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MaxIG

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  1. MaxIG

    APAC brief 19 Mar

    By MaxIG,

    Markets trade thin ahead of central bank risks: It’s said that money makes the world go around. And given central bankers control the money of the world, it is they who decide when the turning starts and stops. Described this way, central bankers role in the economy sounds Bond-villain-esque. That’s entirely unfair of course – only fringe-dwellers would suggest they are so malevolent. But recent history, based on experiential evidence, suggests that when it comes to financial markets, the actions of central bankers take primacy over all other considerations. This phenomenon must be a transient thing – a part of some other historical process. All high priests eventually lose their power. For now, though, it feels the age of the central-banker has reached its epoch, with markets dutifully obeying their rule.
    Markets pace the margins: The reason for the foregoing expatiation is that financial markets, owing to a dearth of economic and corporate data, have traded quietly in anticipation of several key central bank meetings this week. Naturally, the biggest of them all is Thursday morning’s US Federal Reserve meeting. In preparation for the event, traders are pacing the markets’ fringes. Risk appetite on Wall Street is still rather well supported. Volumes are below average but having broken key-resistance at 2815 on Friday, the clearing of that technical level has invited in some buyers. Rates markets are largely unchanged, although US bond yields have ticked slightly higher across the board, while the US Dollar is relatively steady, albeit well off its recent highs.
    RBA-Minutes released today: An expounding of the internal dynamics of US financial markets ahead of this week’s US Fed meeting is for another day. For the moment, it’s simply handy to know that it’s market participants’ major mental block. Localizing the focus, Australian traders and market-watchers are preparing for their own dose of central bank news. This afternoon welcomes the release of the RBA’s Monetary Policy Minutes for its March meeting. Few surprises are expected out of today’s release, it must be stated (what’s new when it comes to the RBA?) The market impact, consequently, may prove negligible, aside from a move of a few pips here and there on the Aussie-Dollar crosses, and maybe a shift in the yield of ACGBs.
    Themes to watch from the RBA: Nevertheless, for econo-watchers, some familiar themes will be searched-for as today’s minutes are perused. Probably given we are coming up to an election, several economic pressure points have become of greater relevance. House prices are the perennial favourite, especially as it relates to their fall and the so-called “wealth effect” on consumer behaviour. The other to watch-out for pertains to the latest political hot-topic: wages growth. Namely: when (and perhaps, more appropriately, if) adequate growth in wages will materialize. The final key theme to which analysts will be centring their attention on is the labour market outlook, considering a further tightening in it has become the RBA’s proposed panacea to the two other issues, and all their insidious knock-on effects.
    Negligible reaction to RBA Minutes is expected: Whatever the RBA's chosen tact in their minutes, it's probable that few answers will be handed from up high today. In an act of what might be considered economic blasphemy, markets participants have grown increasingly cynical of the RBA's outright, "neutral” stance on the Australian economy. Markets are still pricing in approximately 34 basis points of cuts from the RBA this year – with the first cut fully implied by August. Despite this, and although yields on Australian Dollar denominated assets are trending firmly lower, the local currency, courtesy of a lift in the price of key commodity exports, is trading resiliently, clinging onto the 0.7100 handle at present.

    Can commodity rallying prices save the day again? Ever the lucky country, policy makers and politicians alike will be praying this dynamic in the commodity complex lasts. Indirectly, the lift in Australia's terms of trade may be what drives the economy through its current "crosswinds” and keeps the RBA from having to cut interest rates in an already unstable and debt-laden environment. The simple logic is this: the greater tax revenues drawn from a lift in commodity prices will help build a war-chest for the Pollies to play-with, in a bid to win over the electorate with greater tax cuts and spending programs. Undoubtedly, this state of affairs comes with the risk of profligacy. Nonetheless, sensible, stimulatory policy could yet save the economy from the next recession.
    ASX searching for a lead to move higher: In the narrow context of today's trade, the ASX200 ought not be affected by this broader hope of future fiscal stimulus for the Australian economy. Wall Street has rallied into its close: the S&P500 has climbed 0.37 per cent for the session. SPI Futures have lifted by virtue of this, indicating a 20-point jump for the ASX200 this morning. That’s proven an unreliable indicator of late, however. For the last week has a rally in SPI futures contract translated into meaningful gains in the cash market. As alluded to Australian-macro currently is all about commodity prices. Materials stocks led the charge yesterday, and the same may go today, with iron ore prices in particular making a fresh run higher.

    Written by Kyle Rodda - IG Australia
     
  2. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 18 Mar 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends
    Index Bloomberg Code Effective Date Summary Dividend Amount UKX RBS LN 21/03/2019 Special Div 7.5 AS51 FLT AU 21/03/2019 Special Div 212.8571 HSI 27 HK 25/03/2019 Special Div 45 RTY JILL US 18/03/2019 Special Div 115 RTY WSBF US 20/03/2019 Special Div 50  
     
    As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
    How do dividend adjustments work? 
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 
     
  3. MaxIG
    A flowless rally: It’s being dubbed the “flowless rally”. Equities are ticking higher, but without the fundamental buying-support one might assume. This is especially so when considering the milestone achieved on Wall Street on Friday. Finally, the 2815 resistance level has tumbled, and the bulls have cautiously, quietly rejoiced. There are yellow flags popping up here and there, however, and that is making participants wary. It goes back to this “flowless rally” business: the latest leg of global stocks big recovery isn’t being supported by investor flows. In fact, investor flows look to have diminished somewhat. The reasoning behind this move is somewhat speculative. The impact of share buybacks is one popular argument. Whatever the cause, confidence isn’t accompanying this rally.

    Economic conditions deteriorating: Maybe market participants are still scorned from the market correction in 2018. A bitterness and cynicism stemming from that is understandable. Much of the frustration comes, it would seem, from a widespread recognition that this rally has come in the absence of solid fundamentals. On the contrary, if looking at the macro-outlook, there are more reasons to be bearish than bullish right now. Global growth is (almost) irrefutably slowing, and some of the geopolitical sore-points dictating sentiment, like Brexit and the US-China trade war, are showing little new signs of progress. A major factor keeping this rally alive in riskier assets, perhaps concerningly, is a little case of “fear of missing out”.
    Markets betting on policy support: Policy makers are igniting this behaviour: market participants are hoping-big that they can turn the economic ship around. Such policy intervention if for good cause, and with good intentions, of course: economic growth the world over is wheezing, and those whose job it is to address this affliction are experimenting with ways to cure it. The concern now relates to the unintended consequences, of course. Just on Friday, two more stories relating to stimulatory economic policy galvanized markets. The first came from the board of the Bank of Japan, who as expected downgraded their economic outlook and hinted at sustained monetary stimulus. The second came from Chinese Premier Li Keqiang, who announced more fiscal measures to tackle China’s economic slowdown.
    Premier Li stokes optimism: The latter of the two stories carried most weight. It betrays what financial markets’ biggest concern is now: the health of the Chinese (and therefore global) economy. The move into stocks and growth-tied markets on Friday was catalysed by Premier Li’s boldness, especially. In a bid to quell concern about a deterioration in China’s labour market, he stated the Communist Party leadership would look to lower the Reserve Ratio Requirement, cut taxes, and lower interest rates if necessary. Risk and growth assets across the region rallied on the news. The CSI300 added 1.26 per cent for the day and the Australian Dollar climbed back towards the 0.7100 handle – the latter despite little move in yield spreads.
    The more accurate indicators: Although there were signs of optimism in speculative assets because of the prospect of further stimulatory fiscal and financial conditions, better barometers of the growth outlook were unmoved. Bond yields generally fell, as traders continued to price in a world of lower growth and falling interest rates. The US 10 Year Treasury Note closed at 2.58 per cent over the weekend; and bets were increased that the US Fed, ECB and our own RBA would have to cut rates at some stage before the end of 2019. Granted, this dynamic has supported equites, and risk assets like corporate credit. However, if economic growth is to slow like expected, the question is: how long is it before slower growth manifests in the earnings outlook?
    Measures of fear stay subdued: Only the shiniest and clearest crystal ball can predict that one. Market participants may prove emboldened in the short term irrespective, as a hunt for yield, some technical drivers, and a touch of momentum spur the herd to push the market higher. Naturally, this comes with risk, although the areas one might expected to see hedging against this aren’t finding love either. Gold is up but remains closely wedded to the $US1300 pivot point. The US Dollar isn’t attracting safe haven flows in the short term, either. Perhaps most tellingly, the VIX has continued to creep lower, closing last week at 12.88; and poetically, finds itself at lows not registered since Jerome Powell’s notorious “a long way from neutral” speech.

    ASX200 to leap out of the gates: It hasn’t been the most reliable indicator of the intraday fortunes of the ASX200 of late, but the last traded price on the SPI futures contract is indicating a 35-point jump at the open today. A part of this ought to occur by virtue of a small bounce back following Friday’s index rebalancing, which saw heightened activity in heavily weighted stocks at Friday’s close. Last week for the ASX200, when contrasted with the world’s other major equity indices, was underwhelming. It was one of the few to close lower for the week. Wall Street traders are mumbling about the potential for US indices to clock new all-time highs currently. For us, the ASX200 is now 2.76 per from its decade-long high.
    Written by Kyle Rodda - IG Australia
  4. MaxIG
    Delaying the pain of uncertainty: The pain of uncertainty, when it comes to two of the world’s big macroeconomic issues, looks likely to persist for a little while yet. Two stories, to be elaborated on in a moment, defined market-headlines overnight: a meeting between US President Donald Trump and Chinese President Xi Jinping won’t happen until at least April; while the UK House of Commons has voted overwhelmingly to extend the Brexit-deadline, though with no clear path forward from here. The frustration is palpable, and its apparently resulted in a level of exhaustion for financial markets. After a bit of chop, Wall Street is trading in a cold-fashion, only slightly down for the day, handing the Asian region little inspiration for the day ahead.
    No march meeting between Trump and Xi: On the trade-war, market participants were a touch confused. No imminent meeting, as had been hoped, between the top-brass of the US and Chinese governments, has sapped confidence. But the conclusion reached, apparently, as the news has been digested through the North American session has been “well, what did we really expect?”. It’s been the problem with chasing sentiment lately when it comes to the trade-war. Tensions have clearly de-escalated, and markets have reflected that in pricing. However, no path has been put forward, no real solutions offered, and never, at any stage, have the deep structural concerns underpinning the US-China stand-off – which may well persist for years – been adequately addressed.
    Anything to relieve the pressure: It’s been one of those “lipstick on a dead-pig” situations: the conflict is quite fundamentally intractable. But that’s been well understood, and it would be wrong to say markets don’t realize that. All market participants are looking for is a superficial solution that will release the pressure valve a little and ensure that things don’t get worse – a loosening of the shackles, if you will. It pertains mostly to Chinese economic growth, this desire, and it was reaffirmed yesterday. The Middle Kingdom, already mired in its own structural and cyclical issues, is still showing signs of an economic slowdown. The economic data dump yesterday, though not a categorical disaster, revealed an economy suffering from diminishing activity.
    The latest Brexit can-kicking exercise: So not to become too preoccupied the trade-war: the other big case of can-kicking transpired in the Brexit debacle last night. In round three-of-three of this week’s Brexit-battle in the UK House of Commons, UK MPs voted overwhelmingly to extend the March 29 Brexit-deadline. Coming into this week, this was the expected, and perhaps hoped-for, outcome from market participants. Judging by market activity, the formal approval of a Brexit-delay hasn’t diminished totally the risks Brexit presents to financial markets. A no-deal hasn’t been taken off the table entirely, and a path forward for Brexit hasn’t been outlined, let alone agreed to. It’s a prolonging of uncertainty and chaos: the Pound’s pullback today from its weekly highs tells us so.
    An unremarkable, and unreliable lead: Out of last night's trade, the ASX200, just like markets at large, will be grasping for a lead. This goes equally for the bears as it does the bulls -- right now, there's just as little reason to sell as there is to buy. Wall Street's stall below 2815 again demonstrates this overriding attitude: with what we know, maybe stocks are just where they ought to be. SPI Futures suggest that the ASX200 will jump 10 points or so at the open, though given the split in behaviour between Asian and North American traders this week, maybe this isn't a strong indicator of the morning's sentiment. As such, absent a lead, the interest could be in some major risks coming-up, instead.

    Are we turning Japanese? There's plenty on the calendar in the next 7 days. The Asian session will concern itself primarily with the Bank of Japan meeting today. No surprises: little policy change is expected from the meeting. A theme in markets across the globe recently has been a pivot by central bankers to dovish biases, if not downgrades to their economic outlook. By some, it's being said that developed markets are "turning Japanese". That is: a looming global growth slow down means Western monetary policy will resemble that of the ultra-interventionist, negative rate inducing BOJ. Through this lens, the BOJ meeting will be viewed today: what can they tell us about how the world's other major central banks will adjust policy in the future?

    Next week’s pressure-points: We may not have to wait too long to gather hints. Next week is big, and centres around several central bank related events. At home, the RBA's Minutes are released. The Bank of England, still in the shadows of Brexit, will also meet. But, as it always is, the major event will be the US Federal Reserve’s meeting, at which the Fed will keep rates on hold. Overlaying this, several European PMI figures, a swathe of UK data, and local employment figures are released. It will be a week that offers to break markets’ current holding pattern and address its long-existing fundamental dyad: the interplay between international financial conditions, and the global economic outlook.
  5. MaxIG

    APAC brief 14 Mar

    By MaxIG,

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

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

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

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

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

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

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

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
     
    Index Bloomberg Code Effective Date Summary Dividend Amount RTY BTU US 11/03/2019 Special Div 185 RTY FFG US 14/03/2019 Special Div 150 RTY CWH US 14/03/2019 Special Div 7.32 RTY GSHD US 15/03/2019 Special Div 41 RTY JILL US 18/03/2019 Special Div 115 As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
    How do dividend adjustments work? 
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 
     
  9. MaxIG
    US NFPs: The final bastion of global economic growth is showing cracks in it walls. Arguably last week’s key-release, US Non-Farm Payrolls disappointed market participants over the weekend, printing well below expectations. It wasn’t a clear-cut, poor print. The unemployment rate dropped to 3.8 per cent and wage-growth climbed to 3.4 per cent. The shocker was the headline number: forecast to reveal a jobs-gain of 180,000, the US economy only added 20,000 last month. It’s given rise to concerns that, given how low the unemployment rate is in the US, and that wages are finally picking-up, the long-thriving US labour market has finally reached full capacity for this economic cycle.
    US stocks fall, but losses were limited: That would be bad news for the US and global economy. Despite this gloomy picture painted by NFPs, and an initial knee-**** reaction, traders sought to see through the data. It was a bad day, ending a bad week, for risk assets on Friday – that’s no question. But given that the weak US jobs figures punctuated a series of weak global economic data, which solidified the fear the global economy is sharply slowing, the reaction in markets was fairly contained. Global stocks certainly put in their worst weekly performance for the year. However, Wall Street’s daily losses were contained to a relatively modest 0.21 per cent, if judged by the S&P500’s performance on Friday.
    Central banks to the rescue? Could traders be betting that central bankers, in the event of a marked slow-down, will come valiantly to save markets from any economic malaise? Quite possibly. Interwoven between underwhelming economic data out of Asia, Europe and North America have been speeches and meetings from the world’s most powerful central bankers urging calm. Even more importantly, at least as it applies to market participants, central bankers have worked hard to deliver assurances that they’ll deliver policy support, if necessary, to curb any economic slow-down. Market pricing has reacted accordingly: global bond markets continue to rally, as traders price in that the next move from likes of the ECB, Fed and PBOC will be to ease policy.
    Interest rate markets: The most noteworthy move in the implied probability of rate cuts has been in US interest rate markets. Following Friday’s disappointing US Non-Farm Payrolls release, bets of a cut from the Fed before the end of 2019 leapt from practically zero, to about 20 per cent. US Treasury yields tumbled consequently, taking the US 10 Year note to 2.62 per cent and US 2 Year note to 2.46 per cent, -- taking yields on European and Asian bonds with it. Gold rallied back to just shy of $US1300 on this basis, and growth-sensitive commodities like oil, copper and iron ore tumbled. Credit spreads also expanded, with junk bond spreads touching levels not registered since the start of February.

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

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

     
    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
     
    Special dividends this week
    UKX RIO LN 7/03/2019 Special Div 183.55 AS51 QUB AU 6/03/2019 Special Div 1.4286 AS51 RIO AU 7/03/2019 Special Div 483.8571 AS51 S32 AU 7/03/2019 Special Div 2.4286 RTY NHTC US 4/03/2019 Special Div 8 RTY BTU US 11/03/2019 Special Div 185
    As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
    How do dividend adjustments work? 
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 
  11. MaxIG
    Australian data draws global interest: Australia’s remarkably weak growth figures captured attention, both locally and abroad. The numbers conveyed in yesterday’s GDP were truly disappointing. Growth in the final quarter of 2018 was a paltry 0.2 per cent, and after another set of revisions to previous data, the annualized growth rate fell to 2.3 per cent. Each figure was quite an undershoot of expectations: for one, economists were expecting the quarterly number to come-in-at 0.3 per cent in seasonally adjusted terms. Now, on the face of it, this may not seem too bad. However, this estimate had been revised down several times in the week preceding yesterday’s GDP release, from around 0.6 per cent, in response to other underwhelming Australian economic data.
    RBA’s dissolving logic: As it stands, the picture the GDP print painted of the Australian economy blows the RBA’s base case out of the water. Recently, the RBA had become candid in its assessment of the (let’s say) “crosswinds” in the domestic economy. So cognizant of the risks, they’d adopted a “neutral” stance to monetary policy moving forward into 2019. But still, their optimism remained: growth would remain strong enough to lead to an even tighter labour market, which would eventually feed into a pick-up in wages growth, and subsequently the inflation and consumption growth long-missing in the Australian economy. It was this view that fundamentally created the bedrock for the RBA’s policy bias and supported their hope for improved local economic conditions.
    A further slowdown expected: It’s seems impossible that the RBA could maintain this base case anymore. Simply put: a growth rate where it is now cannot sustain the necessary tightening of the labour market to put the aforementioned process into motion. Historically, GDP has had to grow at a rate at least above 2.5 per cent to see adequate growth in employment. A growth-rate below this market has traditionally led to an increase in the unemployment rate – a phenomenon that, given we are (arguably) at nominally full-employment now, may well manifest quickly in future labour market data. With that credible assumption made, the elusive growth in wages is terribly unlikely to materialize, meaning the Australian economy is unlikely to meet the RBA’s expectations.

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

    Wall Street struggles: For the day ahead, SPI Futures are currently indicating an 8-point jump at the open for the ASX200. If realized, it’ll be no thanks to the lead Wall Street is likely to hand us. With less than hour to go in trade, the S&P500 has pulled further away from its formidable resistance level at 2815, to be trading 0.5 per cent lower on the session. Momentum is building to the downside for US equities still: the MACD and RSI are both pointing to a market that’s lost its drive. Also, of slight concern is breadth and conviction of Wall Street’s overnight falls. Volumes are above average, while only 20 per cent of stocks are higher for the session.
    The currency complex: The anti-risk, anti-growth bent to trade overnight has brought out some of the typical doomsayers. The result has been a modest lift to the US Dollar, and at that, the Japanese Yen, while gold keeps grinding lower. Across the currency complex, commodity currencies have been the worst performing. The AUD, for the reasons earlier described; but also, the Kiwi and CAD, too – the latter in part due to a dovish Bank of Canada last night, and a dip in oil prices. The Euro is steady as it treads water ahead of tonight’s ECB meeting, at which that central bank is expected to cut its growth outlook. The Pound is ambling as further Brexit developments are awaited.
    Written by Kyle Rodda - IG Australia
  12. MaxIG
    American stocks fall: Wall Street looks poised to register its worst daily performance since the start of the year. The technical action was sweet: another early challenge of 2815 – the price ran slightly above that – before the bears swooned, and traders “pulled the trigger”. It’s been a day of selling since, with the S&P500 down 0.6 - 0.8 per cent, at time of writing. It’s nothing to be too concerned about, of course. This is nothing like the behaviour witness at the end of last year. It’s just that the price action has the commentariat ready to call the long-awaited reversal in US, and global equities. The closing price will be crucial today, but a bearish engulfing candle already signals looming weakness.
    Bulls fail to break technical resistance: It’s the considerable lack of upside momentum, coupled with the breadth of the sell-off, that is noteworthy. After all, again, the S&P500 is only down 0.6 per cent on the day. The RSI is pointing its head downwards, though, clearly breaking with its recent upward trend. Intraday breadth is very poor: only around 20 per cent of stocks are higher for the session, and every sector is presently in the red. Right now, the triple top at 2815 – the formidable level that saw the bulls bail-out on as many occasions in Q4 2018 – has proven its might. The discourse might once again shift from here to where the next low could be registered.

    Asian and Europe market activity was solid: The activity in US markets comes at the end of 24 hours that was rather friendly to Asian and European equities. Volume was low in European trade – a touch of Mondayitis perhaps. But Chinese and Hong Kong traders were voracious: volumes were 216 per cent higher than the 100-day average in China’s equity markets. Traders in Japan and here in Australia were more settled. However, the appetite for risk was still present: the Nikkei was up over 1 per cent on the day; and though the ASX200 failed to hold its break above 6230 resistance, a 0.40 percent gain for Australian stocks amounted to a respectable session for the bulls.
    Possible trade-war resolution stoked sentiment: As would be well known to anyone in markets, the logic for yesterday’s upside in Asia and Europe was that a true resolution in the US-China trade-war is upon us. The news broke before Australian market-open, and the positivity carried through the day. As alluded to, the ASX200 fed on the sentiment, clocked most its gains in early trade, before admittedly grinding lower throughout the day. Some of the cyclical sectors, along with growth stocks led the intraday leaders in nominal terms. Consumer discretionary, materials and industrials stocks were all up, while the information technology sector, as well as the biotechnology stocks in the healthcare sector, also put-in significant rallies.
    ASX to follow Wall Street’s lead: Alas, with Wall Street’s bearish day, the ASX200 looks poised to adopt the negative sentiment. According to SPI Futures, the index ought to fall approximately 40 points at this morning’s open. The ASX200 is flashing its own signals that momentum is slowing, brandishing a break in its RSI. But up until yesterday, the bulls were dogged in their conviction to keep the market above the trendline established from the Christmas Eve low. A technical “golden cross”, whereby the index’s 50-day EMA crosses above its 200-day EMA, transpired out of yesterday’s trade – generally considered a good indication of the prevailing bullishness, and therefore further upside, in the market into the medium term.

    Australian economic to grab attention: Nevertheless, many of the buy signals may well break down this morning, as traders mull the prospect of a general, short-term retracement in global equities. The next level to watch for the AX200 might be previous resistance at 6105. Although this will be a curious narrative to watch unfold, from a local perspective, and maybe just for the next day or two, the news flow might be more preoccupied with matters relating to core-macroeconomic concerns in Australia. Backing on from yesterday’s mixed Building Approvals and historically weak Corporate Profits data, today will see the release of local Current Account figures, before attention turns to the RBA’s monthly meeting this afternoon.
    The RBA and the range-trading AUD: It’s well known that the RBA will not move interest rates today. Instead, as storm clouds build on the Australian economic horizon, traders will be surveying the bank’s commentary, especially as it relates to their recent adoption of a “neutral” bias. The market presently thinks that the probability of a rate cut from the RBA before the end of the year is around 80 per cent. The concerns centre on the dimming global economic outlook, coupled with the growing pressure falling property prices will have on already strained domestic demand. The Australian Dollar has proven resilient recently and will come in focus today around the RBA release: analyst’s will continue to watch the 0.7050 – 0.7200 range moving forward.
    Written by Kyle Rodda - IG Australia
     
  13. MaxIG
    Around the globe, geopolitics dominates: Political spot fires have captured the attention of market participants. From Washington, to Hanoi, to Kashmir, to Caracas, to London: the ugly machinations of power have dominated the headlines. Only, despite fleeting action, the impact to market activity has seemingly been muted. A facile logic might suggest that it is because of the geopolitical uncertainty in the world that markets have traded so dull overnight. It would be too long a bow to draw, though: tremors can be seen in prices, but a global earthquake can’t be found. Not to diminish the events turning the world in the last 24-hours: they go well beyond the importance of markets. It’s simply just developed markets haven’t responded terribly much to them.

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

    Australia: While inevitably influenced by Wall Street’s limp-lead, and the political ructions evolving across the planet, SPI Futures are indicating an Australian share market that is marching to its own beat once more. On that contract: the ASX200 ought to open roughly 9 points higher this morning, perhaps due to the jump in oil and a leg-up in iron ore prices. The day’s trade might find itself focused on the macro-outlook for the Australian economy, and the reactions in ACGBs, the AUD and pricing for RBA rate cuts: local Capex figures will be delivered at 11:30AM this morning – and are taking on greater significance after yesterday’s Construction numbers greatly missed economist consensus forecasts.
    Written by Kyle Rodda - IG Australia
  14. MaxIG
    Are things not so bad after all? It appears there’s emerged a self-reinforcing belief that economic fundamentals aren’t as bad as once thought. There’s not a simple binary that can be reduce out of this – a clear “risk-off” or “risk-on” signal. It’s clear there remains a general sense that the global economy is entering a soft-patch. But in that, is the key: slower growth is taken as granted, however the extent of such a slowdown is ostensibly being revised. There isn’t quite (just for the moment) the same level of catastrophism filling the news wires in financial markets right now. It raises the question whether the fundamentals have changed at all, or whether its actually market participants’ perception of the fundamentals that’s changed.
    Improved perceptions towards fundamentals: An answer to that one is very difficult to grasp just looking at the price-action. To rattle-off one of the stalest of undergraduate clichés: perception is reality. In the case of traders, the rosier perception of economic fundamentals has inspired the emergence of a virtuous cycle in financial market bullishness. Very often, a break from fundamentals, and a movement towards some imagined state of affairs, gives birth to a sufficient enough divergence between sentiment and hard-data that a relatively small catalyst can spark a jolting correction in market-pricing. That may well be the situation market participants are operating. A blithe optimism or not, some key markets are approaching now key inflection points.
    The will to end the trade-war: The big stories that are making this dynamic possible can still be rooted in a dovish US Federal Reserve (and dovish central banks across the world, at that) and a compounding hope that global trade skirmishes are reaching a resolution. Sharing that hope, or maybe trying to fan it, US President Trump is demanding freer trade. Tweeting on the weekend, Trump claimed to have “asked China to immediately remove all Tariffs on our agricultural products… based on the fact that we are moving along nicely with Trade discussions”. Such a statement is to be expected and will be of negligible consequence in the short term. The demand is indicative of where markets see the trade dispute: political will shall drive a breakthrough.

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

    ASX to follow the US lead: For the first time in several sessions, the ASX200 appears poised to follow the US lead this morning. The last traded price on the SPI Futures contract is indicating an 18 point jump this morning, on top of Friday’s closing price of 6192. The market experienced robust trade on Friday, despite soft (but above forecast) Caixin PMI numbers, and CoreLogic data that showed another monthly fall in domestic property prices. In fact: the latter, and its implications for monetary policy, was apparently seen as supportive of Real Estate stocks, which rallied 2.22 per cent on 95 per cent breadth. As far as milestones go, the ASX200 will eye 6230 resistance, ahead of what is a jam-packed week for Australian markets.
    Written by Kyle Rodda - IG Australia
     
  15. MaxIG
    “A tale of two cities”: As far as Australian markets go, they’ll be defined, broadly-speaking, by the unfolding “tale of two cities” story in global markets. That is: the renewed optimism about the US growth outlook, versus the deterioration in global economic prospects, led by the slowdown in China’s economy. The Australian economy is heavily geared to the latter, so the hunch is our fortunes will be more greatly impacted by that variable. But it won’t be clear cut, and that’s where the uncertainty and opportunity may emerge. The last 24 hours of trade presented a series of curious themes for market participants, with the subsequent price action patchy. What transpired did shift the narrative somewhat, setting the foundations for an interesting week next week.
    Chinese (and global) growth: First, the darker side of (the all too crude) binary: a view on what’s happening in China and the world ex-American economy. The Asian session yesterday was preoccupied first by political theatrics, then macroeconomic information. The Cohen testimony gripped attention, however proved more a distraction as far as traders’ were concerned. The falling apart of the Trump-Kim talks in Hanoi disturbed markets, mostly in North-East Asian markets, such as the KOSPI, before the conclusion was drawn that a grand-peace pact between the US and North Korea was an absurd fantasy to begin with. The true focus was on China’s PMI numbers during our Asian trade – and how, once more, very disappointing they were.
    Chinese markets’ bullishness: China’s equities betray a market that sees hope in the Chinese economy. Even despite a slight pullback this week, the CSI300 is still up nearly 21 per cent year-to-date. The data market-participants are getting doesn’t yet support this behaviour, though. Yesterday’s official PMI numbers revealed a manufacturing sector still in contraction by that measure, and a services sector that is softening progressively. It’s probably a combination of the PBOC’s extreme stimulus measures, designed to pump liquidity into the Chinese financial system and boost the supply of credit, plus favourable trade-war developments, that is supporting Chinese equity indices. Both are sentiment boosters, sure. But the market, in the long term, will need more than that to sustain this run higher.

    Are commodities leading the way? To play a bit of ****’s advocate: some (arguably contrarian) punters are suggesting that current market consensus is all wrong. The growth outlook, while not as bright as the end of 2017 and start of 2018, is still reasonably solid. Just look at commodities: copper is leading the way, having broken its recent range to the upside, and now looks poised for a further run. And the gold-silver ratio – a rough but handy barometer of risk-aversion against the growth outlook – is registering an 84 reading. By historical standards, this is high, and may indicate that after all this talk of bear markets, and a synchronized global growth slowdown, the global economy still has some juice left in it yet.
    US growth: The other, slightly less ambiguous side, of the “tale of two cities” binary is the US growth story. It was on shaky ground in January and Early February, however last night’s US GDP reading went some way to re-ignite hopes the US economy remains on sound footing, for now. The headline figure exceeded expectations considerably, printing at 2.6 per cent versus a forecast 2.2 per cent, on a quarterly basis. Though it hasn’t manifest in equity markets – all too often good macroeconomic news is seen as bad for risk assets because of its implications for interest rates – US Treasury yields lifted markedly, as interest rate traders rapidly unwound their bets on a Fed rate cut this year.
    The US Dollar: Of course, the higher yield dynamic for US denominated assets has generally lifted the US Dollar. As it pertains to the Australian Dollar, the yield spread between 2-Year US Treasuries and 2-Year ACGBs has expanded to 83 basis points, guiding the AUD/USD below 0.7100 once again. Also, a function of the US Dollar, gold prices have broken a short-term trend, suggesting its overdue pullback has arrived. In the medium to long term, a strong argument can be made that the trend lower in global yields and the voracious buying of gold by some of the world’s biggest central banks will underwrite gold strength. Here and now though, and gold looks poised for a brief and necessary wave lower.

    ASX200 waiting for a push: Forever one of the many layers of meat in the global economic sandwich, the ASX200 will take the themes twisting markets, and translate them, according to SPI Futures, into a 7-point gain at today’s open. If Wall Street’s lead were to be followed, an indecisive and uninspiring day might be on the cards for the ASX. Following yesterday’s solid CAPEX numbers, domestic growth is less a concern; and market internals suggest that that although this rally is long in the tooth, there’s the technical capacity to run higher. But with reporting season ending now, a macro-catalyst may be required to spark the next run higher for the ASX200: earning’s growth will likely come-in flat YOY, dampening the market’s crucial fundamentals.
    Written by Kyle Rodda - IG Australia
  16. MaxIG
    Wall Street trade: Rolling into Wall Street’s close and the S&P500 is battling it out with the 2800-mark. There’s two hours to go in trade as this is being written, and the crucial last half-hour of trade is what analysts will be breaking down today. It’s been for all intents and purposes a flat day for US stocks, but another bout of selling into the close will add credence to the idea that the buyers are thin at these levels. Market internals don’t appear too stretched for the S&P, and it is being said that there still exists plenty of cash on the sidelines. Weaker volumes and underwhelming intraday breadth suggest the bull’s enthusiasm has waned somewhat for the short-term.

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

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

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

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

  18. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 25 Feb 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends this week
    NKY 9602 JP 26/02/2019 Special Div 1000 AS51 WES AU 26/02/2019 Special Div 142.8571 AS51 TSL AU 27/02/2019 Special Div 4.2857 AS51 FMG AU 28/02/2019 Special Div 15.7143 RTY NPK US 28/02/2019 Special Div 500 RTY ULS US 1/03/2019 Special Div 11 RTY NHTC US 4/03/2019 Special Div 8 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. 
     
  19. MaxIG
    Stocks finish week on solid footing: Global equities finished last week on a solid footing. Across Asia, Europe and North America, the major share indices closed both Friday and the week in the green – the only notable exception being the FTSE100, which has dipped (typically) because of a stronger Sterling. The solid run into the week’s close came courtesy of more friendly-trade-war headlines, suggesting that significant progress is being made in US-China trade negotiations. A bit of headline jumping, sure. But these headlines were a little brighter than what has been received of late. In short: a final agreement on currency manipulation has been reached, an extension of the trade war truce is likely, and a trade-deal is more likely happening than not.

    Risk appetite piqued: This is all according to US President Trump, so the gut says it be taken with a pinch of salt. Equity traders heard enough, however, driving the rally in global stocks. Chinese equities led the gains on both the daily and weekly charts: the CSI300 was up 2.25 per cent on Friday and 5.43 per cent for the week. Growth currencies also rallied into the week’s close. The AUD has climbed back to 0.7129, the NZD is fetching 0.6844, and the CAD (supported by higher oil prices) has broken above 0.7600 once more. Most promisingly of all is price action in commodities. The Bloomberg Commodity Index is at a YTD high, led by a break higher in copper prices.
    Venezuela and oil: In commodity-land, arguably as it always is, oil is hogging the conversation. News in the last fortnight that the Saudis intend to deepen production cuts has formed the fundamental basis of oil’s rally. The short-term factors though pertain to the humanitarian crisis unfolding in Venezuela. The (possible) impending civil war aside, the prospect of social and economic chaos in Venezuela has lifted the price of WTI to levels not registered since November last year. Furthermore, the spread between the active WTI and Brent Crude contracts is expanding – to levels not seen since September 2018. It gives the sense oil is on the cusp of a true break-out – and putting behind it the collapse it experienced in 2018.
    Oil’s omnipresence: The importance of oil in the context of fundamental economic strength, along with financial market activity ought not to be understated. One of the key drivers of Wall Street’s major correction in Q4 2018, as well as the US Fed’s adoption of a dovish stance to interest rates, was the collapse of oil prices. Some of the junkiest of US junk-bonds are held by highly leveraged shale-oil firms, meaning the collapse in oil prices last year greatly increased credit-risk in US markets – dragging down equity prices with it. Furthermore, the fall in energy prices dragged diminished inflation expectations, inhibiting the US Fed’s ability to reach its mandated inflation target of 2 per cent subsequently.

    The financial markets’ contradiction: While it has to be said it isn’t the most important variable in financial market activity more-often-than-not, a constant awareness of oil prices is valuable. The two-top themes that are of greatest concern to market participants is the interplay between Fed policy and the growth outlook. If one digs down here, there is a contradiction presently between both narratives, which opens the possibility for volatility somewhere down the line. The Fed has definitely given the greenlight to be bullish, and chase yield in risk-assets. This is what’s propping-up US stocks. The dilemma is, though, earnings growth is deteriorating along with the global growth outlook – a trend that could strip most-incentives to pile into stocks any further.
    The rates and earnings balancing act: The fact is the S&P500 has never posted a positive year when annualized earnings growth has contracted. The US reporting season is coming close to being done-and-dusted, and on a quarterly basis, earnings contracted on an annualized basis (in aggregate) across Wall Street equities. Forward earnings estimates still have US stocks experiencing respectable growth in the year ahead, however there has been a recent trend of downgrades in this metric. Expectations are that the Fed will stay steady this year, before cutting interest rates in 2020 or so, which will support stocks. The basis of future gains will be striking the right balance between sustaining positive earnings and experiencing interest rate setting that keep financial conditions supported.
    The ASX to follow Wall Street: Either variable could turn on a coin, but this is being read as a low probability at the moment. The S&P500 looks quite adamant it wants to challenge 2815, at which that index failed on several occasions to break through late last year. Although more sensitive to the global growth narrative, the ASX200 is taking its lead from Wall Street, and eyes its own milestone of breaking September’s closing price at 6230. Rallying commodity prices will underpin the ASX200’s strength, as will the tumble in bond yields, which are still adjusting to the prospect of rate cuts from the RBA. Just in the day ahead, SPI Futures are indicating an 8-point jump for the index at today’s open.

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

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

    Global growth outlook dims further: At the risk of flying off into paradigm after paradigm: a health check on economic data from the past 24 hours is in order. A mixed bag of data pertaining to global economic growth shaped the "global growth narrative" last night. It was a big PMI day in Europe and Asia, and while there weren't as many shockers, the numbers showed a greyer outlook for the global economy. Japanese Manufacturing PMI deeply contracted once more, Australian PMI figures dipped, while European numbers were relatively better, however did little to ameliorate the concern that European growth is sliding. It was a notion backed-up by last night's ECB minutes: policy makers can see what's happening to growth, and now future monetary policy is on notice.
    Australia's wise-old uncle calls RBA cuts: Centring on the Australian experience, and a headline grabber yesterday was the Australian Dollar's wild ride. Labour market figures popped a rocket under the Aussie in early trade, after it was revealed that the local economy added 39k jobs last month - enough to keep the unemployment rate at 5 per cent despite, despite a climb in the participation rate. It all came undone for the currency quite quickly, however, after Australia's wise-old-uncle on RBA policy, Bill Evans, announced his view that a forecast fall in domestic GDP to 2.2 per cent and a subsequent rise in the unemployment rate to 5.5 per cent would prompt to RBA to cut rates to 1.0 per cent this year.
    ASX to open soft: To add insult to injury, the AUD/USD was slapped down below 0.7100, after China announced a ban on Australian coal imports. This story aside, which dropped after the ASX200's close, the fall in the currency, and the fall in Australian Commonwealth Government bond yields, proved a positive for the ASX200. It closed   0.7 per cent higher for the session at 6139, and now eyes the next resistance level around 6160. The developments regarding the ban on Australian coal going into China, concerns about Australian fundamentals, and a bit of selling into the close on Wall Street should drag on stocks today. SPI futures indicating a 4 point drop for the ASX200 this morning.
    Written by Kyle Rodda - IG Australia
  21. MaxIG
    News flow light thanks to US holiday: SPI Futures are indicating a flat start for the ASX200 this morning, in a 24-hours starved of meaningful news and data. US markets were closed for the Presidents’ Day holiday, meaning a crucial source of information was absent from the news flow. It was perhaps a positive thing for market-bulls: the vacuum left by US markets allowed for Asian and Europe equity indices to seize the improved sentiment flowing from Wall Street on Friday, following further progress in US-Sino trade negotiations. Commodities continued to climb, to multi-month highs according to the Bloomberg Commodity Index, led by a push higher in oil prices, as well as a renewed rally in gold, which edged to around $US1326 courtesy of a weaker US Dollar.
    Australian markets in focus: The Asian session will similarly quiet today, before markets return to normal transmission this evening. Arguably, it’ll be a day with attention directed to developments in Australian markets: the key data releases pertain to the RBA and its Monetary Policy Minutes, and ASX heavy-weight BHP, which reports its earnings today. Both the Australian Dollar and ASX200 will enjoy special focus this morning. The Aussie Dollar has pulled back below the 0.7150 handle after rallying beyond that mark on the back of trade-war optimism. The ASX200 will be more interesting for observers: having leapt from the gates yesterday morning to break above 6100 resistance, the index once again failed to prove its bullish mettle, closing trade yesterday at 6089.
    RBA Minutes headlines Asian trade: As alluded to, the highlight on the domestic calendar today, if not for the whole week, will be today’s release of the RBA’s Monetary Policy Minutes for their February meeting. In line with central bankers across the globe, the RBA has entered 2019 with a newly dovish approach to interest rates. Markets have thus far stood to attention: although leading the RBA (in some sense) in factoring the need for looser monetary policy conditions, the change in rhetoric from the RBA this year has further manifested in market pricing. Since the beginning of February, and certainly in the past week, interest rate markets have definitively shifted to pricing a rate cut as the most likely course for the RBA in 2019, over and above that of a “hike” or hold”.

    Slower growth: here and abroad: The variables conspiring to bring-about this dynamic are naturally complex, but can be distilled into a single, broad explanation: both the domestic and global economies are entering a period of slower economic growth. Australia’s symbiosis with China and its economy is never lost on market participants; and with the trade-war exacerbating what seems to be a deep, existing cyclical slow-down in China, Australia’s economy is one of the first to exhibit signs of pain. However, issues unique to the domestic economy remain: though showing tentative evidence of settling now, Australia’s falling property market is an issue of ongoing concern, as are issues of uncomfortably high private debt levels, low wages growth and its impact on inflation, and the generally sluggish state of the Australian consumer.
    The doomsayers argument: There will always be doomsayers in the world, so gloomy forecasts ought to be met with critical objectivity. It’s the way the RBA, however right or wrong they happen to be at any point in time, attempt to approach the world. Their “base-case” is very unlikely to be that the Australian economy is heading for some sort of catastrophic, recessionary set of circumstances. There are many in the punditry however, with cogent arguments as to why recession is a reasonable risk to consider. The position that the onerous burden of high household debt, in the face of tighter financial conditions, low wage growth and a “reverse wealth effect”, will accelerate the housing market’s collapse, and spark some housing-led recession is probably the most headline grabbing and generally evocative of these.
    All this talk of Australia’s ’08 moment: Such a set of circumstances, it’s envisaged, would be Australia’s dose of the GFC it never received in ’08, when a booming China protected the Australian economy from the many ills of that disaster. There is unconscious obsession – probably brought about by the trauma of the event – to contrast any market event with those of ’08. In 2019 Australia, the parallels intuitively exist: just like the US in ‘08, household debt is high, house prices are falling courtesy of the stifling of a hitherto speculative euphoria in the market, and consumers have fewer means to keep consuming or protect themselves from a period of economic malaise. The prospect of less favourable financial and economic conditions could be what it takes to turn a garden-variety economic slow-down into something more serious.
    Worst-case not the likely case; but still good to know: Once more: this crudely described series of events is what can be called, in financial market parlance, a “tail risk” – a low probability but very high impact event. It’s not what the RBA would be considering as their “base-case” for what lays ahead for the Australian economy in 2019; especially so, the doomsayers opinion won’t slip its way into today’s RBA minutes. Arguably, even it came close to becoming that way, at any stage, the PR-machine that is the RBA are unlikely to ever reveal, completely, a true pessimism about Australia’s economic health. Knowing the worst-case scenario market-participants is handy, though, if it can be done so objectively: it provides an intellectual tool to examine how close we are to coming to falling off the precipice we fear.        
    Written by Kyle Rodda - IG Australia
  22. MaxIG
    President’s Day: It’s Trump’s market – and we are all just trading in it. It’s perhaps for some – especially market-purists – the uncomfortable reality that, as far as short-term movements and sentiment goes, US President Trump and his policy making is the greatest determinant of the current macro-economic outlook. It cuts in both directions, and certainly the US President is just as prone to deflating the market as he is to inflate it. But almost by his own admission, Trump’s modus operandi is to implement policy and spout rhetoric that feeds the US equity market. For market bulls, there is the argument that this is a welcomed dynamic: we’ve seen the exercise of the Powell-put, and perhaps now traders are witnessing the execution of something resembling a Trump-put.

    Where does Trump want the market? The risk is that President Trump’s temperament and agenda can be difficult to gauge. He giveth to the market, and he taketh, depending on his personal, political priorities. For stages of his Presidency, Trump needn’t pay close attention to the US share market: he inherited improving economic conditions, then fuelled it with massive tax cuts, and stood back to observe the records falling in US stock indices. His hawkishness on international trade and bellicosity towards domestic political wrangling brought much of it undone, as the US President turned a cyclical slowdown in China into a possible trigger for recession in Asia and Europe. The global growth outlook is as downbeat as it has been in several years, and this has manifested in market-pricing.
    Global growth and the trade war: Now of course, President Trump’s policy making isn’t the major – let alone only – dictating market activity and financial market strength. In terms of macroeconomics, the actions of the Fed have proven to be market participant’s primary concern. What makes the US President’s actions relevant to the here-and-now – at the critical juncture that markets are situated within presently – is with the US Federal Reserve succumbing to market pressure and flagging steady interest rates for the foreseeable future, trader attention is fixed on the global growth story. And it would seem that considering this, the primary driver of the global growth outlook is the US-China trade war: the outcome of which will be mostly determined by the stance US President Trump chooses to adopt towards the conflict.
    Markets still jumping at headlines: The gap between the “knowns” regarding current economic conditions and the trade-war, and the “unknowns” regarding how the US President intends to approach these matters, is creating the vacuum of uncertainty that market participants are yearning to fill. As such, headlines are being jumped-at whenever news suggests there’s been a major development in negotiations between the US and China. Traders are less sensitive than they were to stories of trade-war progress, with every headline apparently yielding a diminished return. Nevertheless, if a significant enough story flashes across trader terminals, it apparently still warrants the release of risk-on sentiment. This phenomenon proved true again on Friday, as news that the US and China has agreed in principle on the main topics of trade negotiations moving forward.
    Risk appetite piqued as fear falls: The prevailing view is that, at the very least, an extension of the March 1 trade-negotiation deadline will be implemented. Although arguably amounting to little more than a prolonging of tension and uncertainty, market activity is suggesting market participants are welcoming the modest change in circumstances. Despite looking long in the tooth, the US equity market rally continues, dragging stocks in Europe and Asia largely with it. Bond markets have been steady, however “growth” currencies like the AUD, NZD and CAD have received a boost, at the expense of the US Dollar and Yen. Commodities have generally rallied, while the VIX and High-Yield credit spreads have fallen to levels not seen since shortly after US Federal Reserve Chairperson Jerome Powell’s infamous “a long way from neutral” statement in early-October.

    Where else but America: The general curiosity from here will be how long this broad-based confidence in the market can last. Even in the event that the best outcome can be achieved from US-China trade talks, it is contentious whether it will be enough to turn the tide for the global economy. China is slowing rapidly, and Europe is tiptoeing toward recession, with fewer policy levers to pull in the event economic activity deteriorates. The US economy for now is the beacon of the global economy, and ultimately one must assume that whether it be US stocks, US Treasuries, or the US Dollar, investors will remain attracted to “Made in America”. No economy in a globalized world can resist an international economic slowdown; until then though, market participants may well preference America first.
    Australian markets to follow US today: Australian stocks are on balance benefitting from the American-led recovery in financial markets. The ASX200, unlike its US counterparts, was unable to register a weekly gain last week. But according to the last traded price on SPI Futures, the AS200 ought to add 53 points this morning. The week for Australian markets should be interesting if nothing else: reporting season is underway, and the likes of BHP, Woolworths and Wesfarmers are reporting. The RBA release their policy minutes on Tuesday from their last meeting – an event that ought to be closely watched as rates traders gradually price in that the likeliest course of action for the RBA this year will be to cut interest rates, rather than to hike them or even keep them on hold.
    Written by Kyle Rodda - IG Australia
  23. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 18 Feb 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
     
    Special dividends this week
    NKY 9602 JP 26/02/2019 Special Div 1000 AEX AKZA NA 20/02/2019 Special Div 450 MEXBOL WALMEX*MM 25/02/2019 Special Div 14 RTY PJC US 22/02/2019 Special Div 101
    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.
  24. MaxIG
    A little bit of everything: It certainly wasn’t the highest-impact day market participants have experienced so far this year, but there was a spoonful of everything, thematically speaking that is, driving the macro-economic outlook for markets in 2019. To keep it high level, there was a series of significant growth-related data released out of all three of the world’s major economic geographies – China, Europe and China – plus a healthy smattering of geopolitics and corporate news to keep traders interested. Only, if you look at the price action, one might say that it didn’t amount to terribly much. Global equities are taking the middle road, posting a mixed day, as Wall Street creeps towards its close at time of writing; though some shifting in currency, rates, bonds and commodities markets has occurred.

    Markets immune to trade-war headlines: Fresh trade war headlines are at the top of the list of headline risks, however in contrast to what’s been seen in the past, the reactions have been muted. Arguably, and barring any news that hints at a true resolution in the trade war, stories that the US and China are getting along just fine are becoming (relatively) ineffectual. Yesterday saw the news that the Trump administration is considering pushing the White House imposed March 1 deadline for trade negotiations back another 60 days. The developments saw the standard risk assets shift – Australian Dollar-up, Asian stocks-up, US futures-up, commodities-up – but compared to the massive relief rallies seen in the past, the price action indicated a market that’s wanting more than just piecemeal developments in trade-negotiations.
    US Retail Sales a shocker: Hence markets moved past that news, as the tradeable appeal of trade-war headlines fades. The meaningful event market participants had marked into their calendar for last night proved of greater import in the end: US Retail Sales numbers for December were released and showed an abysmal set of numbers. In fact, they were so bad that the experts and the punditry have effectively written them off as a passing anomaly – one that can’t quite be explained properly. The figures themselves revealed US Retail Sales contract by a huge -1.8% in December, well below the “flat” figure estimated by economists. Though consensus is saying the data was too-bad-to-be-true, traders have adjusted their positions: bets of a Fed rate hike have been unwound back to effectively a 0% chance in 2019.
    US Dollar falls; Treasuries suggest slowdown: Naturally, the US Dollar has dipped, registering daily falls against most major currencies. US Treasuries have rallied too, which has probably very marginally benefitted stocks, with the yield on the 10 Year Treasury note falling 4 basis points to 2.65 per cent. As the Chinese and European economies slow, the US economy is acting as the fulcrum of global growth at present. Data points like US Retail Sales begs the question of how long this dynamic may last. A little while yet seems to be the popular answer. A look at what the US yield curve is doing is illustrative in this regard: the yield on 3- and 5-year Treasuries are below that of the 2-year, portending recession-risk in the medium term.

    No recession, but outlook still dim for Europe: The Euro was bolstered by its own set of economic data overnight. GDP figures were released for the Euro-bloc and the German economy, and while bad, they weren't as bad as forecast. The Eurozone's GDP came-in on forecast at 0.2 per cent, and while the German figures missed estimates and showed a stagnant economy last quarter, traders took comfort from the notion that at least the data hadn’t set Germany up for a possibly technical recession. Despite this, and the fact the Euro is edging back towards 1.13 again, there is a growing sense of inevitability about a European recession at some point this year or next. These things can’t be predicted of course, and perhaps a turnaround will occur, however the balance of probabilities looks to support the notion a recession is looming.
    Pound falls as Brexit reality hits: Continued Brexit uncertainty won't help Europe's economy, and markets were delivered a fresh dose of that too overnight. UK Prime Minister Theresa May lost another key vote in the House of Commons, placing in peril any chance of a Brexit deal, or at least a bill delaying Brexit, being passed. The Pound has returned to its (disputably) proper place, plunging back again into the 1.27 handle last night, and Gilts have climbed on the basis that a hard-Brexit will do no favours for the Bank of England and its bid to "normalise" it's interest rate settings. As always, the Brexit developments are being considered a problem unique to the European region, with little ramifications for broader markets. If Brexit accelerates Europe's into recession though, then this view ought to change.
    ASX showing signs of a pullback: SPI Futures are indicating a 2-point dip for the ASX200 at time of writing. The ASX200 is exhibiting signs of exhaustion now, as the market fails to push the index near enough or beyond the 6100 level. The conditions remain in place for future upside beyond that mark, but for now, market participants seem happy to either take profits, fade rallies, or just sit things out. The banks have unwound their gains following the post-Banking Royal Commission rally, and though it is showing signs of fundamental strength, a steadying in the iron ore price has mining stocks climbing, but at a careful tick. Hypothetically: if a pull-back does occur, 6000 will be a level of psychological significance, before true support around 5940 is exposed.

    Written by Kyle Rodda - IG Australia
  25. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 11 Feb 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

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

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