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MaxIG

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  1. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 26 Nov 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends this week
    Index Bloomberg Code Effective Date Summary Dividend Amount AS51 TNE AU 29/11/2018 Special Div 2.6429 RTY FIZZ US 29/11/2018 Special Div 290 RTY RLI US 29/11/2018 Special Div 100 RTY FULT US 30/11/2018 Special Div 4 RTY HVT US 30/11/2018 Special Div 100 RTY ITIC US 30/11/2018 Special Div 1060 RTY DHIL US 30/11/2018 Special Div 800  
    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.
      Entry Actions  Report Entry  
  2. MaxIG
    Written by Kyle Rodda - IG Australia
    Friday session: Friday capped off another horror week for Wall Street. It was US equities’ worst week since March. Traders are currently operating within a volatility trap – and there are few indications this will soon end. The VIX is elevated, above 23 at the last reading, but occupied time above the 25-mark at stages during the week. Volatility is an active trader’s friend, and for the most part the opportunities it has thrown have been relished. Liquidity is becoming thin though, and there is a sense that the risk-reward dynamics in certain asset classes have changed. For perennial bulls, or those who have long term investments in equities space, there is undoubtedly a lot of pain being experienced. If the activity across equity markets on Friday is any guide, this is something that is set to last.
    Shifting narratives: The narrative has definitively shifted. It might even be said for the bulls that it has gone from bad to worse. On the surface, since October, downside risks have manifested and grown in global equities. For many-a trader, whatever the root cause of this dynamic is secondary to being able to play the trend. But something interesting has happened recently, and it’s worth knowing to appreciate the way the market has changed. The initial stages of this market correction were precipitated by the fear an (over)active US Fed would hike rates to a point that would sink the global stocks. In some way, the effects of such a phenomenon played-out in markets just by way of virtue of the pricing in of those expectations. US Treasuries were rallying, the US Dollar trended higher, and growth-stocks plunged on the belief solid economic data would justify interest rate hikes.

    The “real” economy: But this isn’t the case anymore; this isn’t about shifts in intermarket behaviour, contained primarily to financial markets. The concerns now relate to the prospects for the real economy. To repeat: October and November were about adjusting to a Hawkish Fed. December has so far been about slower global economic growth. It’s a problem with Main Street, perhaps more than Wall Street, that traders are worried about. The bond market is king, no matter how much attention stock markets get. The best information comes from reading into what is occurring in bond markets – especially US Treasuries. As has been discussed a-plenty, the US Treasury Yield curve is exhibiting signs of inverting. Traders are telling us they think growth in the medium term will be soft.
    US Inflation expectations: There is another useful indicator to use in the fixed income market: the TIPS spread. More-or-less: the spread is a crude measure of future inflation. When traders were stressing-out about an over-zealous Fed, it was primarily due to fears that some (albeit modest) outbreak inflation was upon us. Interest rate hikes would be the necessary and mandated response. At this time, the TIPS spread (on equivalent 10-year securities) was about 2.20% -- that is, future inflation was tipped to be around 2.20%. Flash forward to its most recent reading, and that indicator has fallen to 1.95%. Inflation-risk is being priced out of the markets, along with the prospects of healthy economic growth. Ergo, interest rate traders have called-out the Fed and demanded the central bank “Say Uncle!”.

    US Non-Farm Payrolls: Whether this reaction proves justified will be fascinating. Markets are forward looking, so current economic data is only good as far as it can be used to extrapolate answers about the future. Nevertheless, the data coming out of the US is (generally) satisfactory. The latest Non-Farm Payrolls release came out on Friday, and the numbers were okay: the US unemployment rate is 3.7 per cent, and annualized wages growth held at 3.1 per cent. The jobs-added figure was a big miss, coming in at 155,000 – also, although respectable, the wages component did print below expectations. However, stripping-out the highly charged emotions in financial markets at-the-moment, the figures produced by Non-Farm Payrolls were objectively solid. The picture it painted of the US economy was good.
    Friday’s price action: But that doesn’t matter in this market. The bears are winning, and the bulls are looking for any excuse to sell. Wall Street experienced another poleaxing on Friday night, backing on from a mixed day in Europe: the NASDAQ was down over 3 per cent again, while the Dow Jones and S&P500 were down nearly 2-and-a-half per cent. Rates and bonds didn’t respond well to the Non-Farms data: the yield on the US 2 Year Treasury fell to 2.71 per cent, while the yield on the US 10 Year note fell to 2.85 percent, taking the spread there to 14 basis points. The US Dollar took a dive, breaking upward trend support, launching gold through resistance to $US1249 per ounce. The EUR and Yen naturally benefitted from the weaker greenback, but the AUD is still struggling, unaided by a fall in iron ore, which fell despite climbs in other commodities.


    ASX, and the week ahead: The last price on the SPI futures contract is indicating a 30-point drop for the ASX200 this Monday. This comes on the back of a relatively uneventful, but solid day for the index on Friday, which managed to eke out a 0.4 per cent gain. This week is filled with a litany of risk events. The first market to watch might be the oil market, after OPEC+ agreed over the weekend to cut production to stabilize falling prices. The trade war and the developments in it relating to the arrest of Huawei CFO Meng Wan Zhou will be curious. US CPI, PPI and Retail Sales data will be closely watched too, as traders gauge US economic health.
    The week may well prove to be more about Europe, though. There is a stack of event risk coming up. It may well not go ahead, but Brexit is scheduled to vote on UK Prime Minister Theresa May’s Brexit bill. The Cable is worth watching ahead of that event. ECB President Mario Draghi speaks, and the ECB meets, with his commentary to be perused for signals that the Europe’s central bank might be stepping away from its potential rate hikes. Whatever is said by Draghi will be assessed against a slew of PMI figures. And finally, the Italian fiscal crisis will probably continue to be a soap-opera, though hopes are rising that the Italians are going to play ball.
  3. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 10 Dec 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends this week
    Index Bloomberg Code Effective Date Summary Dividend Amount PSI20 RAM PL 12/12/2018 Special Div 1.15 NDX PCAR US 13/12/2018 Special Div 2 RTY AMSF US 13/12/2018 Special Div 3.5 SPX PCAR US 13/12/2018 Special Div 2 RTY CWH US 14/12/2018 Special Div 0.0732 PSI20 RAM PL 17/12/2018 Special Div 0.085  
    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.
  4. MaxIG
    Written by Kyle Rodda - IG Australia
    Panic stations, still: The behaviour in financial markets is resembling cats trapped in a burning room: the air is unclear, it’s unbearably hot, and people are scrambling to find an exit – or at least, somewhere appropriate to hide. The chaos is one thing, but the true issue – as is always the case, when these situations become particularly fraught – is no one can really describe why this is going on exactly. Now, we all know the stories: the Fed has equivocated and that’s confused the heck out of markets; US-China relations are hot-and-cold; future global growth expectations are being unwound; Brexit is on-again-off-again; and a breakthrough in oil markets out of the OPEC meeting hasn’t emerged. These issues are ongoing, so it’s not any sort of surprise that they’d all be weighing on markets in some form. The confusion is why they are all conspiring to create such fireworks now.
    Risk-off: Maybe traders have just taken too many hits in the last 3-months, and the bulls are effectively tapping out. A premature call, here, to be sure, however there seems so little motivation to hold onto riskier assets. It seems that collectively, a clear strategy to handle the volatility isn’t yet to emerge. The classic plays into safe-havens can be seen: US Treasuries are going on a tear presently, for a variety of reasons to be discussed shortly. An unwinding of the Yen carry trade has pushed the USD/JPY to 112.50. And gold is looking at a break-out above resistance at $1240. Inversely, risk proxies have also been thumped: global equities (needless to say) are getting hammered, the AUD/USD is taking a rinsing, and commodities, led by a 3 per cent tumble in oil, and a 1.1 per cent fall in copper, are plummeting.

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

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

  5. MaxIG

    OPEC preview

    By MaxIG,

    Please see the following analysis from Chris Beauchamp, Chief Market Analyst at IG, a global leader in online trading.
    OPEC preview
    OPEC faces a difficult task this week, as it aims to prop up the oil price without antagonising the US or putting too much strain on state finances by cutting production too much.
    The current state of demand and supply
    After being in deficit for 2018 and 2019, the oil market is expected to shift back to surplus next year:

    Crude output continues to rise despite the decline in Iranian output:

    Crude oil seasonality
    Usually oil weakens in the first two months of Q4, but it then tends to pick up from the first half of December, beginning a steady rally into the summer.

     
    Expectations
    Current forecasts suggest a cut of 1.4 million barrels per day will result from the meeting. Anything less than this would likely cause another drop in prices. The meeting may not go with an explicit number, merely creating an agreement to restrict supply. Again, this is unlikely to be well-received by the oil market.
     
    Saudi Arabia – walking a tightrope
    Saudi Arabia faces a difficult balancing act. On the one hand, it must avoid letting the oil price fall too far and hurt its finances (and those of the others in OPEC, though that is less of a concern). On the other, it will seek to avoid cutting too far, too fast, since this might lead to a sharp bounce in the oil price, which would annoy the White House.
    Saudi Arabia knows that it has outraged world opinion with its actions regarding Jamal Khashoggi, and that only the lack of outright condemnation from the US has saved them from serious consequences. Trump’s decision to equivocate on the subject, while not conditional on keeping oil prices down, may waver if they cut output by a significant amount.
    But then again, with a defence budget running at 10% of GDP (almost five times the global average and three times the US budget in GDP terms), plus large state spending commitments, Saudi Arabia has to look at some cuts in order to restore balance to its finances.
    The FT reports that the Saudi energy minister has argued that cuts of at least a million barrels per day are needed.
     
    Russia
    Although not an OPEC member, Russia is Saudi’s other major partner in the oil market. Russia too is caught between wanting to boost prices and keeping its oil wells going at full production. Putin is aware that falling oil revenues put pressure on the Russian state, at a time of austerity for the Russian economy. Recent attempts to raise the pension age have not gone down well, and the president faces falling opinion poll ratings. Russia is arguably happy with the current state of affairs, but may be persuaded of the benefits of cutting production in return for higher prices.
    A smaller than expected cut, however, might have the opposite effect, sending prices lower and resulting in lower output for Russian wells. This would not go down well in Moscow.
     
    The rest of OPEC
    Saudi Arabia could look to persuade other members to cut production. Nigeria and Libya were left out of the last round of cuts, due to the fact that their output was still recovering after shocks arising from political troubles.
     But both are keen to keep producing to boost state revenues, while others like Iraq and Iran are also rather cool on the idea of reducing output.
    Saudi Arabia faces a tough task convincing the rest of the cartel to cut output, particularly if it does not set out its own production cuts.
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      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. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. 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.
      Prepared by IG Markets Ltd.
       
  6. MaxIG
    Written by Kyle Rodda - IG Australia
    A bullish Monday: That big uplift we were all expecting after the weekend’s events at the G20 has transpired. The trade-war truce, as fleeting as it may prove to be, has supported a substantial enough boost in sentiment. Risk appetite has been teased, and risk assets across the global, beginning in the Asian session yesterday, and carrying through European and North American trade, have dutifully rallied, consequently. It’s a synchronized boost, prevailing across asset-classes, with traders relishing the double-shot of bullishness injected into markets in the last 7 days: a much more dovish Fed, which has lowered the possibility of higher global interest rates; and a de-escalation of the trade-war, which has ameliorated the concerns regarding future global economic growth.
    Global stocks: There remains, at time of writing, a few moments left in the North American session, and as it stands, the good-vibrations are waning somewhat. Nevertheless, Wall Street is higher, capping-off a positive day for markets overall. The NASDAQ is leading the charge, up around 1 per cent for the session, while the Dow Jones and S&P500 are 0.7 per cent higher for the day. It follows an Asian and European session which saw the Nikkei up 1 per cent, the CSI300 up 2.8 per cent, the DAX up 1.85 per cent, and the FTSE100 up 1.2 per cent. Volumes have also been very substantial, running 30 per cent above average on the S&P, and a remarkable 45 per cent above average in Chinese share markets, adding conviction behind the day’s trade.
    Currencies and commodities: Across the currency and commodity landscape, a comparable appetite for risk has occurred. Growth proxy currencies have generally prospered: the Australian Dollar is (presently) trading at 0.7350 – having challenged the 0.7390-mark yesterday, before a raft of soft local data gut-checked the local unit – and the New Zealand Dollar is up around 0.6920. The Loonie is also rallying, benefitting from the additional support of higher oil prices. The US Dollar has been sold-off, along with other haven currencies like the Japanese Yen, pushing the price of gold to resistance at $US1232. The Euro is modestly higher courtesy of a weaker greenback, but the Pound has left the party following news that a vote of no-confidence looms for Prime Minister May in the British parliament. Finally, Industrial metals are higher, thanks to the uplift in economic-growth-optimism, paced by LME copper, which rallied 1.6 per cent.

    Can it last? So that was Monday, and its undoubtedly been a day of positive price-action. But it now begs the question: beyond a sweet one-day rally, does this move higher have more legs? As far as this week goes, the matter is dubious. Markets move on surprises, whether they be good or bad, and what market participants received on the weekend was quite a surprise: a cordial outcome to the trade-talks was expected and priced-in; what wasn’t, however, was the freezing of tariffs for 90-days, coupled with the various commitments to reform certain trade practices. The rush-of-blood for traders came as they attempted to price this new information into markets – naturally, leading to a spike higher in risk-assets. The problem is now that with today’s market activity this has been completed, meaning traders will now go back to looking ahead to the next events at hand.
    Risk events loom: Looking forward into just this week alone, there is an abundance of information to keep traders shuffling on their toes. Economic data wasn’t particularly heavy across the globe yesterday, but the next 24 hours will set in motion a fortnight of highly significant economic data. Locally, the RBA meets today, before the big-ticket Australian GDP print is released tomorrow. A slew of PMI figures will be released in the next four days across Asia, Europe and North America, and will provide a proper gauge on the state of global growth. US Non-Farm’s come out on Friday, potentially reshaping once more perceptions regarding the US inflation outlook and possible Fed policy. And OPEC meet on Thursday (AEDT) to discuss oil markets – an event which has taken even greater significance now after Qatar announced yesterday it plans to leave OPEC.
    Bonds flashing warning signs: Those are just the headline grabbers, too. There’s considerably more than just that going on. Fundamentally, from a macro-perspective, a reversal in sentiment if a data-point goes the wrong way for the bulls could shift the dial once more. The signs under-the-hood are already presenting this: despite rallying across the curve briefly during Asian trade, US bond yields have retraced their gains –  the yield on benchmark US 10 Year note climbed to 3.05 per cent, before plunging back below 3.00 per cent in US trade. Most worryingly, the spread between the 10 Year and 2 Year US Treasury notes narrowed to just below 16 points, while the spread between the 3 Year and 5 Year equivalent has inverted. This is as good as a flashing light as any to suggest that markets are increasingly pricing in slower growth, if not some sort of US recession, moving into the medium-to-long term.

    The here and now: ASX200: That’s certainly the alarmist view – and it should be noted that it’s a problem to be confronted in the slightly-more distant future. Bringing the focus back to the here-and-now and to today’s Australian session, SPI futures are pointing to a pull-back in the ASX200 of about 20 points. The day’s trade will be highlighted by the RBA’s meeting, but the central bank will keep interest rates on hold, and there are few surprises tipped to come out of the accompanying statement. Yesterday’s session, during which breadth was a remarkable 88 per cent, could be considered a combination of a recovery from Friday’s substantial losses, and a relief rally off the back of the weekend’s G20 meeting. Maybe futures markets are telling us a necessary moderation of that excitement ought to be in store today.
    It was the materials space that unsurprisingly led the charge during yesterday’s trade, supported by a climb in the financials sector. The former added 29 points to the index and the latter added 16. Energy stocks were the best performing in relative terms, as traders took the cues from Russian and Saudi leaders at the G20 regarding likely oil production cuts, to climb 4.6 per cent and tip-in 14 points to the ASX200’s overall gains. Riskier momentum/growth stocks in the health care and information technology sectors experienced a solid bid – a healthy barometer of bullishness. Ultimately, across the overall index, though it may not transpire today given early indicators, a rally beyond support at 5745 towards 5786 is required to maintain a bullish-hue for the ASX200 coming into the Christmas period, to open-up a run at the more meaningful resistance level around 5875. 

  7. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 3 Dec 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends this week
    Index Bloomberg Code Effective Date Summary Dividend Amount STI SPH SP 6/12/2018 Special Div 4 SIMSCI SPH SP 6/12/2018 Special Div 4 RTY MBWM US 6/12/2018 Special Div 75 RTY ORIT US 6/12/2018 Special Div 15 RTY SGR US 7/12/2018 Special Div 25 RTY GLOG US 7/12/2018 Special Div 40 RTY LADR US 7/12/2018 Special Div 23 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.

  8. MaxIG
    Trump’s G20 Summit: Love him or loathe him, Donald Trump seems to be able to get things done. Given he is the most powerful man in the word – at the very least, in a political sense – perhaps this isn’t such a difficult task. When you have the world’s largest economy, coupled with the world’s most potent military at your disposal, one would have all the leverage needed to get their way. But nevertheless, arguably not since Ronald Reagan has global politics experienced such a rapid ideological shift. There were plenty of little-stories, centring around a myriad of economic and political issues, that were played out at the weekend’s G20 summit. The overarching narrative however, at what was possibly the most historically significant G20 meeting since 2009 – when world leaders gathered to discuss the global economy at the depths of the Global Financial Crisis – was about the pitfalls of global trade and migration, and it had President Trump written all over it.

    Typical talk-fest: As generally occurs at these talk-fests, this year’s G20 summit was apparently characterized by the typical jostling and lobbying between the many tiers of power. What happens behind closed doors seemingly stays behind closed doors (it’s hardly surprising the masses treat these engagements with cynicism, if not outright paranoia), so it’s difficult to know the depth of discussion shared by world leaders. What we do get though is a nice little communique at the end of it all, summarizing the broad, shared vision of the member countries, with some normative statements articulating how the world ought to approach itself in the future. The short-term financial market implications of this year’s statement will presumably be limited, and more focused on (somewhat improving) US-Sino relations. Regardless, for those with a concern for the structural matters directing future financial and economic activity, an appreciation of what was spoken over the weekend gives a keyhole insight into what can be expected in tomorrow’s world.
    Trumpian philosophy wins: True to Trump’s historic influence, the financial and economic world of tomorrow, if the G20’s communique is a reliable indicator, is one of greater nationalism, higher trade-barriers, and less liberal movement of people. For the first time in its (albeit short) history, the G20 avoided disavowing protectionism, and instead stated that the world trade system is “falling short of its objectives and there is room for improvement”. It pointed out, too, the necessity of institutional reform, naming and shaming the World Trade Organisation as a body failing to meet its mandate, and calling on supranational bodies to do more to ensure fairness in the global economy. Ultimately, the culmination of many days of talks lead to an implied (and what can probably be judged a reluctant, at least for most member-states) rebuke of globalisation, and the liberal democratic order that grew out of the post-World War II world.
    A New World Order? Although the reactionary face of this growing impulse of isolationism, nationalism and protectionism in parts of the global political stage possesses the fake-tanned ugliness of US President Donald Trump, some of the genuine criticisms relating to the liberal politico-economic order ought to be treated with some credibility. The virtues of free-trade, liberalization, globalization and the like haven’t always been lived-up to by world leaders, who sometimes have appeared to bastardize the system to preserve the special interests of those who exploit the system. Not only that, in a practical sense, trade-barriers, high borders, and the unequal treatment of certain nations have always existed in some sense, despite the pontificating of world leaders about the benefits of multilateralism, freeness and fairness of the liberal order. It may not ultimately be true that internationalism and institutionalism is undesirable, however whatever the truth, the perception amongst many is that the system is corruptible, ineffective, opaque and (dare it be said) “fake”.
    Realism reigns: It’s where the brutal appeal of realist politics – which is exemplified today by Trump, Brexit and other forms of “populism” – takes its hold. It harks back to a notion (an old cliché, really) spouted famously by Paul Keating, channelling his mentor Jack Lang: “In the race of life, always back self-interest: at least you know it’s trying.” Such a brutal, Machiavellian view of the world, if delved into, especially too deeply, is highly disturbing – almost misanthropic. Though for all its base savagery, the idea does seem self-evidently true, and fundamentally real. It isn’t as if such extreme real politick ever truly disappeared as the liberal-democratic global order, and the global economy it produced, emerged and flourished. Ostensibly, it was always there in come capacity, moving the gears of history in one way or another. The difference now – in a time of social crisis, apparently defined by “fake news” and “alternative facts – is that extreme self-interest can be understood, trusted, openly embraced, and even lionized.
    Trade-truce to be the focus: In the end, evening if begrudgingly, this system – epitomized by serving the (collective and individual) self at the expense of all others – was tacitly endorsed by G20’s communique, paving the way for meaningful, structural change in the global economy. The potential impacts of this are unlikely to manifest in notoriously short-termist financial markets: whatever the effects, they will be considered and experienced some way down the road. Traders will search for information in the next 24 hours that influence the here and now – and given that the summit appeared to go ahead cooperatively, it ought to be presumed a bullish sentiment will reign across markets. The primary reason this may prove true is that at the coda of the event, the highly anticipated dinner between US President Trump and Chinese President Xi Jinping reportedly went along well, with both trade war combatants appearing cordial, and agreeing in principle to halt new tariffs on one another’s countries for at least 90 days.
    Possible price reaction: This being so, risk appetite may well be piqued today, and risk assets could be poised to rally. The last price of SPI Futures have the ASX200 up 25 basis points, having shed a remarkable 1.6 per cent on Friday to close at 5667. Asian equities will surely be beneficiaries today, however considering the major ramifications of the weekend’s events, indices throughout Europe and North America stand to gain, too. Growth currencies like the Australian Dollar and New Zealand Dollar may climb, with the A-Dollar eyeing minor resistance at 0.7360 – a break of which could enable a run to 0.7430. The risk-on tone, combined with a fall in US Treasury yields across the curve, will probably produce a weaker greenback – with other havens in the form of CHF and JPY likely to experience the same. While in commodities prices, notably precious and base metals, should move higher, though it must be stated oil specifically will likely track its own idiosyncratic trading-patterns.

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

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

    ASX today: Promisingly for Australian equity market bulls, SPI futures are indicating a 12-point jump at the open for the ASX200, in line with the late run on Wall Street. The ASX experienced an immediate pop-higher at yesterday’s open, but the price action was dull and middling throughout the day. Overall, volume was strong, breadth was healthy, and the large-cap heavy weights in the materials and financials sectors added 13 and 10 points to the index, respectively. Growth stocks were big higher as expected, while defensive sectors were somewhat ignored. Private Capex figures were released and didn’t rock markets too much: it came in below expectations, but there were signs non-mining investment is turning around. The day ahead from a technical perspective should be assessed on whether the ASX200 can clear the small resistance hurdle at 5780 or so. But given what’s on for the weekend though, one shouldn’t be surprised or disheartened if that doesn’t happen today.
  10. MaxIG
    A game of chicken: Did Powell just blink? That’s how last night’s speech from the Fed chair is being interpreted. Debate has raged whether in the face of financial market turmoil, the Fed will be forced to cool its rate-hike rhetoric. Powell’s speech – and this is speculative – may have represented this. Gone was the talk of rates being “a long way” from neutral, and that rates may need to move “past (the) neutral” rate. Instead, it was replaced with the key comment interest rates are “just below” the neutral range, and that future rate hikes, as Fed Vice President Richard Clarida implored yesterday, will be “data dependant”. Perhaps we saw last night, in the tradition of many-a Fed Chair gone before, the latest incarnation of a “Fed-put” – that is, this time around, a “Powell-put”, which will underwrite financial market strength at the first sign of true-trouble.
    Rates and bonds: The reactions in financial markets have been predictable, but assertive. US Fed fund futures suggest that traders have heard enough to justify pricing in an 80 per cent chance of a Fed-hike next month. But naturally, the shifting of expectations has been seen in the pricing for rate hikes in 2019. The Fed’s last dot-plots implied 3 hikes for next year – and markets got close to pricing the full three at stages only just over a month ago. We are now seeing just the one, and for some very dovish folk, even that’s too bullish. The short end of the US Treasury curve is manifesting the shift in sentiment: the benchmark 10 Year Treasury note is yielding 3.05 per cent currently, but the yield on interest rate sensitive 2 Year note has fallen back to 2.80 per cent, taking the spread between those two assets back to 25 basis points.
    Currencies: The US Dollar has been ubiquitously dumped by extension of the fall in rate expectations and yields on US Dollar denominated assets. Even despite no sort of counterbalancing good news to prop-up any of the other major world-currencies, the effect of the weaker green back has been spread evenly across the G10 heat-map. The GBP and EUR, which are in as vulnerable a place as ever due to ongoing Brexit drama, are up to the 1.2840 and 1.1380 levels, respectively. The traditionally risk-off Japanese Yen has appreciated slightly, as did gold, which is trading at $US1228 per ounce, and the embattled Chinese Yuan climbed to fetch 6.93. While the highly liquid risk-proxies, the New Zealand Dollar and Australian Dollar, have spiked to 0.7320 and 0.6880, respectively.

    Equities: The greatest action of course occurred in Wall Street equity markets post-Powell’s speech. The major indices have sky rocketed on the relief that discount rates may be steadying their rise and the tightening of monetary policy conditions may be nearing its zenith. It was the high-multiple, growth and momentum stocks that led the charge, predictably. The NASDAQ – at time of writing, with about an hour left in the US session – has rallied 2.30 per cent. The mega-cap laden Dow Jones is also up over 2 per cent, while the comprehensive S&P500 is up by just under 2 per cent. European indices missed out on the fun, closing well before Powell’s speech. However, futures markets are exhibiting early signs that European markets will join their North American cousins in the relief rally upon their open later today.

    When bad news is good news: Maybe this a grand statement inspired by the major plot twist markets experienced overnight, courtesy of Fed Chair Powell’s dramatic change of tact, entering the last stanza for financial markets in 2018. But the price action and sentiment shift seen in last night’s trade does appear a microcosm of the perpetual battle faced by central banks for perhaps decades, if not at the very least, since the Global Financial Crisis. Asset markets appear dictated not by fundamental strength in the macro-economy, but by the central bank-controlled credit-cycle that investors have come to rely upon for their investment cues. It’s a contentious debate, and one that hasn’t been resolved. However, last night’s developments hark back to years gone by when bad economic news was judged to be good news for financial markets, and good economic news was judged to be bad.
    Let the good times roll? Without delving too deeply into the philosophy behind the idea – although suggested reading would include the work of Hyman Minsky – the contradicting information received last night pays heed to this notion. Aside Fed Chairperson Powell’s speech, overnight there was a raft of news that highlighted the world is experiencing slower economic growth, and that the global economy has quite possibly reached peak growth for this cycle. A speech for BOE Governor Mark Carney highlighted the dire economic consequence to the UK economy in the event of a no-deal Brexit. US GDP came in a smidgeon below forecasts and affirmed the view the US economy may gradually slow-down in 2019. And Christine Lagarde, the Managing Director of the IMF, stated last night the global economy may be slowing faster than expected. Nevertheless, Fed policy hogged the limelight, with the prospect of marginally more accommodative monetary policy conditions inspiring risk-on behaviour all the way from, credit, to bonds, to equities, to currencies.
    The ASX: SPI futures are pointing to an ASX200 that will relish the global relief rally today. The ASX200 ought to jump about 30 points at the open, likely breaking through 5745-resistance in the process, and opening upside to the next key level at about 5780. Volumes have been quite high across the ASX this week, and to the presumed delight of the bulls, the strength is demonstrating signs of running deep. For one, although the ASX200 was down 0.06 per cent for the day yesterday, it was the small and mid-cap stocks demonstrated the most upside. Really, it was the materials space once more, confronting falling iron ore prices, that sucked 6 points from the index yesterday and was responsible for the markets weakness. Overall, a true bullish turnaround is still some way off, but the chance of a true turnaround in the market has increased meaningfully overnight.

     
  11. MaxIG
    Written by Kyle Rodda - IG Australia
    A loaded menu: If this week in financial markets is a buffet of information, then yesterday’s session tasted like the entrée. The themes that were predicted to define this week’s trade all showed-up in one form or another, hinting at bigger things to come. US President Trump added heat to the trade war, then spiced up the Brexit debate; a speech from US Federal Reserve Vice President Richard Clarida had traders questioning how many Fed hike’s markets have baked-in; another day of plunging  oil prices stirred up fears regarding corporate credit; and overcooked tech-stocks fluctuated, with the key ingredient there the wobbles in Apple Inc.’s share price. The mixture of stories blended through the market is just a sample of what could be in store for the rest of the week, with traders now at the edge of their seat and hungry for more answers.
    Trump and the Trade War: Okay – enough of the cheesy food metaphors (sorry, last one). What we were delivered in the last 24 hours is very important and establishes the firm possibility of spikes in volatility over the next seven days. US President Trump, for one, hogged the airwaves – and he doesn’t seem like a happy camper. After the close of Monday’s North American session, President Trump fired the first broadside at his Chinese counterparts ahead of this week’s meeting at the G20, stating that he expected that his administration would go ahead with increased tariffs on Chinese goods come January 1 this year. Not only that, but he suggested that iPhones and other high-volume consumer goods could be included in the next round of tariffs, proclaiming consumers would be comfortable paying an extra 10 per cent on such items.
    Nervous trade: Apple Inc. naturally struggled in overnight trade because of the comments, leading to a choppy session for the NASDAQ and Wall Street as a whole. It must be said that in late trade, US stocks are turning higher, and trading in a much tighter range than what we’ve endured over the past 2 months. Nevertheless, President Trump’s rhetoric is making traders edgy, as they try to take in their stride his inevitable provocations leading into this weekend’s trade negotiations. It has ignited concerns about global growth, resulting in an overall fall in commodity prices last night. Safety has been sought in US Dollar denominated assets consequently, keeping the yield on the benchmark 10 Year Treasury note to 3.05 per cent; and pushing the US Dollar higher, with the US Dollar Index challenging resistance at 97.50 – a dynamic in which has cut gold prices down to $US1213 per ounce.

    Protectionism: A big part of why the greenback and US assets performed so well is President Trump really fired-up the MAGA rhetoric yesterday. It must have been news that General Motors was planning to close 5 North American factories that really got him going and excited his protectionist impulses. Not only did he take to Twitter to voice his frustrations at GM and its CEO for its decision –  threatening to introduce new auto-tariffs in response –  he also went out of his way to lash-out at Theresa May and her Brexit deal, asserting that it may compromise futures trade deals between the US and UK. The onslaught of commentary from the President drove the Pound back within the 1.27 handle and the EUR below the 1.13 mark; and dragged European equity indices lower across the board.
    Fed-Watch: Away from the antics of US President Trump now, and the less-headline grabbing (yet arguably more significant) story for the day was a highly anticipated speech from US Federal Reserve Vice President Richard Clarida. If you recall, it was another speech delivered by Mr. Clarida a few weeks ago that kicked-off the “the Fed is becoming dovish” narrative, prompting traders to unwind their bets on future Fed hikes. Last night’s speech was far less impactful than that one, with US rates markets barely budging. But the tone – it’s all about the tone – of the speech has been judged as more “neutral” than the last, emphasizing the “data dependence” explanation for the Fed’s outlook on rates and the US economy, setting the groundwork for a speech Fed Chair Jerome Powell in the next 24 hours, and the Fed’ monetary policy minutes on Friday.
    Oil, credit and equities: The final major theme dictating overnight trade is oil prices, and its implications for equities and credit markets. Leading into the end of the US session, in line with activity in US stocks, oil has pared its losses to presently be sitting more-or-less flat for the day. A bearish bias remains for the black stuff, as traders seek to anticipate what the G20 meeting plus a meeting between OPEC a week later will mean for global production. The prospect of lower oil prices, while good for consumers, has traders nervous: credit markets have built in wider spreads in corporate bonds on the risk that energy giants will prove less credit worthy if their income is diminished by a lower price of oil. The knock-on effect is weighing on sentiment in US (and global) equities, with fears that high funding costs will put pressure on highly leveraged US corporates and those company’s share prices.

    Asia and the ASX: With all of this as the back drop for today’s Asian session, futures markets are indicating a mixed start for the region’s shares, following a similarly mixed day of trade yesterday. SPI futures currently have the ASX200 opening flat this morning, off the back of solid Tuesday session, that saw the Australian shares add 1 per cent on higher than average volume. The heavy lifting was performed by the bank stocks, which compensated for the day prior’s weakness in the materials sector, to add 27 points to the index. The gains ran deep however, with every sector in the green, and breadth at 74 per cent. The index’s close at 5728 positions the market just below resistance at 5745: a push beyond that level today, if the S&P500 is any sort of lead, may need to come defensives and non-cyclicals, which lead the gains in US indices last night.

     
  12. MaxIG
    Written by Kyle Rodda - IG Australia
    US traders return: It’s nice to be back to some normal programming. The big-wigs on Wall Street have returned to their desks and volumes across the market are looking far healthier. After last week’s sell-off and volatility, and well before the meaty part of trade this week, traders appear to have had their appetite for risk whetted. Only slightly, of course: there is an acute awareness that the next seven days will hurl up some major events and some significant uncertainty. However, the VIX is off its highs and below 20 once again, and riskier assets are feeling some love. There were patches of underperformance yesterday, naturally – our ASX200 happened to be one of them, along with Chinese indices – but as it applies to most the major indices, a healthy coat of green is covering the screen to kick-off the first 24 hours of the week’s trade.

    Asian session: The tide turned during the Asian session, with no true impetus behind it. If anything, the fundamentals we received during Asia’s trade made for ugly viewing: Japan’s Flash Manufacturing PMI data was released, and that disappointed markets, adding to fears of slower global growth; while New Zealand Retail Sales figures put-in an abominable showing, printing flat quarter-on-quarter versus expectations of a 1.0 per cent expansion. They were non-stories, though, in the ultimate context of yesterday’s trade, as futures markets pushed-higher on pricing of a solid start to the week for equity markets. Some macro-excuses to buy stocks did arrive in the European session, when reports that Italian policy makers were reviewing their maligned budget filtered through markets, compounding the slight lift in confidence engendered by the weekend’s rubber-stamped Brexit deal.
    European trade: Across European indices, the DAX jumped 1.45 per cent, the FTSE climbed 1.20 per cent, and the Euro Stoxx 50 1.13 per cent.  Bond yields edged higher across the Continent and throughout North American, while the positive developments in the Italian fiscal crisis narrowed the spread between German Bunds and Italian BTPs. The fall in US Treasuries saw the yield on the 10 Year note easing to 3.06 per cent and the yield on the 2 Year note to 2.83 per cent, narrowing the spread between those two assets to approximately 23 basis points. The higher yields supported the US Dollar, which returned to the 97-level according to the US Dollar Index. The Japanese Yen was the biggest loser of the major currencies, dropping over half-a-per cent to trade within the middle of the 113-handle; however, gold, the Euro and Pound traded relatively stable.

    Wall Street: At time of writing, US stock indices are on the cusp of registering quite a solid day. Volumes are higher on average too, reflecting that there is some substance behind what is being dubbed as a "relief rally". It's more a bounce to be fair – the kind we've seen before since the global stock market correction took hold. Nevertheless, for the bullish and opportunistic, it's justifiably proven a respectable 24 hours. US tech stocks have lead the market higher, supported by a bounce in oil prices, which have helped narrow corporate credit spreads and spur greater appetite for risk. The troubles for tech-stocks and oil haven't passed yet -- the big picture hasn't changed -- though (just maybe) there are signs that the bearishness driving the downside in those assets is abating.
    ASX200 yesterday: The action in financial markets in overnight trade has SPI futures indicating a 44-point jump at the open –  a dynamic if realised, will regain yesterday's session's losses from the opening bell. Activity was quite high on the Australian share market yesterday, with volumes approximately 5 per cent above the 100-day moving average. The liveliness in markets was predominantly driven by a dumping of the mining stocks, which were pummelled by the considerable sell-off in iron ore, following the plunge in steel rebar futures over the weekend in response to greater concerns about Chinese economic growth. Overall, the materials sector was responsible for a noteworthy 25 points of the ASX200's losses during the day’s trade, with the likes of BHP and Rio Tinto sliding just over 3.5 per cent.
    Aussie Dollar: The circumstances also led to a slight pull back in the AUD/USD, which generally has lost some of its lustre. Upside momentum has slowed, as the pop higher brought-about by a squeeze on traders’ short positions looks to have stalled, if not subsided. Macro-fundamentals have eased the pressure on the AUD/USD in November, as traders unwind their bets of an aggressive Fed in 2019: the yield-spread between the interest rate sensitive US 2 Year Treasury note and the 2 Year Australian Commonwealth Bond narrowed to as little as 75 basis points. That has expanded once more, but with heightened volatility in the markets and sentiment interfering with fundamentals, a crude assessment of the Bollinger Band suggests that the myriad of macroeconomic risks in the next month could see the AUD/USD move within a broad range between 0.7020 and 0.7450 into the medium term – with the local unit currently smack-bang in the middle of that range based on the weekly chart.

    ASX200: Looking ahead: Now that financial markets have returned to a normal state, getting a gauge on sentiment becomes considerably easier. Positioning will begin taking place across asset classes for the series of US Fed related events in the next 4 days, combined with the weekend's major G20 meeting. The implications for the breadth of global markets are seemingly endless, but as it applies to the ASX200, the outcome of both concerns is profound. IG client sentiment is giving generally bearish signals presently – something that will only become further entrenched if the Fed come-out more hawkish this week and US-China trade negotiations deteriorate. Support at 5600 (give or take) will be where the bulls will be hoping for a floor in the event of a worst-case scenario; while a bullish break-out can't be confirmed until at least 5930 is breached.
  13. MaxIG
    Written by Kyle Rodda - IG Australia
    The themes: Boy oh boy, are we facing a significant week. It promises to be a big one, with so many of the pressing macro-economic issues currently driving market activity set to dominate headlines. Given this is so, and the Thanksgiving hangover kept trade light on Friday, casting an eye ahead and speculating on what the next seven days may deliver the most valuable insights. The themes won’t be foreign to traders: we’ve got the US Federal Reserve and global interest rates, slower global growth, the US-China trade war, Brexit, and the crash in oil prices. The way each unfolds sets the foundations for markets not only in the crucial month of December, but also the start of 2019. Being so, it’s more than likely that whatever the developments in these stories, traders will be perusing the devils in the detail to infer as much they can from them, providing ample fuel for heightened and ongoing volatility.
    The Fed and US rates: The US Federal Reserve remains the major and most powerful driver of financial market activity. The impact of the end of the easy money era is manifesting in markets the world over. The question has long been asked – for the most part of the last decade, in fact – what the effects will be of normalizing Fed policy. We are apparently beginning to get that answer. This Friday welcomes the release of FOMC Monetary Policy Minutes, and the core concern for traders is whether the Fed is showing further signs of burgeoning dovishness. Traders have interpreted the central bank’s recent discourse as reflecting a reduced willingness to keep to an aggressive rate hiking path, amid concerns that growth and inflation (the later a data-point that market participants will also receive this week) has possibly topped-out. It’s resulted in markets pricing-in a 73 per cent chance of a rate hike from the Fed in December; and pricing out all but one hike from the Fed in 2019.

    Global growth: The primary reason for this changing dynamic is there is a prevailing fear that the world is headed for slower economic growth. It’s far from assured, and with a remarkably strong labour markets coupled with still reasonable business conditions, the US remains in good stead to grow at a respectable clip. But the problem remains the world ex-United States, as forecasts increasingly point to a significant (enough) slow-down is Europe and China. This view betrayed itself on Friday in global bond markets: the yield on 10 Year US Treasuries fall precariously near the 3.00 per cent level, in tandem with yields across Asian and Europe – meaning the US Dollar held its bid. Perhaps of greatest concern is that this lift in bond prices hasn’t seemed to shift sentiment within equity markets, as a continued blow-out in the spreads on investment grade and high-yield credit aggravates concerns about over leveraged US corporates.

     
    US-China Trade War: Fears about slower economic growth, the global debt burden and tighter financial conditions will be hard to unwind. The once high-flying US stock market has seen the Dow Jones, S&P500 and NASDAQ shed 5.8 per cent, 8.4 per cent, and 12.67 per cent, respectively, over the past 3 months. The losses will prove difficult to staunch, and momentum still appears skewed to the downside. If there is any hope of sentiment shifting-around this week, one imagines it’ll have to come because of improved relations between the US and China – and a possible beginning of trade negotiations. Overall, the signs are looking positive. US President Trump is mercurial, and the Chinese are stubborn, so the situation is liable to rapidly change. However, so far, the dialogue has been relatively amiable, inspiring hope that the beginning of the end of this trade war could well commence at the weekend’s G20 summit.
    Brexit: The other geopolitical risk hanging over markets is of course that of Brexit. The UK’s and the European Union’s divorce deal will face another flashpoint this week, after almost being derailed over the weekend by Spanish official’s concerns around the Brexit-implications of Gibraltar. The deal has been rubber stamped by European bureaucrats at the weekend’s EU Economic summit, however the view remains that it won’t get through the House of Commons. A vote on the deal won’t be immediately forthcoming, and the official exit date for the UK isn’t until March 29 next year. But markets require far less-meaningful milestones to cast their judgement and get a feel of the likely fate of Brexit. The key-current Brexit agitators, like Boris Johnson and Dominic Raab, not to mention opposition leader Jeremy Corbyn, will surely whip up the rhetoric this week – reminding that this Brexit deal is possibly dead in the water, spelling trouble for European equities and the Pound.
    Oil: Commodities are suffering owing to fears about global growth and widespread market-volatility, and this of course is no truer than in oil markets at present. The price of oil tumbled again over the weekend: WTI is trading just above the $US50.00 per barrel level at $50.41, while Brent Crude has spilled through $60.00 to presently trade at $59.32. There is waning optimism amongst oil-bulls that productions cuts can be organized by the world’s largest oil exporters, with the Saudi’s losing control of OPEC, the Russians showing only a tepid determination to intervene in markets, and the US advocating for lower oil prices. It’s a set of circumstances that seems very nearly intractable and will weigh on equities and credit markets – especially one that could very quickly spiral out of control if the massive number of long positions are unwound in the market.

    ASX200: SPI Futures in the day ahead are indicating a 37 per point drop following Wall Street ‘s soft trade on Friday.  It’s difficult to imagine that the ASX200 will break its strong relationship with activity on Wall Street this week. Trading come the local session on Tuesday will be back to normal, after several days of thin trade: volumes on Friday were around 30 per cent below average. There isn’t a great deal of local data this week, either: Private Capital Expenditure data plus a speech from RBA Governor Philip Lowe is all we’ve got.
    The strength of the bounce for the ASX200 will surely be tested this week, particularly if any one of the litany of macro risk factors causes a spike in volatility.  Much of the buying that has driven the bounce are in the markets safer and larger-cap stocks, implying that an appetite for risk is low, and the buyers are searching out bargains. The next key level of support to keep an eye on to gauge the underline strength in the ASX200’s mini-rally is around 5745, though it must be stated levels well beyond that need to be attained before a definitive turnaround in this market can be called.

  14. MaxIG
    Written by Kyle Rodda - IG Australia
    The tone of overnight trade: All eyes back on the fundamentals – that’s the attitude now. The post US mid-term election rally stalled overnight, as investors turn their attention to this morning’s US Federal Reserve meeting. The Fed have kept interest rates on hold – that much was already baked into the price. Market activity to close the week will primarily be dictated now by how market participants interpret the language in the Fed’s accompanying policy statement. It’s been considered rather neutral thus far, and for equity markets, that’s not necessarily a positive result. Almost inexplicably, the US Dollar has rallied upon the release, despite very little new information being revealed in the statement. The argument for that may be that given October’s stock market volatility, a more dovish Fed was expected – true to form, this Powel-led Fed is not for turning, apparently sticking to the central bank’s existing outlook.
    Global price action: The conservative-bent to last night’s trade meant that equity markets traded more-or-less flat to lower. Asia provided a strong enough lead to the Europeans, however our region was last to the party in this week’s relief rally, so that meant little to European traders. Europe’s equities were reasonably mixed – generally down on the day. Stable and less risky assets therefore caught a bid, driving global bond prices higher. Bloomberg’s Commodity Index edged quite modestly higher, though both gold and copper traded rather directionless for most of the overnight session. The big mover in the commodity space was oil once again, with the black stuff continuing its tumble. WTI Crude has ticked into the $60.00 per barrel mark and Brent Crude has fallen to the $70.00 per barrel level, as traders adopt the position that there will remain a short-term surplus of oil in global markets.

    Wall Street session: At time of writing, Wall Street is entering its final moments of trade and the Fed’s monetary policy statement hasn’t inspired terribly much bullishness. Volumes are up on Wall Street, which is in stark contrast to European indices, that saw markedly below average volumes during their trading session. Activity in US Treasury markets is strong, with traders apparently judging that the Fed’s position is still one of firm, gradual rate hikes. The yield on interest rate sensitive US 2 Year Treasury note has ticked higher to a new post-GFC of 2.965 per cent, but the yield on US 10 Year Treasury Bond has remained hobbled by the outcome of the mid-week US mid-term election outcome, trading at 3.235 per cent. The spread between those two assets has thus narrowed once more to approximately 26 points.

    Currency markets: Across broader currency markets, the stronger greenback has exerted its influence: The Dollar Index began a rally overnight, and post-Fed has posted daily gains of 0.5 per cent.  The USD/JPY is knocking on the 114.00 handle’s door, while the other popular risk off pair, the USD/CHF, fell to 0.9945. The USD/CAD has rallied, by way of a combination of a stronger greenback, lower oil prices and developing news of another breakdown in trade relations between the US and Canada. The EUR/USD has fallen deeper into 1.13 and the GBP/USD has dipped back to float within the 1.30 (perhaps in part due to the release of UK GDP data tonight). Regarding the latter two pairs, they came under pressure overnight after the European Union warned that the Italian budget deficit is running the risk exceeding the bloc’s limit of 3 per cent. That sent bond spreads wider and placed additional weight on European equities, although the weaker Pound apparently provided a minor leg up for the FTSE100, which finished the session in the green.
    The Aussie battler: The Australian Dollar hasn’t escaped King Dollar’s might this morning, falling to 0.7270 (or thereabouts). The very illustrative spread between US 2 Year Treasuries and the Australian Commonwealth Government Bond equivalent has expanded to 90 basis points. A spread that wide has in recent times precipitated a tumble in the AUD/USD, however it must be remarked that the Aussie battler isn’t trading quite so much on fundamental themes in the market. Improved global growth optimism and heightened risk appetite this week has supported commodity-bloc currencies, but the best explanation for the local units’ rally is an unwinding of short positions in the market. Although this is only a short-term phenomenon, and the fundamentals will likely reassert themselves, the AUD/USD’s break of its trend channel supports the notion that upside to 0.7310, even possibly 0.7450, exists.

    RBA Monetary Policy Statement: The Reserve Bank of Australia’s quarterly Monetary Policy Statement could be one determinant of this move. The document, released at 11.30AM this morning, will be perused by traders for hints regarding the outlook for the Australian economy, and forward guidance from the RBA about its rate hike outlook. It must be assumed that little-less than the rosy picture painted by the RBA about the economy should be expected. This is especially true given the statement accompanying Tuesday’s monetary policy meeting upgraded the central bank’s employment, growth and inflation forecasts. As always, the fine print, hidden meanings and other semantics will dominate the analysis of the document, with interest given to the RBA’s view on the strength of Australian households. Arguably, it’s the combination of high household debt, falling house prices and its impact on future consumption and inflation that is keeping interest hikes on ice, so any indication about these matters could prove significant.
    ASX200 today: SPI futures are indicating today that the sputtering end to Wall Street trade will manifest in a 13-point drop for the ASX200. Yesterday’s trading session was a fruitful one for Australian investors: the local index climbed over half-a-per-cent for the day, led by an 18-point contribution to the index by the financial sector. In positive signs for risk appetite, growth sectors – in the form of health care stocks and IT stocks – topped the sectoral map. The ASX200 closed trade at 5928, just shy of a very key resistance level at about 5930. The failure to break above this mark is telling, but not surprising – and will likely prove a formidable barrier in the future: doing so would be a clear indicator of an (on balance) bullish control of the market, after the bears took the reins during October’s correction.
  15. MaxIG
    Written by Kyle Rodda - IG Australia
    Time to give thanks: It’s Thanks Giving in the US, so US traders are away from their desks and equity markets in the country are offline. Perhaps it’s something the bulls can be thankful for: the holiday has resulted in very thin volumes across the globe, giving a subsequent ability to take pause from the unfolding market rout. There is so much information awaiting market participants coming into the end of November and start of December, so surely the opportunity to distract oneself for now by gorging on roast turkey and a few beverages of choice is being welcomed by our American cousins. Presumably, little can fix for too long the underlying anxiety caused by the myriad of fundamental concerns plaguing investors. But that’s next week’s problem, for now – better that we take stock while the American punters sift around for reasons to give thanks.
    Global equities: To capture a theme from last night’s trade: it was – for all intents and purposes – about Brexit. Before delving into that one, let’s take a check on the price action. European equities were down across the board. The volumes for the continent were, as has been touched on, remarkably thin, except for the FTSE, which was down 1.28 per cent on the unfolding Brexit drama. The DAX clocked in a loss of 0.94 per cent for the day, unable to grasp the lead from the Asian region’s mixed but respectable trading day, which saw the Nikkei up 0.65 per cent and the Hang Seng up 0.18 per cent, but the CSI300 down 0.37 per cent. In our local session, the ASX200 was another index that bucked the trend of low activity, continuing its bounce off support around 5600 to close 0.86 per cent higher on volumes 10 per cent above the 100-day average.

    Bonds, currencies and commodities: The US Dollar was weaker, largely due to the bidding higher of the Pound and EUR, with those currencies leaping above 1.28 and 1.14, respectively. The weaker dollar also supported gold, which is trading back at $1227 per ounce. US Treasuries are flat due to the Thanks Giving holiday: the yield on the US 10 Year note is 3.06 per cent. Dulled risk appetite has meant the Yen is modestly stronger, trading just below 113 at time of writing; and the Australian Dollar is off a touch, trading slightly above 0.7250, in tandem with the New Zealand Dollar, which is just holding onto the 0.6800 handle. Oil prices have dipped again, falling about 1.4 per cent, dragging the Canadian Dollar with it; while copper is a little higher for the day.
    Brexit developments: Back to the pressing issues at hand, and the lack of data combined with closed US markets has meant Brexit developments have taken centre stage. In what's been judged a positive step-forward by markets, Donald Tusk, President of the European Council, announced overnight that a draft Brexit proposal had been "agreed at a negotiators level and agreed in principle at a political level" amongst European Union leaders. The news is what sent the Pound on a tear -- and the FTSE100 lower consequently -- following yields on UK gilts, which of course rallied courtesy of the optimism engendered by the announcement. The stage is now set for this weekend's EU economic summit, where it's now very much assumed European leaders will rubber-stamp the Brexit proposal.
    What are the chances? For all the hope that a Brexit deal can be reached, the stark reality is that UK Prime Minister May faces an uphill battle. In what must have been a gruelling three hours or so in front of the House of Commons, the Prime Minister delivered a speech and then fielded questions from parliamentarians on the Brexit proposal. There is such division and disparity in the British Parliament about what Brexit ought to look like, that the likelihood any proposal could unite the very many different and opposing interests appears slim. A no-deal “hard Brexit” remains the probable outcome, spelling trouble for UK and European markets – especially the Pound. How low the Cable could go in this event is difficult to predict: recent lows around 1.2750 would just be the beginning – perhaps the January 2017 low of 1.1990 could be considered the bottom of the range.

    ASX200: Bringing it back home, now: SPI futures are presently indicating the ASX200 will open 29 points lower this morning. It would be awfully surprising if volumes on the Australian share-market bucked the trend today and were anywhere near average. A rudderless market may emerge, whereby trade is choppy, momentum low and price action contained – particularly after yesterday’s relief rally, that added to the bounce by the index off recent lows around 5600. The fortunes of the ASX going forward will inevitably be tied to the themes that emerge from US markets, and as it stands that strongly implies further difficulty for Australian shares. However, the silver lining investors and the bulls may wish to cling onto is the notion that our share market was nowhere near as elevated as that of the US’s, so falls from here may not be as steep.
    ASX: the bigger picture: Once more: that 5600-mark is significant. It amounts to the bottom of a range that was established in 2017 and held steady several months, in what might now be safely described as the markets “accumulation phase”. From the end of that phase in October 2017 to now has seen the registering of a new decade long high, then – in recent months – a strong correction of that move. It suggests a medium-term cycle has been completed, and a bearish impulse has now seized control of the market. The strength of that move ought to be watched for, but the broader global economic slow-down and the peak in the US market suggests a follow through 5600 is highly possible moving into 2019. The broader, secular bullish trend provides the trading channel to work within and judge the bigger picture, with the 5375-level representing the bottom of this trend-channel.

  16. MaxIG

    APAC brief - 21 Nov

    By MaxIG,

    Written by Kyle Rodda - IG Australia
    I see red: The global equity rout continued last night, and out to the furthest horizons it was a sea of red. There was very little reprieve no matter where one spun the globe. The Asian session saw China's equity bounce faded again, joining the suffering experienced by the Nikkei, Hang Seng and ASX200; European indices continued their orderly decline, underpinned by a 1.6 per cent drop in the DAX and a 0.76 per cent fall in the FTSE 100; and with less than an hour to trade, Wall Street is clocking losses, led by the Dow Jones, of as much as 2 per cent. The themes aren't wildly different from before, it's just now the story is being read (and bought-into) by a growing mass of traders: global growth is late-cycle, earnings have peaked, and tighter financial conditions means there's no hiding from the risks.

    Seeking shelter: Not that market participants aren't searching for places to hide. The problem is, it would seem, that there aren't too many good places to find shelter. The classic safe-havens were given a good crack overnight: US Treasuries were sought out, giving the US Dollar a boost after several days of declines. Yields on US Treasuries were steady; however, this appears more a function of the residual need to maintain pricing of interest rate expectations. Gold was slightly lower because of the stronger USD alone, as was the EUR/USD, which traded into the 113-handle again, and the Pound, which dropped into the 1.27 handle. Even the Japanese Yen dropped slightly as traders scurried around, though it must be said it is far-off its recent lows.
    The losers: The flip side to the bidding-up of safe-havens was a smack-down of riskier and/or anti-growth assets, of course. The Australian Dollar is trading into the low 0.7200's and the Kiwi Dollar has slipped below 0.68. The Chinese Yuan edged to 6.94 and broader emerging currencies felt the pinch, again. Commodity prices fell on fears of slowing global growth: copper is off (but it did bounce of the day's lows), and of local relevance, iron ore has plunged by over 2 per cent. Bitcoin too has finally exhibited its status as risky and speculative "asset", spiralling further, to just over $US4,500, at time of writing. Credit spreads continue to widen, especially in investment grade corporate bonds, portending sustained weakness in global equity markets.
    Fresh falls for oil: Amid all this selling and search for safety is the conspicuous matter of oil: the black stuff arguably fared worst of all overnight, shedding over 6 per cent. The concerns regarding a massive global over supply continued, as analysts forecast higher inventories and a higher-likelihood that major oil producing countries will prove unable (or unwilling) to collectively cut production. The dynamic has prices of Brent Crude trading at $US62.50, and that of WTI at around $US53.50. Energy stocks were some of the worst performing for the overnight session -- a theme that is expected to persist today –  while the oil sensitive Canadian Dollar fell to 1.33 on fears of a deterioration in that countries terms of trade.

    Less news, more uncertainty: The volatility experienced in just the first two days of the week -- the VIX spiked to about 22 again overnight -- gives further credence to the notion that light data weeks exaggerate price action. It's like existing in a vacuum, whereby a lack of air resistance makes everything move much more swiftly. In good times, this doesn't feel so bad:  it's an excuse to buy, and everyone is mostly happy. However, in this new period of uncertainty, the opposite proves true: less information means fewer opportunities to find certainty and reassurance in data. As such, trading picks up a velocity that exaggerates what might otherwise be tempered movements in markets, spawning vicious cycles where fear feeds and multiplies on more fear.

    ASX yesterday: The ASX200 hasn't been spared from this cycle -- and feels an immediate escape will not be forthcoming. The index fell with far greater force than was anticipated during yesterday's, as the broad-based evacuation from equities persisted. The tech-wreck theme has spilled over into our market: momentum chasers are being washed aside, legging high-multiple growth stocks. It was the IT and healthcare sectors that subsequently experienced some of the highest activity and losses, the culmination of which saw the ASX200 come conspicuously close to the oft-mention support level around 5625, or so. Buyers entered the market at that level, allowing the market to staunch its losses seemingly as bargain hunters searched for value in the large caps. However, it was only enough to curb the session's losses to about 0.4 per cent.
    ASX today: The lead handed to us by Wall Street has SPI futures indicating quite a considerable drop for the ASX200 at today's open of 58 points, or about 1 per cent. If that were to eventuate, support at around 5625 would quickly give way and expose the key-psychological mark of 5600 to a challenge. Considering what’s been witnessed on markets this week, today may once again be a case of what can lose least. The utilities space and other defensive sectors look to be the early favourites for that title, but it may be one that won't be won without sustaining a few battle scars. Given the overnight moves, the materials sector and energy stocks are presenting as the likely biggest losers, with activity in the banks perhaps the uncertain variable considering a bounce in the Big 4 late yesterday.

  17. MaxIG
    Written by Kyle Rodda - IG Australia
    Risk? No, thanks: Markets have given a resounding “nope” to all varieties of risk overnight. Equities have been slogged on Wall Street, following to a sluggish day in European markets, that saw the FTSE drop 0.2 per cent and the DAX shed 0.85 per cent. Here it looks like this is the convergence punters have been calling: US shares are playing a rapid catch-up with their global counterparts. The losses are piling up. The NASDAQ has been hit the worst in the North American session led by falls in FANG stocks. At time of writing, with about half an hour left in the session, the losses for that index are hovering around 3.00 per cent. That’s not to say the picture is any prettier for the other major US indices: The S&P500 is down just-shy of 2 per cent, and the Dow Jones is much the same.
    The havens: Typically, US Treasuries have maintained their bid. The yield on US 10 Year Treasuries has dipped to 3.05 per cent, while the yield on US 2 Year note has fallen further, down 3 points to 2.77 per cent. The markets are scrambling for safety once more as volatility spikes again: the VIX is up to about 21, and that is ample reason for investors to bail-out of equities. The US Dollar is suffering from the drop-in yields, and the Japanese Yen is accepting the safe-haven bid, along with the EUR, which is eyeing off 115 again, supported by (slightly) diminished anxiety around the Italian fiscal crisis. Of course, the Australian Dollar and New Zealand have pulled back, trading at 0.7290 and 0.6840, respectively, although it must be mentioned that commodity prices are holding well enough.
    Risk factors: The US Dollar Index is threatening to break short-term trend line support, and this is clearly helping gold prices: in another example of a flight to safety, the price of the yellow metal has climbed to $US1224 per ounce. Calling a top for the greenback is way too rash, and in time if this level of volatility continues, a return to the almighty Dollar would surely manifest. What is happening here, for now, though, is traders are pricing in a more dovish Fed, against what is being presumed as the start of “slower global growth” narrative leading into 2019. The hostilities between the US and China flowing from the weekend’s APEC summit fanned these fears, as has the deteriorating situation around Brexit. But ultimately, they tie back to the belief that the Fed may have overcooked their tightening regime.

    It’s the Fed, stupid! Markets have reduced their bets the Fed will hike rates next month to 65 per cent, with only a further two priced in for 2019. This is well-off the number flagged by the Fed in their dot plots, which outlines a further 5 hikes by 2020. The divergence between policy makers forecasts and that of market participants opens-up a cavernous divide, and subsequently boosts the chances of high future volatility. Growth aside, inflation risk still exists. Although there are few major signs (for now) that inflation could spiral out of control, building wage pressures, higher prices from tariffs, and the knock-on effects of Trump’s fiscal assertiveness mean that the risk remains non-negligible. If inflation were to emerge, the Fed would have no choice but to react and hike rates, sending markets scrambling to re-price expectations.
    Corporate debt bomb? It's on the chance that this situation will occur that has traders most worried, especially given the hot issue in global markets, presently: the massive US corporate debt burden and the impact tighter financial conditions will have on it. Credit spreads have continued to widen since October’s major share market correction: in fact, on both investment grade debt and junk bonds, the widening has accelerated. The dynamic makes it truly difficult to sustain equity markets gains, as attention becomes fixated on credit risk, and the broader implications of a more expensive debt burden for corporates, as a climb in short term rates translates into higher future refinancing costs. Indeed, it remains early days on this matter, but if it were spiral out of control – in a worst-case scenario – the selling across global equity markets witnessed already would only be the beginning.

    Pain for the Asian equities: It must be said this is one of the more catastrophic scenarios, and it is a long way from assured that it will play-out.  Nevertheless, as it stands one day into the trading week, equities are having trouble finding friends. The volatility in US markets has futures pricing-in a generally negative day for Asian equity markets, on the back of day that – granting thinner volume everywhere bar Chinese markets – wasn’t too bad. The ASX200 certainly suffered, but the Nikkei was able to add 0.65%, the Hang Seng 0.72 per cent, and the CSI300 1.13 per cent.  There was very little news flow for the region yesterday, aside from the overhang of the disappointment from the APEC summit, and perhaps the absence of information supported those gains.
    Australia today: It will be another day with a dearth of scheduled economic data, with RBA Minutes this morning the highlight. SPI futures are pointing to a 9-point drop at the open for the ASX200. It was another matter of yesterday’s sell-off simply being an “equity problem”: few sectors were spared from the selling, as investors, trading within thinner volumes, unwound their exposure to equities. The story for the day – and this was represented in trading volumes – was the latest chapter in the Financial Services Royal Commission. The financials sector sucked 15 points from the index on volumes 15% per cent above average. The close for the ASX200 below the psychological-level of 5700 opens-up downside for the ASX200 in the days ahead to key support around 5625, with momentum indicators and the RSI suggesting such declines are more than feasible.

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

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

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

  19. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 19 Nov 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
     
    Special dividends this week
    Index BBG Code  Date Summary  Amount MEXBOL WALMEX* MM 26/11/2018 Special Div 45 RTY WING US 23/11/2018 Special Div 305 RTY SBSI US 20/11/2018 Special Div 2 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.
  20. MaxIG
    Written by Kyle Rodda - IG Australia
    Brexit break-down: The headlines in financial markets are mostly Brexit related. What was suspected has become so: Prime Minister Theresa May’s deal with the European Union has fallen by the wayside, potentially (if not, likely) rendering it mute. 24 hours is of course a long time in markets, and this time yesterday optimism was blossoming about a potential Brexit deal to end the years of debate and gridlock. The harsh reality has now bitten though, and the brutal realpolitik has subverted that narrative: Dominic Raab – the UK’s key Brexit negotiator – has resigned from Prime Minister May’s cabinet, amounting to a no-confidence motion in the Prime Minister and her deal. It’s curious still as to what Raab’s motives are: he was in the room with Prime Minister May negotiating the deal with the Europeans. Nevertheless, he has pulled his support, and it’s now believed the castle is about to fall.
    Pound plunges: There was volatility in markets in response to the shock news, however it was mostly contained to Pound. The Cable plunged from the 1.30 handle to trade below 1.2750, in what amounts to its largest intra-day move in over a year, as yields on UK Gilts plunged on back of unwinding bets of more BOE rate hikes. Continental stock indices lost ground, with the DAX shedding 0.5 per cent for the day; however, the plunge in the Pound, coupled with more stable oil and commodity prices overnight, helped the FTSE100 close flat for the day. It’s a very premature call, but futures markets are pointing to a more stable day for European equity markets when they come on line in 10 hours-time, revealing that though Brexit is a massive social, cultural and political issue, for market participants, at least for the time being, it’s more a nuisance than a major concern.

    Wall Street bounce: Activity on Wall Street last night can attest to this: after hitting the skids in early trade as traders digested the Brexit news, US indices gradually turned to trade-off its own themes. It’s resulted in what appears to be a reasonable outcome for the day’s trade. At time of writing, the NASDAQ is up in the realm of 1-and-a-half per cent, the S&P500 has climbed 0.9 per cent, and the Dow Jones is trading 0.7 per cent higher. The real impetus for the shift in market sentiment came upon news that US and Chinese negotiators are in the process of knuckling down terms of a trade agreement to be discussed at this month’s G20 meeting. Industrial stocks have benefitted most from the dynamic, as fears regarding growth risks wane, while Treasury yields have popped higher, with the yield on the US 10 Year note-rallying to 3.12 per cent.
    US fundamentals: Markets were provided with ample material to judge US economic conditions during last night’s trade. US Retail Sales data was released and surprised to the upside, somewhat confirming the US economy’s sustained strength. Of greater import, US Federal Reserve Chairperson delivered two separate addresses in the last 24 hours, hammering-home in both his conviction that the US economy requires further interest rate hikes, even if that means some heightened volatility in asset prices. Traders largely took the news in their stride, taking it as a continuation of messaging markets have received from the Fed for the most part of the year. The US Dollar was rather steady on the news, as interest rate markets held to their current perception regarding future interest rate hikes: that is, a 75 per cent chance for a hike in December, followed by another 2-and-a-bit hikes for the entirety of 2019.
    The big paradox: Moving forward and looking at the bigger picture, herein lies the problem, however: markets are still under-pricing the likelihood that the Fed will hike the 3 times next year that it has flagged. Far be it to argue with the multitude of brilliant minds collectively deciding this. But as recent history has proven, the biggest spikes in volatility have come when traders have mis-forecast the fundamentals and underestimated the conviction of the Fed. It goes back to the big paradox dictating market behaviour currently (although it must be cited this up for debate and is rooted in contestable philosophical assumptions): stronger economic activity will force the Fed to aggressively hike rates, which will suck liquidity from the markets, stretch valuations further, and drive funds into safer, relatively higher yielding assets. The ultimate effect will be tighter financial conditions, higher volatility, and weaker activity in equity markets.
    ASX200: The big picture aside, and the day ahead is shaping up as a positive one for the ASX200. SPI futures are indicating presently a 16-point gain for the local market at the open, inspired primarily by Wall Street’s solid lead. Yesterday’s trade was rather grim for the bulls for the most part of the day, with the ASX200 down by as much as 0.7 per cent intra-day, to test the waters below 5700. Options expiries bailed out the ASX in the end, elevating the market after the formal end of trade to a neutral position for the day. The recovery was supported by positive price action on Chinese indices, which experienced (if using the CSI300 has a guide) a 1.17 per cent gain, along with a rebound in oil prices that lead the energy sector 1 per cent higher.
    Aussie fundamentals: In another example of stock market performance not necessarily marrying up to economic fundamentals, yesterday's local employment figures provided a very healthy upside surprise. The unemployment rate maintained itself at 5.0 per cent, even despite an increase in the participation rate, courtesy of a higher than expected jobs-added figure of 32k last month. The Australian Dollar shot through 0.7240 resistance to rally toward the next key level at 0.7310, opening the possibility of further short-term gains as short sellers continue to be squeezed. Even more remarkably, the labour market numbers resonated enough with (hard to please) interest rate traders: for the first time in quite some time, better than 50/50 odds of a rate hike from the RBA before the end of 2019 is being priced in, as some traders begin to buy the notion of a markedly improving Australian economy.

     
  21. MaxIG
    Written by Kyle Rodda - IG Australia
    The global market landscape: November’s gains, as modest as they were, have been snatched it would seem, across Wall Street indices and Australia’s ASX200. The bloodletting has been profuse once more this week, and it seems that diminishing number of momentum chasers have had handed to them another dose of market reality. To be fair, this latest round of selling has been precipitated by a new risk: tumbling oil prices. The price of the black stuff bounced overnight, but this was of course only after a considerable plunge that sent prices into a technical bear market. Energy stocks have been pummelled, and its sparked concerns that debt instruments secured to oil held by many corporates are at a materially higher risk of default. That’s turned a commodity problem into a real-financial problem.
    US markets: That’s what has manifested in markets overnight. Credit spreads on US investment grade credit have blown out again, compounding the existing concerns relating to the effects Fed tightening will have on (deteriorating) liquidity conditions. The 3-month Libor rate for one, despite relatively lower volatility since the end of October, has continued to march higher, further stifling financial conditions. The assumed affect this dynamic will have on global credit availability has hit financial stocks, and those areas of the market considered highly leveraged – like US tech – driving a remarkably synchronized sell-off across Wall Street Indices last night. At time of writing, the Dow Jones, S&P500 and NASDAQ have pared losses for the session, leading into the final moments of trade, but this turnaround only occurred after an announcement by UK Prime Minister Theresa May she has cabinet support for her Brexit deal.

    US Treasuries and US CPI: US Treasuries have caught a bid on last night’s trade, with the yield on the US 10 Year Treasury note falling to 3.10 per cent, and the yield on the US 2 Year Note falling to 2.85 per cent, narrowing the spread between those two assets to 25 basis points. A haven play into Treasuries was fortuitously supported by (on balance) softer CPI figures out of the US overnight: annualized core CPI dipped from a month earlier to 2.1 per cent. The figures momentarily dulled fears of inflation risk, permitting traders to discount such anxieties, as risk-off assets, such as US Treasuries, were sought. It’s a trade with shrinking efficacy, however, and it won’t be long before the new-normal of elevated volatility, caused by a hiking US Fed, snuffs it out. 
    Fed policy and Powell’s speech: This is because despite all the volatility already seen in financial markets in recent months, it won’t be enough to stop this Fed from hiking interest rates. Indeed, circumstances could change, and a risk too difficult for the Fed to ignore could derail these plans. As it stands now though, Jerome Powell’s Fed has little sympathy for the crocodile tears of market participants. He and his team are concerned with Main Street and its wellbeing, and for now, the average American punter (at least, according to the data) is doing rather well. Wall Street will just have to adjust to this world of less accommodative monetary policy – just as markets ought to do when they are functioning properly, and without artificial support. For this reason, the day ahead will find itself hinging-on a speech to be delivered by Chairperson Powell, with traders waiting for any word that may indicate a more dovish view.
    Geo-political risks: There are genuine macro-risks currently, and although not as significant as the structural factors relating to US Fed policy, they have and will continue to drag on US and, as such, global growth. Ironically enough, even considering this week’s equity market plunge, the outlook for matters relating to Brexit and the US-China trade-war has probably improved. The so-called “all-level” talks between the US and China has been welcomed by investors, and as of early this morning, UK Prime Minister Theresa May has announced that she has secured cabinet support for her recently negotiated Brexit deal with the European Union. The warmer sentiment generated by both stories has led to a sell-off in the US Dollar in favour of the Pound and Euro, which are presently trading above 1.30 and 1.13 respectively; while the Australian Dollar has appreciated in line with offshore-yuan to trade at resistance around 0.7240.

    ASX200 yesterday: SPI futures have picked up very slightly as Wall Street pares losses to end the North American session. The good-news (for markets, that is) story about Brexit and its progress has delivered the sugar hit necessary to boost trader confidence, during what has otherwise been a challenging week for the bulls. Yesterday’s trade for the ASX200 saw technical levels kicked aside, with much of market activity surely attributable to some irrational panic. Energy stocks suffered throughout the day, as did high-multiple-stocks in the health care sector, along with the heavy-weight banking stocks. The 1.74 per cent tumble really kicked-off around mid-day when Chinese money-supply and credit figures spooked market participants. Weak Chinese Retail Sales data seemed to weigh on Chinese equities, with the CSI 300 shedding another 1 per cent.
    The day ahead: An already very broad-based sell-off – breadth ended at a narrow 15 per cent – accelerated by way of virtue of the weak Chinese data, leading to breaks of support at 5825, 5800 and 5785. Another day of plus-1 per cent losses is rather improbable today, especially given the positive Brexit news, and that employment data is the only major local release. The market isn’t demonstrably oversold yet, and momentum hasn’t crossed to a point where hastened selling should take place. Furthermore, though bright spots are hard to find, a small minority of bargain hunters are surely to be sniffing around for value after three successive days of declines. More generally, pressure remains to the downside in the medium term: 5690 should be watched for as the next key price-level, a breach of which could open-up downside to 5600, and see the local index return to the very sticky range it occupied for 6 months in 2017.

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

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

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

  23. MaxIG
    Written by Kyle Rodda - IG Australia
    Week starts soft: Global equities are down to start the new week. The stories driving the overnight moves are slightly different, but the themes remain the same: the dual risks of higher global interest rates and the prospect of slower global growth has put the bears (at least momentarily) back in control. It can feel repetitive to keep having to reel-off this story. Slower growth, higher rates, slower growth, higher rates – the message keeps echoing throughout markets, giving market participants a sensation of vertigo. Although it must feel trite, the inescapability of the slower growth and higher rates mantra speaks of the gravity of each concern. The fact is, markets are a smidgeon away from being half-way through November, and for most major-global stock indices, the recent ructions in equity marks means that the year has delivered nothing in return.
    Fears of peak growth: Now of course, to reduce the return on equities to the gains and losses delivered from January 1 to now is far too simplistic. For the many who have been in the market longer than that, or for those who have timed their run well, the year has provided ample opportunities to attain a fruitful profit. The point is however that whatever the market has been able to bequeath to the individual trader or investor, overall, equities are looking increasingly like they have hit their peak for this cycle. This is far from assured naturally and speaks only of a developing consensus – mere perception, quite possibly -- amongst market participants. However, considering how long investors had to wait for these condition, the many distractions that have enervated market activity in the second half of this year has led many to the belief that an opportunity has been squandered.

    Wall Street: It’s this frustration that underpinned market sentiment overnight. Big tech was once again the biggest loser on global stock markets, with the NASDAQ down by over 2 per cent, and the broader S&P500 down 1.13 per cent, at time of writing. The sell-off in the tech giants has pushed the P/E ratio across the NASDAQ, below 40/1 once again. Volumes have picked up throughout the day in US trade, but they have been hindered by the absence of bond-traders in the market due to the US Veteran’s Day holiday. That has deprived traders of the ability to assess the information contained within US Treasury yields – likely adding to the negative tone of US trade. Despite activity in rates and bond markets being subdued (if not totally missing), the US Dollar has flexed its muscles, touching a near-18 month high and looking primed to burst higher from here.
    Currencies: Much of the strength of the US Dollar, it must be said, is emanating from a much weaker Euro and Pound. Geopolitics and its economic ramifications (typically) dictated trade in European markets yesterday, pushing the DAX down 1.77 per cent, and dragging the FTSE (which did find some very limited support from a weaker currency and a bounce in oil prices) 0.74 per cent lower. The state -of -affairs of the European economy still appears ugly: there was a flaring of anxieties regarding the Italian fiscal crisis yesterday, which lead to a widening of bond spreads across the region; while the hope that a Brexit deal will be delivered by the end of the month is waning. It was these two narratives that drove EUR/USD below support at 1.1310, to presently trade just below 1.1250; and dragged the GBP/USD deep into the 1.28 handle, once more.

    Asia: The stronger US Dollar coupled with the “weaker global growth” narrative has seen the Aussie Dollar shed about half-a-per-cent, likely in sympathy with the offshore-yuan, which has plunged back into the 6.96-handle. This comes despite a solid day’s trade throughout the Asian region: although far from the strongest day we’ve seen from Asia’s equity indices lately, the CSI300 managed to add 1.19 per cent for the day, the ASX200 managed to close 0.33 per cent higher and above key-resistance at 5930, and the Nikkei and Hang Seng finished the day up 0.1 per cent on very thin volumes. Sentiment was probably given a boost by the massive “Single’s Day” in China – that generated approximately $US31b worth of sales in the space of 24 hours yesterday – however, the benefit was short-lived, with European and US traders from the far greater fundamental challenges facing the Asian region.
    ASX200: SPI futures are indicating a 57-point plunge for the ASX200 this morning, weighed-down by the weak lead from Wall Street, combined with the jump in implied volatility courtesy of the concerns surrounding global growth. The materials and health care sectors led the market higher yesterday, offsetting the fall in the financial sector caused by ANZ trading ex-dividend, in a day that saw breadth at a solid 60 per cent. Softer commodity prices and potential bearishness in Chinese equities present as the challenges for Australian shares in the day ahead. Copper prices have been dumped 1.6 per cent overnight, gold has fallen victim to the stronger greenback to challenge support at $US1200 per ounce, and oil has dipped by 1.4 per cent in Brent Crude terms – boding all in all poorly for the materials and energy sector in the day ahead.
    Oil update: Another oil update is certainly required this morning, after the sensitive politics of the black-stuff became inflamed overnight. It didn’t take long for it to happen: with all this talk coming out of OPEC of supply and production cuts in 2019 over the weekend – the result of which was enough to break oil’s 10 day losing streak yesterday – US President Trump waded into the issue via Twitter last night, tweeting “ Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!” The comments from the US President – made only a matter of hours ago – has dumped the price of Brent Crude to a new 7-month low, and the price of WTI to a 10-month low, as traders seemingly increase bets that the US may boost oil production to offset reduced supply from OPEC+ if they were to occur.
  24. MaxIG
    Written by Kyle Rodda - IG Australia

    Volatility lower; risks remain: Financial markets face far fewer risk events this week, but as has been repeatedly observed in recent months, that does not preclude the possibility of ample volatility. If anything, with so much global economic and political uncertainty at present, the absence of news can make already murky circumstances appear murkier. Traders are still jumpy and rather trigger happy, though implied volatility has been downgraded over the last week, primarily due to the passing some highly significant risk events. Last week's US mid-term elections delivered the outcome markets were expecting -- which in and of itself is perhaps the best outcome of all. While the FOMC stuck to their guns and kept market participants on notice: more than a major stock market correction is required to shift this Fed from its rate hiking path.

    A familiar story: The ability to price in – at the very least into US equity markets – the result of what was last week's two most significant events has undoubtedly been welcomed by punters. Each event cast a different light on the state of markets, with neither inspiring a great deal of bullishness. It was a sense of cautious relief, it must be said, that nothing too extreme came out of them. Ultimately, the Fed's meeting – which is far and away the more fundamentally important force in markets – provided little to the Bulls to be excited about: it reinforced the internal contradiction (pun intended) present in financial markets currently: strong economic fundamentals are finally feeding into wages and price pressures, meaning the Fed must hike rates, quite possibly at the expense of the upward momentum in stock markets.
    North American session: Wall Street dipped based on this on Friday. The increasingly familiar dynamic played out again: the prospect of higher interest rates gets priced into rates markets, and subsequently into US Treasury yields, weighing down equity markets, which spark a risk-off flight into US Treasuries, bidding-up that assets' price. The yield on benchmark 10 Year US Treasuries fell over 5 points on the day, as the growth laden NASDAQ fell 1.65 per cent, leading the S&P500 and Dow Jones down 0.92 per cent and 0.77 per cent respectively. The US Dollar climbed on the risk off play – as did (modestly) the Japanese Yen and Swiss Franc – driving gold prices down to $US1209 per ounce and pushing riskier assets like the Australian Dollar back-down to the 0.7226 mark.
    US data this week: The week ahead presents the possibility that this variety of market activity will manifest, even if only in brief patches, once again this week. As alluded to, economic data and event risk is much lighter, however some key releases of relevance to Fed policy leap from the calendar. Most significantly, US CPI data will be published on Thursday early morning (AEDT), prefacing a speech to be delivered by US Federal Reserve Chairperson Jerome Powell hours later, along with US Retail Sales figures the day after that. Inflation risk has entered the equation in a real way for market participants for the first time in years. While the US data releases this week could print and pass-by with very little reaction, considering the nervousness in financial markets at present, an awareness and preparation for possible spikes in volatility may be prudent.
    Europe: The end to Wall Street's week followed on from declines in European indices, which fell predominately for the same reasons as their US counterparts. The start of the week will be no less un-friendly than end of the last for European markets, after news, post the trading week's close, that UK Prime Minister Theresa May's latest Brexit proposal has been slapped down once again by the European Union – prompting (allegedly) that four more members of Prime Minister May's cabinet will soon resign. The developments open further downside in the EUR and GBP, which had already plunged further into the 1.13 and 1.29 handle even before this information was known.
    Oil: Arguably the most significant and news worthy price action occurred in oil markets towards the end of trade last week, as fears around slower global growth coupled with growing concerns of a supply glut pushed the price of WTI to $60.00 and the price of Brent Crude to $70.00. The tenth successive day of falls in the price of oil mark the longest daily losing streak for the black stuff in history, leading OPEC+ to call fall production cuts within oil producing countries. The situation could prove a political hot topic in the months to come: Western leaders (particularly US President Donald Trump) have maintained their vocal desire for lower prices, while the members of OPEC continue to struggle to organise a coherent view of what oil output ought to be given the current global economic and geopolitical back drop.

    ASX200: SPI futures are at time of writing indicating the ASX200 will recede further from the key 5930 support/resistance level and dip 37 points at today's open. This comes following a thin day's trade for the Australian market on Friday, which saw the ASX200 close 0.5 per cent lower on volumes once again below the 100-day average. Trade across the Asian region didn't deliver much for the Bulls: a weaker Yen failed to translate into gains for the Nikkei, dropping over 1 per cent instead; and Chinese indices dropped by nearly one-and-a-half per cent, and the Yuan slid through 6.95 on occasions, due to reduced optimism about a trade deal eventuating between the US and China.
    The ASX200 heavyweights appear set to face familiar headwinds today: auction clearance rates were again poor over the weekend, adding to fears about the potential effect the property market slowdown will have on the big banks; sluggish activity in Chinese equities and industrial commodities markets in general have amplified fears regarding global growth and its impact on the materials sector; and a lull in risk appetite has stifled the enthusiasm for growth stocks, diminishing the attractiveness of the local health care darlings. These separate narratives aren't new to market participants, and as always could quickly flip based on the vagaries of the market; but nevertheless, it appears they are for now enough to put the ASX200 on the back foot to start the week.

  25. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 12 Nov 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 
     

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends this week
    Index Bloomberg Code Effective Date Summary Dividend Amount RTY GRC US 14/11/2018 Special Div 200 RTY TSBK US 15/11/2018 Special Div 10 RTY CFFN US 15/11/2018 Special Div 39 RTY RILY US 15/11/2018 Special Div 8 RTY CNS US 16/11/2018 Special Div 250 RTY SBSI US 20/11/2018 Special Div 2 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.
     

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