycle, is still solid; and inflationary pressures coming from higher wages remain subdued.
    Risk appetite climbs: Equities and other risk barometers were the major beneficiaries of the "goldilocks" US labour market data. Cyclicals performed well on Wall Street, as the S&P500 sustained its focused climb towards record-highs. Credit spreads narrowed too, as yield was sort out in fixed income markets. The VIX fell into the 12 handle, as fears of a sharp and imminent economic slow-down abated. And US Treasury yields remained quite steady, as the likelihood of a Fed rate cut before the end of 2019 were unwound slightly. The dynamic has led to a great deal of positivity across global equities to begin the new week, with futures markets ubiquitously in the green.

    Trade-talks tread water: The other major event over the weekend was US-China trade-talks, and unlike the NFPs release, the outcome (so far) has generally been met with a shrug. Markets are hearing much of the same from both sides on the trade-war at-the-moment. Progress is ostensibly being made -- that's what Larry Kudlow told the press over the weekend, and that's what Chinese President Xi Jinping told the press on Friday afternoon. But markets are a bit fed-up with platitudes: they've priced in amicability, and are now craving a decisive resolution, with an unwinding of tariffs. That could still come yet, of course. However, it wasn't to be this weekend; so markets continue to wait with bated breath for a true breakthrough.
    Reshuffling in currency markets: The combination of strong NFPs and static trade-negotiations looks to have inspired a  fall in growth currencies and a lift in the US Dollar over the weekend. Moves in foreign exchange markets were quite limited in the G10 space to end the week. The Australian Dollar has fallen back to the 0.7100 handle; while the Kiwi Dollar and Canadian Dollar have also pulled back - the latter falling despite a continued climb in oil prices. The Japanese Yen was down, however, revealing supported risk-appetite in the market currently; and the Euro was also down, much further into the 112 handle, as pessimism reigns about the Eurozone's economic prospects. Naturally, the Pound also dipped, unaided by heightened Brexit fears as the April 12 Brexit-deadline looms.
    China’s gold-bugs: Speaking of the currency complex, Chinese foreign reserve data were released over the weekend, and revealed that the PBOC once again increased its gold reserves last month. The motivation for doing so is speculative, and probably multifaceted. Nevertheless, one large consideration from Chinese policymakers must be to reduce exposure to the US Dollar. In the face of geopolitical conflict, and a begrudging dependence on the US Dollar as global reserve currency, the PBOC joins a handful of global central bank's reducing dollar holdings, often in favour of gold. Though dollar pre-eminence ought to last for some time yet, China's gold-buying spree adds credence to the notion that the yellow metal may see more upside yet in the long term.

    Trumponomics 2.0? Incidentally, perhaps evidence of the benefits of separating a national economy from US Dollar exposure came over the weekend. In the newest chapter of the Trumponomics handbook, the US President announced his desire to see the Fed undertake another round of Quantitative Easing to further fuel the US economy. Perhaps emboldened by (the perceived) success of forcing the Fed to halt rate hikes last year, the President has turned his power to force outright rate cuts. The President's rationale is easy to ascertain. But reading between the lines: given his desire to carry a strong economy into the 2020 Presidential campaign, might this outburst indicate the President's belief the US economy might soon slow down?
    ASX to reclaim losses this morning: As far as Australian equities go today, the bullish lead handed to market participants should see the ASX200 climb about 32 points this morning. If realised, this will put a line under a couple of days of rather broad based selling on the Australian stock exchange. Seemingly marching to a beat separate from that of the rest of the world, the ASX200 registered noteworthy falls to end last week. It was a wholesale exit from Australian stocks, with every sector in the red on Friday, on 18 per cent breadth. The rationale isn't clear as to why this was so: market internals were quite balances, though momentum had arguably gotten a bit over down. Regardless, global bullishness should spark a rebound, ahead of another busy week for traders.
    Written by Kyle Rodda - IG Australia
  8. MaxIG
    Positioning for the week’s climax: A little water-treading, as all eyes turn to Washington this weekend. And for two-reasons, really: highly anticipated trade-talks between the Trump Administration and Chinese officials – which includes Vice Premier Liu He; and the release of US Non-Farm Payrolls data by the US Bureau of Labor Statistics. Both promise to be potentially market moving events. Fundamentally, both events come in one-and-two as the week’s most significant macro-economic stories. How each unfolds will provide market participants with some key insights into the financial world – as it stands now and into the future. Is the US economy working to full capacity? Can the US Fed keep stay safely on the sidelines? What’s the potential for a global growth rebound?
    Stocks trade on low activity: With some crucial information promising to be revealed relating to these questions out of these events, financial markets in the last 24 hours have traded on a let’s wait and see mentality. Wall Street traded mixed: the S&P500 hovered in and out of “the green”, as the momentum in US tech stocks stalls. European equities, on balance, pulled back throughout the day, unaided by some weak German economic data. Asian trade was also lacklustre, with the Nikkei trading flat, the Hang Seng down, but Chinese indices generally clocking gains. Despite the mixture of results, the constant was generally a lack of volume in stock-markets, likely symptomatic of a market watching vigilantly for its next cue.

    Bond prices edge higher: On this basis, a rotation into government bonds materialized. Bond markets have settled-down after last week’s hysteria, and considering current fundamentals, have found something of a happy place. The safety has been sought in 10-years: the US 10-tear Treasury yield is down a basis point-or-two to around 2.50 per cent, for one. The US Dollar has been sort-out in general. Less a function of an overall search for liquid assets, the greenback has benefitted more from a fall in the Euro because of poor German Factory Order numbers, as well as another dip in the Pound on sustained concerns regarding Brexit. Speaking to the neutral sentiment in the market: the Japanese Yen is only marginally higher, as is gold.
    Market watch I: trade-talks: So that's how market participants have positioned for the weekend's big events, but what are they looking out for? Because of its political ramifications, trade-talks will be the headline grabber. Arguably, markets are a little exhausted by the trade-war. Holding onto hope can be exhausting; and judging by the diminishing impact of trade-war news, traders are tired of speculation and want substantial answers. A de-escalation in the trade-war is practically priced-in to the markets now. Future strategic consequences aside, the market-moving variable is probably going to be whether US and Chinese negotiators can flag a clear removal of at least some of the tariffs imposed on one another.
    Market watch II: US NFPs: As far as US non-farm payrolls go, the state of the US labour market always sits at the front of the carousel of concerns for market participants. Of late, however, the data itself has taken-on some new dimensions. Whereas in the recent past -- and we are talking in months, to maybe years -- it's been all about wage growth and the inflation outlook, as an extraordinarily low unemployment rate stoked concerns of an inflation outbreak in the US economy, and subsequently higher interest rates. That issue still exists. However, now, markets have to deal with another layer of complexity: the fear that the US economic machine is slowing down; and may lack the capacity to maintain labour market strength.
    Just a bit of profit taking? In our neck of the woods, SPI Futures are suggesting the ASX200 will translate the overnight-action into a 6-point loss at the open today. Australian equites are standing as an outlier, based on futures markets, across the Asian region. Most other futures contracts are pointing to a reasonably positive start for Asia’s major indices. Aussie stocks gassed out somewhat yesterday, proving the most notable laggard across the equity index map. Given it was the outlier, a single domestic cause for the broad-based selling on the ASX is difficult to determine. The market did sell-off from a 70 reading on the RSI, so perhaps we can chuck-out the old cliché and chalk-up the move to “profit-taking”.

    Reactions to an unofficial budget: Lacking a strong lead to follow this morning as markets await tonight’s key risk events, perhaps the curious matter for the ASX today will be how the market react to last night’s budget reply speech from Labor leader Bill Shorten. Aside from some quizzicality as to why the opposition leader kept bandying around the yield on 10 Year bonds as evidence for his economic argument, market participants may take greater notice of the detail contained within the budget-reply than that of the official budget on Tuesday. Markets like to play with and price-in probabilities; and given the balance of probabilities suggests a Labour government come next election, perhaps last night’s policy announcements will create greater impact than those announced on Tuesday.
    Written by Kyle Rodda - IG Australia
  9. MaxIG
    The biggest day of the (economic) year: The Australian economy garnered significant attention yesterday. Arguably, it was the biggest day on the economic calendar we’ll see this year. Insights into both the future of monetary and fiscal policy don’t often come on the same day. But yesterday it did: the RBA delivered their monthly decision on Australian interest rates; and the Federal Government handed down its latest budget. The price action in financial markets has thus far been limited – though, granted, we wait for the ASX to open this morning to witness the stock market response to the budget. At least from a purely intellectual standpoint though, both events have given market-buffs enough to chew on, and potentially frame future trading opportunities.
    The RBA stays away from politics: Let’s break it down and start with RBA. If there was ever a meeting the RBA wanted to avoid politicization, it was this one. Unlike what’s happening in the United States, our central bank has been generally insulated from political-ire in the post-truth, anti-establishment era. But surely Dr. Philip Lowe and his team have sharp memories and recall the impact the 25-basis point hike to interest rates in November 2007, weeks before a Federal Election, had on the political discourse. Considering that last night’s budget was just as much a re-election pitch as it was a document of economic management, keeping safely away from the fray was always on the cards for the RBA.
    The economic rationale: And not for unwise economic reasons, either. All Australians know how the game works: an election year budget is a vote-buying budget. In principle, it’s the chance to buy-back the electorate after years of (ostensibly) tough-but-necessary decision making. For the boffins at the RBA, the timing of the situation couldn’t be better: provided it’s implemented responsibly, with the Australian economy in its current state, some meaningful fiscal stimulus from the government wouldn’t go astray. It takes the heat off the RBA, undoubtedly: ideally, the injection of money into the economy will jump-start domestic demand, and boost consumption at a time when households are doing it a little tougher than they have in the past.
    Keeping the powder dry: It helps the RBA keep their powder dry, too. They have 1.50 per cent of potential cuts if things turn sour in the economy to play with, so to speak, before, like some of the world’s other major central banks, they would have to experiment with some unconventional monetary policies. Not only that, but unlike some of the more fiscally irresponsible governments around the world, the Australian government, with relatively low levels of debt, can still afford to pull some fiscal levers. This desire to wait-and-see shone through in yesterday’s RBA statement. They certainly took a more balanced view to economic risks, but they shied away from taking the line that rate cuts may soon prove necessary.

    Picking up the slack: The benefit of this is that rather than just drop interest rates, and risk inflating (certain) asset prices and encourage the accumulation of private debt, targeted spending may add the necessary sugar-hit to revitalize households and their consumption. This is important to the RBA: there are three things really weighing on consumers at present: high-levels of private debt, a fall in house prices, and low wages growth. Now, a touch of fiscal stimulus won’t reverse these challenges in-and-of-itself; and the RBA will need to remain active in managing risks relating to all three. However, the hope is that a quick boost to government spending could do its part to ease the pressures, and perhaps unleash the economy’s animal spirits.
    Forever the lucky country: Now, some of the structural or cyclical factors, from a global economic perspective, will remain unchanged. And that is what is often glazed over or ignore when it comes to Australian economic policy. The pollies will claim it’s an act of volition, but Australia is a small and open economy, and without good-luck, like what’s recently been seen in with our terms of trade, the money would not exist to support tax cuts and infrastructure spending. The problem for the RBA and Federal government, is sluggish wage growth (the thing that both parties are banking on turning around to maintain surpluses and stable monetary policy) is being caused by phenomena outside their control.
    A day for a little judgement: The interesting part of today’s trade is that market participants get a little sample of what the market is think about the combination of yesterday’s RBA meeting and Federal Budget. SPI Futures are indicating a big jump for the ASX200, despite a lukewarm night on global markets. First and foremost, in response to the RBA, the Australian Dollar has fallen with rate expectations and bond yields, as inflation expectations are deferred. Reactions to the budget will probably have to be judged by the behaviour of the ASX, though: consumer stocks outperformed yesterday, in a possible by-the-rumour sell the fact scenario. All of this will unfold around the release of important Retail Sales numbers today, which will give a true update on Aussie-consumers.


    Written by Kyle Rodda - IG Australia
  10. MaxIG

    APAC brief 2 April

    By MaxIG,

    Today was a good day: The term risk-on can be a little overused in financial markets at times. When short-on-time, and confronted with something complex, suggesting it’s been a “risk-on” or “risk-day” is a simple way to say market participants feel pretty good. At the risk of oversimplifying: the first day of the new quarter was certainly a “risk-on” day. It’s likely given the context of yesterday’s trade that makes this so. Concerns about a global economic slowdown have been their most sensitive in years. So: to receive a handful of better than expected economic data, such as we did in the last 24 hours, it makes things in the whole appear much better than if they were to be judged just in the particular. 
    The story has changed (for now): It’s probably a part of that compulsion market participants have – pundits especially – to infer a trend from a tiny-bit of information. The justification is reasonable enough: most people understand the world through stories, rather than hard-data and analysis. To take a piece of information, infer a trend, and then tell a story with it is far more comprehensive (and saleable) than just enumerating some soul-less facts. It’s with this (partial) assumption in mind, the first day of the new week, month and quarter can be viewed. For all its intricacies, complexities and ambiguities, it was the most “risk-on” day we’ve seen in a short-while; and the hope is now that this is the beginning of a significant reversal in trend.
    The truisms hold: Maybe another reason why dubbing price action yesterday this way is that it lived-up to so many old market axioms. Ironically enough, in these situations, the coming-true of absolute, self-evident truths about the world are comparatively rare. More-often than not, it’s more common to find an exception to the rule than to observe clear evidence for the rule itself. But truly yesterday, all but a few of the hackneyed judgements about markets materialized. Stocks ubiquitously rallied, with the S&P500 eyeing new highs. Bond yields are recovering ground after their recent tumbles. Commodities were generally higher, though (of course) gold was down. And growth currencies rallied, with the Japanese Yen leading the G10 laggards.
    The focus on China and America: A little description, a re-cap if you will, of the data that drove this price action is definitely warranted. And here, this could be evidence of market participants’ collective desire to simplify and cherry-pick information. Markets were swept up in the hope and positivity of a series of PMI releases on Monday. There were many of them released, amongst other high-impact economic data. However, two stood out as the drivers of risk-sentiment. The most important was Chinese Caixin PMI numbers, which validated the weekend’s “official” figures, and showed an expansionary print in that metric. The second most was US ISM PMI numbers, which delivered a robust print itself, beating economists consensus forecasts, too.
    Counter-evidence ignored: The narrative formed out of this couple of economic releases was relatively simple: two forward looking indicators for the world’s two biggest economies came-out strong; growth in the global economy therefore could be stabilizing. This general mode of thinking overnight inspired the so-called “risk-on” day; and proved cogent enough for other contradictory data to be ignored. Because all-in-all, the balance of data released – the first lot in a mountain of data to be released this week – was probably fairly mixed. European PMI numbers and CPI figures were printed, and dramatically underwhelmed again; while US Retail Sales figures greatly undershot forecasts, conveying a contraction in consumption in the US last month.

    Australia to follow the leader: Nevertheless, unsurprisingly, the ASX200 appears set to follow the risk-on theme this morning and jump in excess of 30 points at today’s open. It’s going be a massive day for Australian-econ-watchers; and may market participants too. Quite reasonably, it could be argued that, on paper, it’s the biggest day of Australia’s financial-year. This afternoon we get the RBA’s monthly meeting, at which the central bank will most certainly be keeping interest rates on hold. Then tonight, in what could prove a pre-election manifesto from the Coalition Government, the annual Federal Budget is presented before Parliament, with the prevailing view being that it will be loaded with spending and other sweeteners to win-over members of the electorate.
    Framing the day: As far as the RBA goes, the key point to watch for is whether, following the RBNZ last week, the central bank makes a decisive dovish pivot in its outlook for Australian interest rates. That is: it falls in line with market expectations and adopts a rate-cutting bias. When it comes to the Federal budget, it will be judged by what extent proposed spending measures will help stimulate a softening domestic economy. The Australian economic outlook has remained reasonably strong lately is an improvement in the terms of trade, led by a fortuitous climb in commodity prices. Tonight’s budget will be judged by how the income from that phenomenon is redistributed to households, to reboot ailing domestic consumption.

    Written by Kyle Rodda - IG Australia
     
  11. MaxIG
    The start of something new: A new day, week, month and quarter today; and what a difference a little time can make. 3 months ago, at least for some, global financial markets stood at the brink of ruin. It was December 24 last year that the S&P500 hit its low, but it wasn’t until the start of January that something resembling a turnaround in US stocks transpired. Fast forward to now, and Wall Street is over 12 per cent higher, and though at stages has looked extremely vulnerable to turnarounds, or at least pull-backs, to date, no such thing has occurred. And now, after Friday’s trade, the whispering speculation is whether the S&P is headed for new all-time highs.
    Wall Street eyes all-time highs: Given the balance of risks, there’s more than a negligible chance that will occur. This isn’t to say that’s it’s the likeliest of outcomes in US stocks presently, but the conditions are certainly in place to foster it. As has been covered off innumerable times, the market’s initial turnaround and subsequent follow through has in large part been central bank engineered. Led by the Fed, and dutifully followed by the ECB, BOJ, BOC, RBA and RBNZ, interest rate expectations completely reversed course in the past quarter. A world once preoccupied with calling the next round of rate hikes has been replaced with one speculating on when global central banks will cut next.

    A central-bank made rally: The subsequent loosening of financial conditions has ignited this multi-month rally. From its highs in October last year, the 10 Year US Treasury note has fallen over 80 basis points. The Fed has gone from “a long way from neutral”, to being “on autopilot”, to straight-up “patient” with their monetary policy. Say what you will about the Fed, there actions are a lesson in human fallibility and the inherent ambiguity in predicting the future. Not that the markets fundamentally care: Homeric lessons and questions of morality don’t concern it much. The foundations for risk-taking were reinstated, implying that whether right or wrong, as a matter of principle or policy, a gobbling up of risk-assets is justified.
    Fighting the cyclical slow-down: Of course, this dynamic has all played-out at a stage of the business cycle that might be described as “late stage”. Geopolitics has done its part to undermine market sentiment, and hobble economic activity in particular geographies. But as time goes by, more and more it appears that these issues are peripheral, and are causing a marginal impact to a global economy that is already in the process of slowing down. China is attempting re-engineer and reboot its growth engine. Europe, with all its problems, is feebly fighting-off recession. And the US, as the final bastion of economic strength in what we call the global economy, is showing signs its hit its peak for this cycle.
    The world outside the US: There remains a sense of inevitability about an economic slow-down. Naturally, it will prove a challenge to arrest. While market participants remain obsessed with Wall Street, and in our neck of the woods, the fortunes of the ASX200, some of the other major share indices have experienced less of a straightforward run higher. European stocks have sputtered at stages, the Nikkei is as prone as ever to risk-on/risk-off volatility, and China’s equities have been fitful. In these markets, the appeal of lower rates, against an expected global economic slowdown, has been less manifest. When looked at collectively, and stripping away US equities, global stocks as an asset class remain well away from their highs.
    Hope springs at the start of the new quarter: So, markets haven taken to risk knowing the stakes: policy makers have opened the doors to risk taking, and market have little choice but to walk through it, at the risk of being left behind. Future earnings growth is being carefully studied, within the broader macroeconomic environment. If expected earnings begin to turn negative, then it’s expected a rush to the exits will ensue. The hope becomes, therefore, that what policymakers are doing the world over will time turn the global-economic ship around. A big and slow-moving ship indeed, however as always in markets, hope springs internal: positivity has been piqued to begin the quarter by Chinese manufacturing PMI data released over the weekend showing green shoots in China’s economy.
    ASX to stay global-growth sensitive: For the ASX200, its fate rests in large part this becoming a new-trend. It will take some of the internal pressures stifling Australia’s economy, and keeping domestic conditions muted while policymakers attempt to fight-off our own slowdown. Signs of a pick-up in risk appetite are becoming more apparent on the ASX, though. The play into tech and bio-tech are always good signs. A fluke rally in iron can persist in the short-term and keep the materials space performing well. The fall in the Australian Dollar and RBA rate expectations has done its bit to bolster the market as well, attracting capital to our markets, and inspiring a chase for yield in defensive sectors. 

    Written by Kyle Rodda - IG Australia
  12. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 1 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. 
  13. MaxIG

    APAC brief - 21 Mar

    By MaxIG,

    Relief-on? It’s a trifle difficult to describe last night’s trade simply. On the surface, risk assets are being reasonably well supported, and there are a few signals suggesting market participants are in a slightly more bullish state of mind. Rather than “risk-on” however, one might describe the last 12 hours in markets as “relief-on”. This is mostly due to the fact that, at least for now, the global bond market rally has stalled. Markets had worked themselves into a frenzy this week, fretting over the meaning and implications of the precipitous run-higher in safe-haven government debt. It sparked all sorts of repositioning and knee-**** activity in markets, pulling price action around its massive gravity, and inspiring a general anti-risk sentiment.
    It’s been the speed, not the direction: The shocking part of the bond market rally – and let’s recall, for the many folk out there who aren’t bond-market buffs, that when bond prices rally, bond yields ¬fall – is not that it is necessarily happening at all. Instead, it is a matter of how quickly it is all happening, and what this rapid shift in momentum means all-in-all. The more benign reasoning is that it’s a basic repositioning, accelerated by technical factors, in response to the dovish turn central bankers have adopted lately across the globe. The direr interpretation, however, was that the swift shift in bond pricing signalled a market pricing in a major economic slow-down, maybe even a recession, in the global economy.

    Markets getting ahead of themselves: Both narratives are interrelated and true to some extent. Interest rates expectations have been sliced-down very quickly recently, courtesy of course, to a marked deterioration in global economic growth conditions. But these things take time: hence, the move in bonds seem disproportionate. This isn’t an invitation to rejoice, by any means. Risks in the long term to the global economic outlook are ample, especially as it relates to Chinese and European growth. But to throw in the towel now on global macro-economic outlook would be premature, and potentially wasteful: the actions of central banks are skewing risk-reward in favour of the risk takers, meaning taking a long bias on certain equity indices ought not to be discounted.
    The risk-reward balance: A skerrick of this view manifested in market activity last night. Wall Street is up and trending higher, just on an intraday basis, into the close. Most certainly, the fall in bond yields, driven by the prospect of looser monetary policy across the globe, is attracting flows into stocks. It's a continuation of the perennial battle in financial markets: the desire to take risk when financial conditions dictate its attractive to do so, versus the desire to preserve capital when the economic growth environment is degrading. Policy makers are fighting hard to engender a confidence that the former can be trusted and will lead to an improvement in the latter.
    Premier Li’s words fire-up traders: Yesterday, and the turnaround in sentiment began here, it was China's policy makers turn to try and settle market participants' nerves. In a speech at the Boao forum, Chinese Premier Li Keqiang outlined his optimistic vision for his nation and stated his belief that the fundamentals of China's economy were inherently sound. He did express that stimulatory measures would be undertaken to address any temporary underperformance in the economy, though avoided pledging major monetary support. However, Premier Li made clear, seemingly in an appeal to his peoples' patriotic fervour and market participants animal spirits, that China's economy is not because of internal problems, but problems that pertain to weakness in the outside world.
    It’s not us, it’s them: It's a popular strategy at-the-moment amongst financial leaders, actually: when having to explain what's causing domestic problems, just blame someone else! It was manifest in Premier Li's speech yesterday. But it was also a feature of ECB President Mario Draghi's recent discussions to the market, as well as that of Fed Chair Jerome Powell. The global economy as we know it is very interconnected, so in some sense there is a kernel of truth in stating that weak economic fundamentals is a function of some external factor. But when the centre of the argument is essentially to just point at the other guy, it comes across less as policy discourse, but more as a Three Stooges ****.

    The end of the month: The positivity inspired by Premier Li’s rallying call looks to have been discounted in the ASX200 yesterday. SPI Futures are pointing only to a very small gain at the open today. High impact news is hard to come by today – a lot of the event risk is loaded into next week now. Brexit drama will maintain relevance, but its impact will be contained to (a presently depreciating) Pound. The stronger greenback is a minor theme to follow: despite weaker US GDP figures, the almighty Dollar has smashed the currency complex and gold prices. To tie everything back into rates and fixed income: we wait to see whether AGBs sell-off too, and whether bets of RBA cuts are tempered, too.
    Written by Kyle Rodda - IG Australia
  14. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 11 Feb 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends this week
    RTY APAM US 13/02/2019 Special Div 103 RTY PRK US 14/02/2019 Special Div 20 RTY PFS US 14/02/2019 Special Div 20 RTY PZN US 14/02/2019 Special Div 46 RTY TLYS US 14/02/2019 Special Div 100 RTY MC US 15/02/2019 Special Div 125
    How do dividend adjustments work? 
    As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  15. MaxIG

    APAC brief - 27 Mar

    By MaxIG,

    Broad-based based bounce in stocks: It was a buy the dip day yesterday, judging by price action in global risk-assets. As has been the theme this week, there wasn’t any meaningful macro-news to change market participants behavior. So: an explanation for the (almost) universally solid day for global equities ought to be chalked-up to internal market mechanics. What this may imply for the longer run is a touch obscure. This market is trading much in the way a plane rights-itself after some brief, but heavy turbulence. Some rough times must surely lie ahead once again, if not for the simple matter that fundamentals haven’t changed. Market participants will therefore remain glued to any developments that may reveal new truths about global growth.

    Very little “new” news: There weren’t any such stories out last night. Outside the echoes of last week’s dovish Fed-tilt, European growth concerns, and talk of inverted yield curves, voices portending doom in financial markets were apparently much quieter. Ever the experts in hindsight, the collective wisdom of market participants seemed more interested in rationalizing away their previously held fears. This could be justified, and at that, telling in and of itself: traders are searching for reason to keep taking risks, and maintaining a bullish temperament. It certainly showed; not just in equities, but other asset classes. Bond yields climbed, at least momentarily ending their rout, and growth-proxy currencies lifted as currency traders sold-out of the popular safe havens.
    US sector map totally green: A criticism levelled at this market is that it’s so preoccupied with macro that it lacks any level of true discernment. Capital is being allocated into equities as a total asset class, ignoring the differing prospects of the varied sectors within equity markets. Case in point, just last night, was the S&P500, which has rallied across the board, on 81 per cent breadth. Of course, different sectors have benefitted more than others, with energy and financials leading the charge, and consumer discretionary and communications trailing the pack. But the general dynamic is clear: no matter where you look, when risk taking is being encouraged by a ubiquitous fall in global bond yields, flows go into equities of all stripes.
    A desire for growth and yield? This behaviour might be best conveyed by the juxtaposing of US tech's recent performance with the US utility sector. It gives a good read on the growth-versus-value dichotomy in equity allocation. On the whole, they've each performed remarkably well in recently -- a phenomenon which, generally, ought not to occur, as market participants either prioritise capital growth or yield. Once again, the catalyst behind this behaviour is probably attributable to fall in global interest rate expectations, as the world's biggest central bank's step away from tightening financial conditions. In short: lower yields in safe assets is fostering a simultaneous search for income from the conservative types, and an excuse to take bigger risks for the more daring types.

    Something has to give: The problem is: the finitude of capital, plus changes in momentum in the market, all but necessitates market behaviour fall one way or the other. And this is where global growth prospects, and it's knock-on implications for earnings, become crucial. A fundamental case to bet big on growth stocks disintegrates when the global economic outlook shows signs of deteriorating. As such, market participants, though not acting on their impulse today, are sticking their fingers in the air to forecast which way the frosty-winds of the global economy are going. For the medium term, the conclusions aren't so good, and that's laying the bedrock for potentially choppy trade as traders attempt to fill the blanks of several prevailing uncertainties.
    Markets hoping for a growth turnaround: But faith is being maintained that central banks may pull a rabbit from the hat and reverse course enough to put equity markets back into a steady, upward trajectory. Amidst no change in fundamentals, judging by yesterday's bounce in global equites, there are enough buyers in the market to take that punt. Apart of the matter, too, is that market participants are being given little choice but to chase risk. The fall in discount rates is luring them into taking on greater risk to achieve their required returns. Hence, even while the slimmest of opportunities exist in the market, until a categorical move towards capital preservation emerges, flow will be sustained and supportive of global equities.
    ASX demonstrating less optimism: As it relates to the ASX200, some late buying on Wall Street has translated into SPI Futures pricing in a flat start for the index today. Early indications are that Australian stocks will go without the broad-based buying that drove Wall Street activity overnight. The slightly stronger Australian Dollar and lift in bond yields will also enervate the market, given much of its recent gains has come courtesy of a fall in both. Energy stocks could be the clear winner today, as oil prices leap to 3-month highs. The overall success of the market probably rests on the financials though. The question is whether a rebound in global yields will override the domestic challenges confronting the financial sector.
    Written by Kyle Rodda - IG Australia
  16. MaxIG

    APAC brief 14 Mar

    By MaxIG,

    Traders see “goldilocks” conditions in US: Both European and US shares rallied overnight. For the latter, the term “goldilocks” has been bandied around. That is: growth in the US, though not as strong as it has been in the recent past, is still solid, while inflation risk is presently low, meaning the US Fed will likely remain in a neutral position. A reminder of this dynamic came in the second of two major inflation releases out of the US this week. PPI data showed a weaker than expected print, following the night prior’s soft CPI numbers. The effect has been static bond yields, a slight lift in the prospects of a US rate cut this year, and a US Dollar that has pulled-back from its highs.
    US stocks fail to jump significant hurdle again: Perhaps most significantly for those with a bullish disposition, US equities have responded to the “goldilocks” dynamic in the most enthusiastic way. Once again, the S&P500 has challenged crucial resistance at 2815 – that notorious level at which the market has broken down on nearly four-or-five occasions in the past. Promisingly, as it applies to last night’s trade, the sector responsible for driving the S&P500’s gains is information technology – primarily Microsoft and Apple Inc. Recall, it was the en masse dumping of the tech-giants that led US stocks lower in Q4 last year. It’s hope that their continued recovery may be a bellwether, for the bulls, of further upside to come.

    Green-shoots in commodities? It wasn’t only equites engendering a sense of hope for the global growth outlook in the last 24 hours. Arguably a more reliable indicator, global commodity prices registered noteworthy gains. The weaker US Dollar undoubtedly supported this, but it alone does not explain the broad-based strength across the commodities complex. Perhaps it’s just another part of the small snap back we’ve seen in markets since the de-escalation in trade-war tensions. An edging higher in the price of oil, after a contraction in US inventories last night, has been supportive too. Nevertheless, although a major break-out in commodity prices are yet to occur, the reversal in its downward trend has some suggesting these are green-shoots for the global economy.
    Asian markets had a soggy day: To localize the focus, the ASX200, in line with the other major regional equity indices, closed well into the red during yesterday’s Asian session. It seemed it was one of those days where the market’s behaviour was a trifle inexplicable. The lead handed to Asian markets was solid enough, nor were there were any major tier-1 economic announces to undermine sentiment. Some indicated that it might have been comments from the night prior by US trade representative Robert Lighthizer that US tariffs on China remain a possibility. This answer isn’t satisfactory, however: the comments were made in the US session and caused little reaction then. Maybe yesterday’s weakness could be chalked-up to the market simply having a soggy day.
    ASX200 to open higher this morning: Regardless, the tide looks likely to turn again this morning. SPI futures are indicating a 20-point jump at the open for the ASX200. What appetite there is for risk will be curious today. As mentioned, despite ample fodder a little upside yesterday, especially in growth and cyclical stocks, trade was defined by a languid rotation into defensive sectors. The phenomenon may well be attributed to the morning’s Westpac Consumer Sentiment reading. It showed a major fall in sentiment, resulting in a major tumble in Australian Commonwealth Government Bond yields. Though certainly a positive for yield-stocks, the fall in 10 Year ACGBs portends a meaningful slow down in domestic economic, and the likely necessity for RBA cuts as soon as August.
    The monthly Chinese data-dump: Traders will get another opportunity to refine their views on global growth today: it's that time of the month when markets receive the big Chinese economic data dump. The bar was set last week during China's National People's Congress, as Chinese policymakers downgraded their growth targets, and announced a slew of fiscal and monetary measures aimed at supporting their economy. As it relates to Australian markets, two of today's prints stand-out as being most relevant: the industrial production, and retails sales numbers. They may prove significant for the AUD: as yields fall in AUD denominated assets, the yield disadvantage the AUD has against the USD grows, making the currency more vulnerable to data surprises and downside risk.
    Brexit: Round to 2 of 3: The headline story today has been round 2 of 3 in this week’s Brexit-battle in the UK House of Commons. This morning’s vote was to decide whether to move ahead with a “no-deal” Brexit. By a narrow margin, the House voted against “no-deal”, setting up another vote tomorrow on whether to extend Article 50 and delay the March 29 deadline. There has been a lot of drama this morning, and the **** is certainly in the detail, especially as it pertains to Theresa May’s authority. But as far as financial markets go, the simple fact is this: the Pound has rallied, equally against the EUR as the USD, as traders bet on a delay, if not a reversal, of Brexit.

    Written by Kyle Rodda - IG Australia
  17. MaxIG
    Financials drag on the ASX: The ASX200 was legged in the final stages of trade yesterday. It was led by a sell-off in major financial stocks, after a media address made by Australian Treasurer, Josh Frydenberg, during which he announced the Liberal government would not pursue the eradication of trailing commissions for financial advisors and mortgage brokers, as prescribed by Kenneth Hayne QC in the final Banking Royal Commission report. It turned what was an otherwise solid day for the ASX200 on its head. Naturally, given their substantial weighting in the index, a bad day for the banks more-often than not leads to a pull-back in the market. That notion certainly proved to yesterday and looks to prove true again this morning.
    A good lead, but a weak start: Thus, at time of writing, SPI Futures are pointing a 7-point drop at the open. With half-an-hour left in Wall Street trade, it won’t be for a lack of a positive lead that this will be so. It’s been a reasonable day for US stocks, rallying just over 0.3 per cent, according to the S&P500. Market participants, it would seem, have had hurled back at them, when it comes to the banks, the political risk to the industry, they’d thought, had disappeared following the final report handed down by the Royal Commission. This being the case, the simplest answer for the ASX’s likely sluggish start today is this returning shadow of regulatory uncertainty over the financial sector.
    Banks back into the spotlight: Numerous specific explanations could be offered regarding the exact rationale for trader’s sell-off in financial-stocks. Many of them are politically-charged and filled with bias. For some inclined to one way of thinking, it might be because the Government’s new-position invites the Labor opposition to go harder on their “bank-bashing” (as it has become colloquially known) and raised the prospect of harsher regulations on the banks. The overarching explanation, no matter the specific reasoning, however, can be summed up in a cliché about markets: the only thing worse than bad news in markets, is uncertainty. Yesterday’s proclamations from the Government reintroduce uncertainty to the banking industry and create reason to avoid long positions in the banking stocks.

    Some of the bullish stories: Hence, despite some reasons to climb further today, the ASX200 may struggle to stay out of the red. It will come in the face of other macro-factors that ought to support stocks in Australia – and across the region. For one, industrial metals elegantly bounced from trendline support to sustain its recent run higher, which augurs well for the materials sector today. Oil is edging higher once more, so another day of gains for the energy sector could be in store. And a further play into health care and information technology stocks on Wall Street last night suggests an appetite for growth and risk in the market, pointing to positive conditions for highly weighted biotechnology firms on the ASX200.
    US CPI and global yields: Even more fundamentally, risk appetite was galvanized by a general fall in bond yields overnight. While still well within their broad range, US 10 Year Treasury yields fell 4 basis points to 2.60 per cent, after US CPI numbers missed expectations. The headline core CPI figure printed a lukewarm 2.1 per cent – effectively affirming, for now, that the US Fed is under very little pressure to hike interest rates. The knock-on effect was tangible throughout fixed-income and currency markets: 10 Year German Bunds clocked another multiyear low around at around 0.05 per cent; and the USD gave up ground, as it lost some of the yield advantage that has fuelled its recent rally. 
    A higher chance of a Fed cut: Inflation expectations for the US economy have been tempered after last night’s CPI miss. The US 2 Year Breakeven rate slipped below 1.90 per cent – revealing a market that believes that inflation in the US will continue to languish below the Fed’s 2 per cent “symmetrical” target. The dynamic has manifested in the implied probabilities US interest rate markets. A rate cut from the Fed is now considered a roughly 36 per cent chance before the end of 2019. It’s taken market positioning to levels not witnessed since the start of January – that being a time, of course, when the market was still being shaped by the massive market correction experienced in the last quarter of 2018.
    Brexit update: For everything else going on in markets, Brexit and the unfolding drama in that issue was the headline issue for traders overnight. There were many swings in the story yesterday, but ultimately, the simple fact this morning is this: UK Prime Minister Theresa May’s Brexit deal has been voted down again. It was by a smaller a margin this time – a 149 vote deficit. But nevertheless, the defeat was resounding, and ensures that the toxic effect of Brexit on markets lingers. The Sterling has whipped around in a 2.4 per cent range in the last 48 hours. Similar volatility is expected as the House votes tomorrow morning on whether to exit the EU with “no deal” at all.

    Written by Kyle Rodda - IG Australia
  18. MaxIG
    Up, down, turnaround: It’s been a bipolar market of late. Global stocks are moving in unison, and have swung from broad-based losses on Friday, to broad-based gains overnight. US equities are naturally the exemplar and are a responsible for driving overall risk appetite. With an hour left in trade (and as a quick aside, Wall Street closes at 7am AEDT for the next few weeks) the S&P500 is up well over 1 per cent. It’s been a day of relatively low activity. However, breadth is expansive: over 90 per cent of stocks are higher for the session. After last week’s losses, the S&P500 is some way from the key resistance at 2815. The fundamental strength of the market will be assessed by its ability to rechallenge that level.
    ASX to hit the ground running: It was topsy-turvy yesterday, as far as the ASX’s behaviour went within the context of the global rally in equities. Unlike during stages of last week, the ASX200 was a thin-cut of red in an otherwise sea of green, when looking at the global equity index map. Australian stocks will join the party this morning, and according to the SPI Futures contract, will bust out of the gate at today’s open with a 34-point rally. Inducing from European and North American trade what we might see today: materials stocks may follow their international counterparts, energy stocks may track a lift in oil, and Australia’s growth stocks in the biotechnology industry should follow US tech’s run higher.

    US economic fundamentals: US economic data is dense this week, and what it suggest about the US economy will be a theme to watch in the week ahead. After all: growth in the US economy is what many are hanging their hat on to keep global economic activity supported. Retail Sales data last night was the first high-impact event for the week, and it surprised to the upside. Although January’s woeful figure was revised down again, sales growth in February beat expectations. The result didn’t change fundamentals, though they did shift slightly. US Treasury yields lifted modestly, on reduced bets that the US Fed will have to cut interest rates at some stage in 2019 to support the US economy.
    US inflation risk: The far more important US CPI figure is released tonight – and will probably amount to highlight for the week in US data. Inflation concerns have become less-of-a-priority for traders recently, owing to the volatility in financial markets, relatively low oil prices, the dimming prospects for global growth, and the US Fed’s assurances that it does not mind overshooting its 2 per cent inflation target. Nevertheless, inflation risk always reigns – and, if realized, would be quick to quash equity market bullishness. In saying this, the implied probability of this materializing ought still to be considered low. US 5 Year break evens are implying a US inflation outlook of only about 1.85 per cent.
    3-days of Brexit drama: Though US data is an overarching theme this week, the eyes of the world will probably be on the UK for the next 3 days. It’s more-or-less crunch time for UK Prime Minister Theresa May and her wildly unpopular Brexit bill. A series of votes before the House of Commons to decide on what the UK will do come the March 29 Brexit deadline will transpire over the coming days. Crudely put, they’ll determine whether to leave the Eurozone according to Prime Minister May’s deal (unlikely); crash-out of the Eurozone without a deal (a possibility); or extend the Brexit deadline and kick-the-can further down the road (likeliest). The Sterling will be the barometer: short-term moves between the 1.28 and 1.34 handle is conceivable.
    Mixed growth signals: For financial markets, Brexit’s macro-economic impact will probably be contained to UK and European assets. Rightly or wrongly, the view is that the matter concerns regional markets, primarily. Fears about slowing global growth will remain a theme overlayed in the market, nevertheless. And judging from last night’s trade, despite the bullishness in equities, fixed income and currencies, pockets of pessimism still prevail. Growth sensitive commodities, primarily industrial metals, were down overnight, even in the face of a weaker US Dollar. From a technical standpoint, industrial metals prices are reaching technical trend-line support. If broken below, it may indicate that the market’s flirtation with improved global growth conditions was a mere folly.

    China’s got the gold-bug: The always contentious outlook for gold prices was of interest overnight, amid the sell-off in commodities and the confused global growth outlook. Gold pulled away from the $1300 pivot point once more, courtesy of the rise in global yields. An arguably more interesting and significant variable in gold's broader price action was a highlight yesterday: data that revealed China once again increased its reserves of the metal last month. The most parsimonious explanation here for this phenomenon is that, like the Russians, China is looking to reduce its dependence on the United States by diversifying away from USD denominated assets. It's a direct challenge to the post-Bretton Woods global monetary system, and one that may support gold prices into the future.
    Written by Kyle Rodda - IG Australia
  19. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 11 Mar 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
     
    Index Bloomberg Code Effective Date Summary Dividend Amount RTY BTU US 11/03/2019 Special Div 185 RTY FFG US 14/03/2019 Special Div 150 RTY CWH US 14/03/2019 Special Div 7.32 RTY GSHD US 15/03/2019 Special Div 41 RTY JILL US 18/03/2019 Special Div 115 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. 
     
  20. MaxIG
    US NFPs: The final bastion of global economic growth is showing cracks in it walls. Arguably last week’s key-release, US Non-Farm Payrolls disappointed market participants over the weekend, printing well below expectations. It wasn’t a clear-cut, poor print. The unemployment rate dropped to 3.8 per cent and wage-growth climbed to 3.4 per cent. The shocker was the headline number: forecast to reveal a jobs-gain of 180,000, the US economy only added 20,000 last month. It’s given rise to concerns that, given how low the unemployment rate is in the US, and that wages are finally picking-up, the long-thriving US labour market has finally reached full capacity for this economic cycle.
    US stocks fall, but losses were limited: That would be bad news for the US and global economy. Despite this gloomy picture painted by NFPs, and an initial knee-**** reaction, traders sought to see through the data. It was a bad day, ending a bad week, for risk assets on Friday – that’s no question. But given that the weak US jobs figures punctuated a series of weak global economic data, which solidified the fear the global economy is sharply slowing, the reaction in markets was fairly contained. Global stocks certainly put in their worst weekly performance for the year. However, Wall Street’s daily losses were contained to a relatively modest 0.21 per cent, if judged by the S&P500’s performance on Friday.
    Central banks to the rescue? Could traders be betting that central bankers, in the event of a marked slow-down, will come valiantly to save markets from any economic malaise? Quite possibly. Interwoven between underwhelming economic data out of Asia, Europe and North America have been speeches and meetings from the world’s most powerful central bankers urging calm. Even more importantly, at least as it applies to market participants, central bankers have worked hard to deliver assurances that they’ll deliver policy support, if necessary, to curb any economic slow-down. Market pricing has reacted accordingly: global bond markets continue to rally, as traders price in that the next move from likes of the ECB, Fed and PBOC will be to ease policy.
    Interest rate markets: The most noteworthy move in the implied probability of rate cuts has been in US interest rate markets. Following Friday’s disappointing US Non-Farm Payrolls release, bets of a cut from the Fed before the end of 2019 leapt from practically zero, to about 20 per cent. US Treasury yields tumbled consequently, taking the US 10 Year note to 2.62 per cent and US 2 Year note to 2.46 per cent, -- taking yields on European and Asian bonds with it. Gold rallied back to just shy of $US1300 on this basis, and growth-sensitive commodities like oil, copper and iron ore tumbled. Credit spreads also expanded, with junk bond spreads touching levels not registered since the start of February.

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

    Written by Kyle Rodda - IG Australia
     
  21. MaxIG
    Australian data draws global interest: Australia’s remarkably weak growth figures captured attention, both locally and abroad. The numbers conveyed in yesterday’s GDP were truly disappointing. Growth in the final quarter of 2018 was a paltry 0.2 per cent, and after another set of revisions to previous data, the annualized growth rate fell to 2.3 per cent. Each figure was quite an undershoot of expectations: for one, economists were expecting the quarterly number to come-in-at 0.3 per cent in seasonally adjusted terms. Now, on the face of it, this may not seem too bad. However, this estimate had been revised down several times in the week preceding yesterday’s GDP release, from around 0.6 per cent, in response to other underwhelming Australian economic data.
    RBA’s dissolving logic: As it stands, the picture the GDP print painted of the Australian economy blows the RBA’s base case out of the water. Recently, the RBA had become candid in its assessment of the (let’s say) “crosswinds” in the domestic economy. So cognizant of the risks, they’d adopted a “neutral” stance to monetary policy moving forward into 2019. But still, their optimism remained: growth would remain strong enough to lead to an even tighter labour market, which would eventually feed into a pick-up in wages growth, and subsequently the inflation and consumption growth long-missing in the Australian economy. It was this view that fundamentally created the bedrock for the RBA’s policy bias and supported their hope for improved local economic conditions.
    A further slowdown expected: It’s seems impossible that the RBA could maintain this base case anymore. Simply put: a growth rate where it is now cannot sustain the necessary tightening of the labour market to put the aforementioned process into motion. Historically, GDP has had to grow at a rate at least above 2.5 per cent to see adequate growth in employment. A growth-rate below this market has traditionally led to an increase in the unemployment rate – a phenomenon that, given we are (arguably) at nominally full-employment now, may well manifest quickly in future labour market data. With that credible assumption made, the elusive growth in wages is terribly unlikely to materialize, meaning the Australian economy is unlikely to meet the RBA’s expectations.

    2 RBA rate cuts possible in 2019: The logic hasn’t been missed by market participants. Immediately following yesterday’s news, traders swiftly priced in the new, less-optimistic outlook for the Australian economy. Bets on a rate cut from the RBA before year’s end spiked. Implied probabilities are now suggesting at least 1 cut from the central bank in 2019. The chances of another cut after this also showed for the first time in pricing – at implied odds of about 25 per cent. Naturally, the bears swarmed the AUD/USD as a consequence. Support at 0.7050 broke, after being tested a handful of times during the day, as the spread between 2 Year ACGBs and 2 Year US Treasuries widened to as far as 88 basis points.
    Lower yields, lower currency, higher ASX: Not that the ASX was overly perturbed by what was happening in the currency and bond markets in response to the GDP figures. If anything, it was a welcomed development, just in the short-term, for stocks. The depreciation of the AUD, coupled with the tumble in bond yields, bolstered equities, leading the ASX200 above 6230 resistance, to close 0.75 per cent higher for the day. It was a broad a based rally too: every major sector was in the green, led by the cyclical materials, energy and industrials stocks, which have also been given a boost by the run up in oil and industrial metals prices. The next conspicuous level to watch from here likely becomes 6310.

    Wall Street struggles: For the day ahead, SPI Futures are currently indicating an 8-point jump at the open for the ASX200. If realized, it’ll be no thanks to the lead Wall Street is likely to hand us. With less than hour to go in trade, the S&P500 has pulled further away from its formidable resistance level at 2815, to be trading 0.5 per cent lower on the session. Momentum is building to the downside for US equities still: the MACD and RSI are both pointing to a market that’s lost its drive. Also, of slight concern is breadth and conviction of Wall Street’s overnight falls. Volumes are above average, while only 20 per cent of stocks are higher for the session.
    The currency complex: The anti-risk, anti-growth bent to trade overnight has brought out some of the typical doomsayers. The result has been a modest lift to the US Dollar, and at that, the Japanese Yen, while gold keeps grinding lower. Across the currency complex, commodity currencies have been the worst performing. The AUD, for the reasons earlier described; but also, the Kiwi and CAD, too – the latter in part due to a dovish Bank of Canada last night, and a dip in oil prices. The Euro is steady as it treads water ahead of tonight’s ECB meeting, at which that central bank is expected to cut its growth outlook. The Pound is ambling as further Brexit developments are awaited.
    Written by Kyle Rodda - IG Australia
  22. MaxIG
    Are things not so bad after all? It appears there’s emerged a self-reinforcing belief that economic fundamentals aren’t as bad as once thought. There’s not a simple binary that can be reduce out of this – a clear “risk-off” or “risk-on” signal. It’s clear there remains a general sense that the global economy is entering a soft-patch. But in that, is the key: slower growth is taken as granted, however the extent of such a slowdown is ostensibly being revised. There isn’t quite (just for the moment) the same level of catastrophism filling the news wires in financial markets right now. It raises the question whether the fundamentals have changed at all, or whether its actually market participants’ perception of the fundamentals that’s changed.
    Improved perceptions towards fundamentals: An answer to that one is very difficult to grasp just looking at the price-action. To rattle-off one of the stalest of undergraduate clichés: perception is reality. In the case of traders, the rosier perception of economic fundamentals has inspired the emergence of a virtuous cycle in financial market bullishness. Very often, a break from fundamentals, and a movement towards some imagined state of affairs, gives birth to a sufficient enough divergence between sentiment and hard-data that a relatively small catalyst can spark a jolting correction in market-pricing. That may well be the situation market participants are operating. A blithe optimism or not, some key markets are approaching now key inflection points.
    The will to end the trade-war: The big stories that are making this dynamic possible can still be rooted in a dovish US Federal Reserve (and dovish central banks across the world, at that) and a compounding hope that global trade skirmishes are reaching a resolution. Sharing that hope, or maybe trying to fan it, US President Trump is demanding freer trade. Tweeting on the weekend, Trump claimed to have “asked China to immediately remove all Tariffs on our agricultural products… based on the fact that we are moving along nicely with Trade discussions”. Such a statement is to be expected and will be of negligible consequence in the short term. The demand is indicative of where markets see the trade dispute: political will shall drive a breakthrough.

    The (President) Donald Trump Show: Speaking of the US President, and he captured the attention of markets again over the weekend. In a 2-hour monologue at the CPAC conference, he addressed many of the concerns, controversies and crises enveloping his Presidency. Speaking “off the cuff”, as he phrased it, the spectacle could be considered comical, evening entertaining, if it weren’t for the stark reality that the man is the world’s most powerful person. Of financial market import, President Trump fired-up his belligerence towards the US Fed and Jerome Powell: “we have a gentleman that likes raising interest rates in the Fed, we have a gentleman that loves quantitative tightening in the Fed, we have a gentlemen that likes a very strong dollar in the Fed”.
    Higher Treasury yields; stronger USD: It will be interesting to see today how markets react to the President's tirade. Unfortunately for him, his crass words will prove of marginal significance in the bigger picture. The US Dollar is finding plenty of advocates, driven by a renewed belief in the strength of the US economy. Chances of a rate cut from the Fed this year have been unwound. Treasury yields climbed markedly on Friday, despite weaker than expected ISM Manufacturing figures, and a PCE inflation reading that revealed price growth continues to amble below target at 1.9 per cent. The higher yield environment and stronger greenback has wiped the shine off gold (and really, most commodities) falling below $1300 per ounce.
    US markets show risk appetite: The risk is that markets will end up in the position that assets, like equities, will lose their appeal again amidst the higher yield environment. A pertinent and high-impact concern, but seemingly one some way from materialising. Though at a multi-month highs at 2.75 per cent, the 10 Year US Treasury is some way from the 3.26 per cent yield that stifled global markets last year and precipitated the Q4 sell-off. Riskier growth stocks in US tech are seemingly attracting buyers, indicating an underlying bullish moment in the US equity market. Having closed at 2803 on Friday, the S&P500 eyes the 2815 resistance level now as the crucial test for US stock market strength.

    ASX to follow the US lead: For the first time in several sessions, the ASX200 appears poised to follow the US lead this morning. The last traded price on the SPI Futures contract is indicating an 18 point jump this morning, on top of Friday’s closing price of 6192. The market experienced robust trade on Friday, despite soft (but above forecast) Caixin PMI numbers, and CoreLogic data that showed another monthly fall in domestic property prices. In fact: the latter, and its implications for monetary policy, was apparently seen as supportive of Real Estate stocks, which rallied 2.22 per cent on 95 per cent breadth. As far as milestones go, the ASX200 will eye 6230 resistance, ahead of what is a jam-packed week for Australian markets.
    Written by Kyle Rodda - IG Australia
     
  23. MaxIG
    Wall Street trade: Rolling into Wall Street’s close and the S&P500 is battling it out with the 2800-mark. There’s two hours to go in trade as this is being written, and the crucial last half-hour of trade is what analysts will be breaking down today. It’s been for all intents and purposes a flat day for US stocks, but another bout of selling into the close will add credence to the idea that the buyers are thin at these levels. Market internals don’t appear too stretched for the S&P, and it is being said that there still exists plenty of cash on the sidelines. Weaker volumes and underwhelming intraday breadth suggest the bull’s enthusiasm has waned somewhat for the short-term.

    US traders search for leads: Momentum has certainly slowed across US equity indices, adding to the sense that the market has lost upside conviction. Neither the MACD nor the RSI are flashing conspicuous sell signals, but the former is conveying a gradual downside turn, while the latter is flirting with oversold territory. A lack of high impact news, or any general surprises, has deprived US equity markets’ of fuel to further power its rally. Rosy trade-war headlines no longer appear enough to embolden bulls and invite buyers into this market. And the Fed’s back-down to market-pressure over monetary policy settings implies that fear about tightening financial conditions has more-or-less been parked to one side for the foreseeable future.
    Fundamental nuances to be analysed: Market fundamentalists are left to mull the combination of slower global growth and a weaker earnings outlook now. Vague insights regarding these subjects were searched for out of last night’s key risk event: US Fed Chairman Jerome Powell’s testimony before the US Senate Banking Committee. Perusing the headlines and there was very little new information to be gleaned from the event. The word “patient” came-up again as the leitmotif of the address, along with the glib and perfunctory assurances that the Fed will stay “data dependant”. Perhaps most important of all, at least from a trader sentiment point-of-view, Chair Powell reiterated the Fed’s stance on its balance sheet: normalization can be adjusted if necessary.
    The chattering (asset?) classes: It was probably a function of the general anti-risk sentiment yesterday, Powell’s testimony, and a general sense of listlessness in the market: the topic of the next US recession was doing the rounds. The chatter wasn’t inspired by much. A further flattening of the US yield curve following Powell’s speech could be fingered as being somewhat responsible. Nevertheless, the sense of forebody manifested in intermarket behaviour overnight. Stocks, as has been covered, have thus far stalled their run. US Treasuries have climbed, and the fall in yields has Fed through to a fall in the USD against the other G4 currencies. The Yen was a broad-based climber. Commodities were collectively lower. And corporate credit has stopped its recent rally.
    A burgeoning story to watch: Just to impress context here: the aforementioned moves weren't that consequential. They were simply a part of the overarching narrative determining the day's trade on Wall Street. A lot of what has so far been experienced in the last 24 hours is a function of markets simply doing what markets do. There are a few evolving stories that could be worth watching, as potentially new risk factors driving market behaviour. An argument is being made that the gains in Chinese stocks is attributable to the change in perspective towards leverage in Chinese financial markets. It's contended: Monday's Chinese stock market rally came not consequent to trade war news, but to news China's policymakers were ending their financial "deleveraging" campaign.
    ASX200 cools off: As far as the Australian equity market goes, SPI futures are indicating a 27-point jump for the ASX200 this morning. In contrast to its US counterparts, the signals of a potential retracement for the ASX look starker. Yesterday was a soft day for the ASX200, which on high volumes, shed 1.00 per cent for the day. Breadth was weak at 30.5 per cent, and every sector finished lower for the session. Financials naturally stripped the index of the most points, however a noteworthy 3.39 per cent fall in the lowly weighted consumer discretionary sector robbed the market of around 13 points. Momentum is threatening to cross to the downside now, while the RSI is flashing a sell signal here.

    Latest Brexit update: True to this week’s form, a quick Brexit update is pertinent this morning. To borrow the language of the Brexiteers and other anti-establishment types: the “globalists” are wrestling control of the debate regarding Brexit. Markets are taking kindly to the developments. In a speech overnight, UK Prime Minister May left the door open for a Second Brexit referendum far enough ajar for market participants to price in the prospect of Brexit not going ahead at all. It needn’t bare repeating how quickly the narrative can change when it comes to Brexit. But for now, traders are pricing in their optimism: bets of a BOE rate hike have increased, UK Gilts are up across the curve, and the Sterling has rallied.
    Written by Kyle Rodda  -IG Australia
  24. MaxIG
    Trump-Tweet #1: US President Trump announced yesterday what had long been assumed: the trade-truce will be delayed, because of the “very productive talks” going on between his administration and Chinese policymakers. Understandably, the formal recognition that tariffs won’t be hiked to 25 per cent (from their current rate of 10 per cent) on $US200bn of Chinese goods stoked risk sentiment. The overall impact wasn’t quite as deep and broad on one might have hoped, however. The reasoning is logical: progress in trade talks, as alluded to, has long been well known. In fact, for several weeks, in a gradually thinning market recovery, it’s been trade-war headlines that have been providing the sugar hit to sentiment to keep this run going at all.
    AUD, RBA and ACGBs: The AUD/USD, and Australian assets, constitute many of the favoured proxies for trading trade-war headlines, and the news’ impact on price action has illustrated nicely the mixed opinion in markets relating to the developments. Yields on short-term bonds are a little higher, but interest rate markets haven't shifted much, while the yield on 10 Year ACGBs has actually fallen to 2.08 per cent, showing that traders are reluctant to price in markedly improved global growth conditions just on the basis of the latest trade war story. As the speculative tool of choice amongst traders to play-with trade war headlines, there has been a noteworthy rally in the AUD, over the last 24 hours, towards resistance at 0.7200.
    ASX200: The ASX benefitted somewhat from positivity stemming from the subsequent climb in commodities prices, along with yesterday’s remarkable ~6 per cent rally in Chinese equities. Breadth across the ASX200 was so-so, with only 56 per cent of stocks clocking gains yesterday. But volume was quite high, especially into the close and during the after-market auction, where most of the day’s gains were achieved. It was the materials sector, naturally, that added most to the index overall: it delivered 8 points to the ASX200. At the outset today, Australian stocks look set to experience a soft start, with SPI Futures indicating a drop of 11 points come the opening bell, mostly due to a pull-back in commodity prices last night.

    Trump-Tweet #2: That’s not to say the commodity complex has broadly suffered in overnight trade: copper is still higher, with many other industrial metals. It’s been a tumble in oil prices that’s weighed on commodity markets, courtesy – as is typical – of a Trump-Tweet. The US President has a thaw in his side about oil, calling for OPEC, in the face of rising prices, to “relax and take it easy”. Oil was probably getting a touch overbought, so a catalyst to push prices lower need not to have been a big one. What this story shows though, is how seriously traders take the President’s influence on OPEC, especially given the reportedly close ties between the White House and the Saudi royal family.
    Trump-Tweet #3: If US President Trump hates higher oil prices, then he loves a climbing stock-market with the same vigour. Another Tweet last night: “Since my election as President the Dow Jones is up 43% and the NASDAQ Composite almost 50%. Great news for your 401(k)s as they continue to grow.” It’s hard to argue against the notion that this US President sets policy with the stock-market front of mind. Trump’s enthusiasm hasn’t stoked buying activity in the S&P in the same way that the extension of the trade-war détente has, but it does raise the question of whether, along with the recently exercised Powell-put, a “Trump-put” now exists somewhere against the US stock market, as well.

    From Trump to Powell: Sometimes it feels this is just US President Trump’s financial-world, and all we are doing is living (and trading) in it. It’ll be welcomed by many, surely: the US Fed’s view on the US economy and financial conditions will progressively shift into focus today. Fed-Chair Powell is due to testify before congress tonight (AEDT), kicking off several days of speeches and testimonies. The S&P has been powered along by the Fed’s recent back down on rates, and market pricing suggests that few believe a hawkish Fed will return in this cycle. As for US stocks, while the recovery is still intact, major resistance is looming at 2815, with diminishing volumes suggesting conviction in the market is slowly waning.
    Currency markets’ holding pattern: As for the almighty Dollar, it’s off its highs, which isn’t a bad thing for US markets and the US economy. Zooming out to the wider picture, and the US-Dollar is sitting comfortable in the middle of its multi-decade range. There’s a holding pattern going on in currency markets at present, underpinned in large part by a range bound EUR/USD. 10 Year Treasury/Bund spreads aren’t showing much life either, curbing volatility, although the overall trend in markets is bullish government bonds. The shifter in currency land overnight was news that UK Labour leader Jeremy Corbyn will back a 2nd referendum on Brexit, powering the Cable above 1.31, as traders back their bets that Brexit will indeed be delayed.

  25. MaxIG
    Wall Street pulls back: On balance, and with Wall Street a few hours from ending its session, it's been a soft 24 hours for equities. The often heard calls of a looming "new-peak" in the market in the shorter term can be heard from some. Momentum has certainly slowed down. The S&P500 has its eyes one 2815 again - that crucial area where that index sold off on three occasions from October to December last year. It could be a slow drive to arrive at a challenge of that level now. The dovish Fed will keep the wind behind US stocks; but the earnings outlook, post reporting season, has dimmed on Wall Street, while positive regarding the trade war has already been heavily juiced.

    Trade war truce already priced in? Markets are positioned for a relatively positive outcome in the trade-war, and that's manifesting in pockets of market activity. A true resolution in the trade war isn't expected, however an extension to be March 1 trade-truce-deadline seems to be. The overnight fall in US Treasuries, coupled with a topside break of copper's recent range, is a testament to this sentiment. The yield on the US 10 Year note has jumped back towards 2.70 percent, while the 3 month copper contract on the LME leapt another 0.83 per cent overnight. In G4 currencies, the US Dollar is stronger against the Euro and Pound, albeit very, very marginally, but weaker against the Yen.
    The curious case of gold: Gold prices have dipped slightly courtesy of the stronger Dollar and greater confidence in the policy-outlook for the world's major central banks. The price of the yellow metal is sitting just above $1325 presently, as it continues its short term trend higher. One of the more divisive debates amongst traders currently is the outlook for gold. Like any market, time horizons are crucial to illustrating the trend for an asset's price. For gold, the short term trend is certainly higher, but with signs of "toppy-ness". The medium term trend, though perhaps posting some higher-lows in the price, is sideways at best. The long-term, secular trend though for gold prices is irrefutably pointing higher.
    The gold debate: There is several aspects of this price dynamic, and elegantly indicates the different types of traders that move a price over certain time horizon. The immediate-term outlook for gold is naturally speculative, and pertains to the swings-and-arrows relating to stories about the trade-war, global growth, and short term rates. The medium term activity in gold certainly tracks the changing yield environment and vacillations in the credit and monetary policy cycle - primarily of the Fed. In the longer-term, where time scales of decades are spoken of, gold prices are angling higher, seemingly as global central banks buy the metal to hedge their US Dollar dependence.

    Global growth outlook dims further: At the risk of flying off into paradigm after paradigm: a health check on economic data from the past 24 hours is in order. A mixed bag of data pertaining to global economic growth shaped the "global growth narrative" last night. It was a big PMI day in Europe and Asia, and while there weren't as many shockers, the numbers showed a greyer outlook for the global economy. Japanese Manufacturing PMI deeply contracted once more, Australian PMI figures dipped, while European numbers were relatively better, however did little to ameliorate the concern that European growth is sliding. It was a notion backed-up by last night's ECB minutes: policy makers can see what's happening to growth, and now future monetary policy is on notice.
    Australia's wise-old uncle calls RBA cuts: Centring on the Australian experience, and a headline grabber yesterday was the Australian Dollar's wild ride. Labour market figures popped a rocket under the Aussie in early trade, after it was revealed that the local economy added 39k jobs last month - enough to keep the unemployment rate at 5 per cent despite, despite a climb in the participation rate. It all came undone for the currency quite quickly, however, after Australia's wise-old-uncle on RBA policy, Bill Evans, announced his view that a forecast fall in domestic GDP to 2.2 per cent and a subsequent rise in the unemployment rate to 5.5 per cent would prompt to RBA to cut rates to 1.0 per cent this year.
    ASX to open soft: To add insult to injury, the AUD/USD was slapped down below 0.7100, after China announced a ban on Australian coal imports. This story aside, which dropped after the ASX200's close, the fall in the currency, and the fall in Australian Commonwealth Government bond yields, proved a positive for the ASX200. It closed   0.7 per cent higher for the session at 6139, and now eyes the next resistance level around 6160. The developments regarding the ban on Australian coal going into China, concerns about Australian fundamentals, and a bit of selling into the close on Wall Street should drag on stocks today. SPI futures indicating a 4 point drop for the ASX200 this morning.
    Written by Kyle Rodda - IG Australia

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