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MaxIG

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  1. MaxIG
    Written by Kyle Rodda - IG Australia
    America votes: Now we play the waiting game, it seems. The US electorate have set off to the polls to vote in their mid-term elections, and the world now awaits their decision. Financial markets aren’t exempt from the interlude, trading on very thin volumes, as traders opt to stick to the sidelines until a result is revealed. There appears a very general unwillingness to jump-in to markets ahead of the crowd on this event, presumably owing to the incredible surprises public votes have thrown-up in the past. A collective “let’s just wait and see” approach has been adopted by market participants, who will surely jump back into trading in a flurry once an outcome to the US mid-terms is known. As it stands, a reclaiming of the House of Representatives by the Democrats, and a hold of the Senate by Republicans is the bookies’ tip – a deviation from this outcome is where some degree of volatility may emerge.
    ASX200: SPI futures are presently indicating a slim 8-point dip at the open for the ASX200, following a day where the Australian share market rose by almost 1 per cent. Volume was nearly half of the 100-day Average-Volume-At-Time yesterday, courtesy of not just looming US mid-term elections, but also the Melbourne Cup public holiday in Melbourne. The lull provided opportunity for the bargain-buyers to jump into the market and try to pick-up a few good deals. The thin trading accentuated the bid-higher of the ASX200, resulting in a day’s trade of 70 per cent breadth. The day’s rally was certainly little to crow-home about: the thin volume exaggerated the upward move and took the ASX200 index merely to the top of a sideways trading range (between 5805 and 5875) that the market has occupied since the start of the month.

    RBA: The event of most significance during Asian trade yesterday (outside the horse race, presumably) was the RBA’s monetary policy meeting. No move and few surprises were what punters expected, and the price action in markets reflected that – the AUD/USD barely budged, trading between 0.7205 and 0.7215 after the release. There was some interesting detail in the accompanying policy statement however, that illustrated the gradually shifting perspective of the RBA on the local economy: the unemployment forecast was revised down to 4.75 per cent by 2020; the inflation forecast was pinned-down to 2.25 per cent by some point in 2019; and the central bank’s assessment on credit growth acknowledged it had now “eased”.
    Asia: Across the broader Asian region, a continuation of the week’s themes played-out. Like the ASX, thin activity propped up the Nikkei and Hang Seng, with the latter experiencing volumes a relatively significant 17 per cent below average. Chinese indices witness more-or-less normal trading and it showed in the results: the CSI300 (for one) was down -0.6 per cent for the day, primarily due to traders exiting their long positions in Chinese stocks again, after the excitement about possible progress between the US and China on trade negotiations fizzled. Futures markets are projecting a flat to weaker start to Asian session today; however, as the results of US mid-terms filter through throughout the day, expect outsized reactions in Asian equities if some surprises eventuate.
    Wall Street session: As of this week, Wall Street closes at 8.00AM (AEDT). At time of writing, the lacklustre trading and thin volumes that has characterized markets the world over this week is generally holding true for US stocks, too. A fine green layer of paint is covering equity indices today, with the Dow Jones, S&P500 and NASDAQ all slightly higher for the session, following a down-session in European shares earlier in the day. A bounce in US tech stocks has underpinned the move, with the NASDAQ experiencing very close to normal trading activity throughout the North American session. US Treasury Yields have furtively ticked higher overnight, taking the yield on benchmark 10 Year US Treasuries to 3.22 per cent, and the yield on the US 2 Year note to a new post-GFC high of 2.92 per cent.
    US Treasuries and Currencies: The price action in US bonds will be worth watching once mid-terms are done-and-dusted, especially given that the next major risk event this week will be the meeting of the FOMC on Friday morning (AEDT). Equity markets have often sold-off based on a spike in bond yields in the recent past, and if the Fed on Friday espouse a hawkish view for rate hikes in 2019, the repricing of US interest rate expectations could spark some sort of sell-off in US Treasuries and global equity markets. As it applies to the US Dollar, currency markets have also proven stagnant ahead of US mid-terms. The greenback is weaker, but that appears largely due to a (very) modest bid higher of the Pound and Euro on the back of Brexit optimism. Despite the uncertainty of the US elections, the Yen remains weaker and gold has dipped to $US1226 per ounce.
    Oil: The most significant price action over the past 24 hours has been the continued fall in oil prices. The price of the black stuff plunged further last night -- to the low$US62 and $US72 per barrel mark in WTI and Brent Crude, respectively -- as fears of undersupply, courtesy of fresh US sanctions on Iran, were quelled. News that the White House had provided temporary exemptions to some countries to continue importing Iranian oil, coupled with a pledge from Russia to aid the Iranians move their oil stockpiles onto global markets, have been the major drivers of the sell-off. One must also surely assume the Saudi's are boosting their output to stave-off more bad press after the murder journalist Jamal Khashoggi. Nevertheless, the fall in oil prices has weighed on USD/CAD and dragged the overall Bloomberg commodity index down for the day.

  2. MaxIG

    APAC brief 29 April

    By MaxIG,

    US GDP data capped-off last week’s trade: Trade closed last week on something of a puzzling note. The attention, from a macro-economic point-of-view, was fixed in on US GDP data. Amidst all the fears of slower global growth on one hand and hope for a nascent global economic turnaround on the other, the US growth figures were being viewed as a tangible insight into the cogency of each point of view. Ultimately, the data provided little support for one over the other – and perhaps even deepened the divide. The headline figure was good for the bulls, however below the surface, there was plenty for the bears to find vindication, too.
    US economy in a mixed state: The news flow, naturally and rightly, focused on the headline figure: against an expectation of a 2.2 per cent print, it came-in at a robust 3.2 per cent, reversing (apparently) a multi-month decline. The underpinning driver of the strength was in the exports and inventories component of the data, which greatly exceeded expectations. However, for market participants, there were some far more significant details in the fine-print to drive market action. Consumption was much weaker than expected, adding to concerns that the US consumer may be displaying some late-cycle behaviour; while the price-growth component revealed softening price pressures within the US economy.
    S&P500 rallies as US Treasury yields and USD fall: It’s for this combination of reasons that US stocks rallied, and the US Dollar and US Treasury yields fell, throughout Friday’s North American session. The S&P500 put in a solid performance, on heightened activity, as the confluence of better than expected earnings, stronger than expected economic growth, lower bond yields, and a weaker currency bolstered equities. In fact, the day’s positivity was so much so that the S&P500 managed to register another small milestone: it finished Friday’s trade once more by clocking a new record closing-high; and now sits 3 points shy of its all-time record intraday high of 2942.

    A “just-right” bowl of porridge? To employ something of a cheesy (fairy-tale themed) cliché: overall, the US GDP data was perhaps the “goldilocks” print for which market participants had been hoping. Economic growth, on the aggregate, is solid, while little justification exists for the US Fed to reinvite “rate-hike” considerations into their policy-mix. The favourable financial conditions that has returned the US stock market to new highs will remain; while there appears enough steam in the US economic engine to sustain earning’s growth, for now. And it’s fitting this view is consolidating now: its mettle will be tested by tonight’s US PCE inflation report and Wednesday’s Fed meeting.
    Traders still pricing in a cutting Fed: As it is the world-over: traders are seeing limited risk of inflation, and therefore interest rate hikes, in the US economy. Following Friday’s GDP report, US 2 Year Breakevens have continued to fall – trading now in the realms below 1.8 per cent. Incidentally, it is that figure that the last PCE release revealed US price growth to be. Expectations have built that tonight’s set of numbers will reveal a fall in inflation once again. And it’s clearly manifested in the implied probabilities of US rate cuts: interest rate traders have factored in 22 basis points of cuts from the Fed by the end of 2019.

    US Dollar falls; AUD rallies: Much like the action in stocks and bonds, currency markets have traded in line with the growth-positive, low rate-hike-risk theme. Of course, the most conspicuous manifestation of this has been in the US Dollar, which depreciated markedly on Friday evening. The ultimate beneficiaries of the weaker greenback were growth-tied currencies — meaning our Australian Dollar has bounced off its lows. On balance, it’s difficult to imagine the A-Dollar regaining too much ground while markets effectively price in two RBA cuts this year. However, data permitting, a modest foray back through the 0.7000 handle can’t be precluded right now.
    ASX200 to open today’s trade flat: For all of Wall Street’s heightened optimism, somewhat unlike last week, Australian stocks will forego its bullishness at the outset this morning. SPI Futures are indicating a 2 point drop this morning, backing up a similarly flat Friday. The session on Friday was largely a benign extension of Wednesday’s trade: interest rate sensitive stocks, such as those in the utilities and real estate sectors, found most buying activity. However, perhaps due to weakness in Chinese markets, coupled with a fall in commodity prices, the materials and energy sectors weighed on the index, resulting in a tepid gain of less than 0.1 per cent on Friday.
    Written by Kyle Rodda - IG Australia
     
  3. MaxIG

    APAC brief - 1 May

    By MaxIG,

    A flat, but generally positive, night’s trade: Wall Street closed flat to slightly higher overnight, in a day of soft activity that might well be chalked up to the numerous event risks awaiting markets in the second half of the week. The key stories in European and North American trade centred around European growth data; along with the ongoing US earnings season. And on balance, belying the lukewarm day in global stocks, the news was relatively positive. European economic data broadly beat expectations, resulting in a lift in the Euro and European yields; and after the US close, Apple Inc reported, and is trading higher in post-market trade.
    Chinese economic numbers disappoint: The big news in the Asia region yesterday was China’s highly anticipated manufacturing PMI numbers. Recall: it’s been this data-point that has been the centre of fears about China’s economic slowdown – and has been used as the barometer for policy makers success in re-stimulating the Middle Kingdom’s economic activity. For one, yesterday’s print was underwhelming. Anticipated to print at 50.5, it came in at 50.1, stoking concerns that manufacturing in China could be slipping back towards a “contractionary” condition – that is, a print below 50, and forecasts a potential slip in activity in the broader Chinese economy.
    What’s true for developed markets is true for China: Revealing investors priorities, however: the weaker data prompted a run higher in Chinese stocks, as markets bet on the need for more stimulus from China’s policymakers. Just like it has been, and continues to be the situation in developed markets, bad news is good news for risk assets. Poor economic data and the subsequent belief it necessitates fiscal and monetary stimulus drives flow into the stock market; while good economic data and the subsequent belief it implies a removal of fiscal and monetary stimulus drives flows away from the stock market.

    ASX pulls back from 11-year highs: The ASX200 caught little of China’s rally yesterday, giving up 0.5 per cent during the session. It was an overall lack lustre day. Last week’s gainers, those in interest rate sensitive sectors like that of real estate and utilities, declined, as bond yields recovered some of their losses. And energy and materials stocks seemed to suffer from a fall commodity prices. Although numerous causes for the broadness of yesterday’s selling has been concocted, much of it seems a function of a small market pull back, after the ASX200 clocked its 11-year highs last week.
    ASX primed for bank earnings: SPI Futures are indicating today that the ASX200 will open 15 points higher this morning. A possible inhibitor of upside in the market this week is that we are on the cusp of our big banks’ confession season. The micro details of each bank aside, the macro outlook for the banks have improved recently, in response to a healthy steepening in bond yield curves. It’s well known the ASX struggles to prosper without the help of bank shares, so for market-bulls, some positive surprises from the banks this earnings could be the catalyst for a new push higher in the ASX200.
    The Fed: markets’ main event: All eyes now turn to the US Federal Reserve. They’ll meet tonight (AEST) and will all but certainly keep interest rates on hold. Market participants instead will be keeping tuned to what the Fed has to say about the outlook for the US economy. Despite reasonably solid economic data lately, markets are still pricing in a full cut from the Fed within the next 12 months. It’s this assumed dovish bent by Fed that’s in large part sustained risk-assets so far this year — and underwritten Wall Street’s record run in the past four months.
    Have markets mispriced US rates? The risk tonight is that the Fed is more optimistic than expected: a dynamic that could force the adjustment of rate expectations and take the steam out of global equities. A pressing need to move to anything resembling a rate hiking bias by the Fed is absent, of course; especially given last year’s market tumult in response to a “hawkish” Fed. But the core question is whether the presumption of such a dovish Fed is accurate. This fact is less certain and could be contradicted by the central bank’s communications with the market tonight, meaning a potential reshuffling in markets consequent to tonight’s meeting.

    Written by Kyle Rodda - IG Australia
  4. MaxIG
    ASX: SPI futures are indicating an 11-point drop at the open, on the back of a day that saw the ASX200 close just shy of 0.6 per cent. The local session could be characterised as being somewhat lacklustre: the lion's share of the day's losses came shortly after the open, volume was below average, and market breadth finished at 26 per cent. Most sectors finished the day in the red, but naturally it was a pullback in bank stocks that contributed greatest to the markets falls. The materials space made a very humble play higher in afternoon trade it must be said, courtesy of a tick higher in iron ore prices, to sit near the top sectoral map by close. But at just shy 0.1 per cent, the day's recovery wasn't anywhere near sufficient to salvage the day for the ASX200.
    Financial sector: As it presently stands: where goes bank stocks so goes the ASX200. Not a revolutionary idea of course, given financials' weighting in the Australian index. However, with buying impetus missing across the ASX currently, combined with overall bearish sentiment, the effects of the bank-trade are much more pronounced. Having popped higher from oversold levels last week, the financial sector pulled back in this week's opening stanza by 0.76 per cent, accounting for about 14 points of the ASX200's total losses. The down trend appears still intact for the financial sector, auguring poorly, as one ought to infer, for the Australian stock market.

    Domestic risks: The fortunes of the big banks mirror many of the issues afflicting the Australian economy now. The weekend's Wentworth by-election outcome, which has delivered Australia another hung-parliament, is one; another is the possible regulatory crack following the Financial Services Royal Commission, coupled with the likely election of a hard-line Labor opposition come the next election. The most compelling explanation for the banks' weakness (at least yesterday) was another poor auction-clearance figure on Saturday. The local property market looks in a very shabby state as it stands, exacerbating concerns regarding the feeble position of Australian households and consumption in the broader economy.
    House prices and households: Granted cooling house prices have predominantly afflicted the Sydney and Melbourne markets, and prices remain elevated relative to historical standards. Amid higher global borrowing costs and by some measures unprecedented indebtedness, soft credit conditions in the Australian economy is a risk to the property market and households alike. Ultimately, the concern is whether with income growth slowing, savings dwindling and interest rates bottoming, the loss of the "wealth effect" will stifle demand in the economy even more. On balance, prevailing wisdom suggests that gradually improving economic fundamentals will cushion the ill effects of a property slowdown. However, the fragile state of the Australian consumer means the broader economy is increasingly vulnerable to external shocks.
    China: Of course, the biggest and most pertinent of possible external shocks to the Australian economy is the health of the Chinese economy. Trade on China's financial markets yesterday proved the power and willingness of its policy makers do whatever it takes to stabilise its markets and economy, particularly in the face of the escalating US-China trade war. Though it's never easy to say, volumes at 136 per cent of CSI300's Average-Volume-At-Time suggest that possible and massive intervention by Chinese policy makers was at play. This isn't to say that the entire flow of funds into equity markets came from (effectively) the state's pockets, more that whatever liquidity injected into them certainly stoked investors animal spirits.

    Overnight: China's powerful stance yesterday may in time be considered much akin to ECB President Mario Draghi's "whatever it takes" moment. The follow through in Chinese equities will be closely observed today, to witness what lasting impact the actions have. Overnight though, the carry over effect into the European and North American session diminished throughout the day, muted by other, more regional concerns. The Italian fiscal crisis took a temporary back seat and supported the narrowing of European sovereign bond spreads. However whipsawing sentiment regarding the likely outcome of Brexit led to another dip in the Pound below 1.30 and in the Euro below 1.15. The macro-fears weighed on European stock indices, dragging the majors by up to as much as -0.5 per cent.
    US session: The US Dollar caught a bid on last night’s macro-dynamic as traders modestly increased buying of US Treasuries. Gold dipped as a result, while in other commodities, oil climbed on supply concerns amid heightened tensions between Saudi Arabia and the West, and Dr. Copper was flat. Fundamental data was very light, with positioning underway leading into the massive ECB meeting and US GDP prints in coming days. North American equities saw an inversion of Friday’s theme: growth/momentum stocks, such as the FANGs, were generally higher, while the industrials-laden Dow Jones pulled back 0.50 per cent. The meaty part of earnings season is about to get underway in the next 24-48 hours – and may well dictate the theme in US equity markets adopt for the next several weeks.
  5. MaxIG
    Written by Kyle Rodda - IG Australia
    The themes: Boy oh boy, are we facing a significant week. It promises to be a big one, with so many of the pressing macro-economic issues currently driving market activity set to dominate headlines. Given this is so, and the Thanksgiving hangover kept trade light on Friday, casting an eye ahead and speculating on what the next seven days may deliver the most valuable insights. The themes won’t be foreign to traders: we’ve got the US Federal Reserve and global interest rates, slower global growth, the US-China trade war, Brexit, and the crash in oil prices. The way each unfolds sets the foundations for markets not only in the crucial month of December, but also the start of 2019. Being so, it’s more than likely that whatever the developments in these stories, traders will be perusing the devils in the detail to infer as much they can from them, providing ample fuel for heightened and ongoing volatility.
    The Fed and US rates: The US Federal Reserve remains the major and most powerful driver of financial market activity. The impact of the end of the easy money era is manifesting in markets the world over. The question has long been asked – for the most part of the last decade, in fact – what the effects will be of normalizing Fed policy. We are apparently beginning to get that answer. This Friday welcomes the release of FOMC Monetary Policy Minutes, and the core concern for traders is whether the Fed is showing further signs of burgeoning dovishness. Traders have interpreted the central bank’s recent discourse as reflecting a reduced willingness to keep to an aggressive rate hiking path, amid concerns that growth and inflation (the later a data-point that market participants will also receive this week) has possibly topped-out. It’s resulted in markets pricing-in a 73 per cent chance of a rate hike from the Fed in December; and pricing out all but one hike from the Fed in 2019.

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

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

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

  6. MaxIG
    Written by Kyle Rodda, IG Australia
    Global price action: The global equity sell-off continued during Wall Street's final trading session for the week, putting an end to a horrid 5 days for markets. True to form, it was the NASDAQ that led the losses in US trade, clocking a loss of 2.07 per cent, while the S&P500 shed 1.73 per cent itself. Volatility remained elevated and underscored the intense selling, maintaining a 24 reading throughout the session, prompting a flight to safety from investors. The dynamic pushed the yield on US 10 Year Treasuries to 3.07 per cent – their lowest rate in close to a month – driving the DXY temporarily above 96.80, the risk-off USD/JPY below trend line support, and gold prices briefly beyond resistance at $US1240.
    The action followed on from a European and Asian session in which equity markets fared little better. Chinese equities wallowed once more, exacerbated by fears of financial instability in the face of a depreciating Yuan, after the PBOC’s currency fix pushed the USD/CNH above 6.97 for the first time in several years. The AUD/USD fell in sympathy with the Yuan, breaking through support at 0.7040, only to drift higher into the European session. The Pound and Euro came under pressure due to the US Dollar's strength, but stayed within the 1.28 and 1.13 handle, while European stocks crept towards their worst month in three years.

    Bearish sentiment: The bears appear to well and truly have control of this market, spooked by the prospect of higher US rates and "peak earnings" amongst American corporates. Concerns around the latter were driven home on Friday, shortly before the beginning of the Asian session, when earnings updates from (Google parent-company) Alphabet and Amazon disappointed market participants. The reasons behind each company's relatively poor performance were unique but hammered home the view that despite most of earnings reports beating expectations this reporting season, the market is reaching, or has already reached, peak earnings in this cycle.
    Wall Street versus US economy: This question throws up interesting and contentious debates: one, whether share market performance is a leading or lagging indicator of economic health; another, to what extent a share market's fortunes are tied to the "real" economy. Friday's North American session cast an interesting light on the issue, perhaps providing evidence for the view that that the overall share market is a weak, lagging indicator of the economy's health: the US's GDP release beat forecasts (3.5 per cent vs. 3.2 per cent) and reaffirmed the view that the US economy is still roaring. The data suggests that while many investors are certainly suffering, the activity in US equity markets could be possibly better explained as a necessary correction in asset prices, which have been artificially inflated for many years by cheap money.
    Market correction, not economic recession: A common fear in times in which the market is experiencing (an apparent) correction is to assume that it reflects the state of the underlying economy. While that is sometimes true, history suggests that this need not always be the case. It's understandable as to why conventional wisdom suggests this is so: the monumental disaster that was the GFC has suffused the zeitgeist, conceiving the erroneous idea that every period of stock market disquiet portends a potential financial or economic calamity. It's always impossible to predict whether market volatility is indeed something indicative of underlying problems attached to the real economy, but the balance of evidence – supported by US GDP figures – suggests that this time around, the likelihood is very low.

    Stronger US economy, weaker share market? In fact, the more likely scenario is that the fundamental strength in the US economy is indirectly bringing about their share market’s sell-off. As is well known and widely discussed, the major structural factor behind Wall Street's tumble is the US Federal Reserve's insistence it will continue to raise interest rates to lean on a booming US economy. Of course, the effects of the trade war on global growth and corporate earnings, coupled with regional concerns as diverse as Chinese growth, Brexit, and Italy's fiscal crisis play a part; however, the primary driver in financial market activity, as it almost always is, is the decision making of the US Federal Reserve. Ironically, the stronger than expected growth figures out of the US supports the need for higher interest rates, probably enervating the strength in US shares.
    Here's the rub: Given this, herein lies the problem going forward: a flight safety into bond markets the past week has pushed US Treasury yields down, allaying some of the pressure on equity markets. By necessity though, in the long-run, bond yields must increase as interest rates climb: a situation that will need to occur as strong growth, like that conveyed in Friday's US GDP numbers, leads to upward pressure on prices. Hence, the bad news and fundamental conundrum is this: the better the US economy, the higher US interest will go, and the greater the downside risk and volatility in share markets. Ultimately, this all means that there is a strong possibility that, at worst, this sell-off has further to run, or at best, perhaps periods of snap-and-sharp market down turns will become the new norm.
    ASX today: Bringing it closer to home, SPI futures are pointing to a 17-point drop for the ASX200, following a Friday in which the index managed to close flat. It was a see-sawing day for Australian shares, which gained in early trade, tumbled for the lion's share of the day, and then inexplicably recovered in the final 15 minutes of the session to end the day a dead-rubber. The bounce came courtesy of strong buying for the index's major large caps in the financial, mining and healthcare sectors, keeping the market out of technical correction. Despite late run, the ASX still appears exposed to and poised for further downside, ahead of a week high on local and international event risk.

  7. MaxIG
    Written by Kyle Rodda - IG Australia
    A bullish Monday: That big uplift we were all expecting after the weekend’s events at the G20 has transpired. The trade-war truce, as fleeting as it may prove to be, has supported a substantial enough boost in sentiment. Risk appetite has been teased, and risk assets across the global, beginning in the Asian session yesterday, and carrying through European and North American trade, have dutifully rallied, consequently. It’s a synchronized boost, prevailing across asset-classes, with traders relishing the double-shot of bullishness injected into markets in the last 7 days: a much more dovish Fed, which has lowered the possibility of higher global interest rates; and a de-escalation of the trade-war, which has ameliorated the concerns regarding future global economic growth.
    Global stocks: There remains, at time of writing, a few moments left in the North American session, and as it stands, the good-vibrations are waning somewhat. Nevertheless, Wall Street is higher, capping-off a positive day for markets overall. The NASDAQ is leading the charge, up around 1 per cent for the session, while the Dow Jones and S&P500 are 0.7 per cent higher for the day. It follows an Asian and European session which saw the Nikkei up 1 per cent, the CSI300 up 2.8 per cent, the DAX up 1.85 per cent, and the FTSE100 up 1.2 per cent. Volumes have also been very substantial, running 30 per cent above average on the S&P, and a remarkable 45 per cent above average in Chinese share markets, adding conviction behind the day’s trade.
    Currencies and commodities: Across the currency and commodity landscape, a comparable appetite for risk has occurred. Growth proxy currencies have generally prospered: the Australian Dollar is (presently) trading at 0.7350 – having challenged the 0.7390-mark yesterday, before a raft of soft local data gut-checked the local unit – and the New Zealand Dollar is up around 0.6920. The Loonie is also rallying, benefitting from the additional support of higher oil prices. The US Dollar has been sold-off, along with other haven currencies like the Japanese Yen, pushing the price of gold to resistance at $US1232. The Euro is modestly higher courtesy of a weaker greenback, but the Pound has left the party following news that a vote of no-confidence looms for Prime Minister May in the British parliament. Finally, Industrial metals are higher, thanks to the uplift in economic-growth-optimism, paced by LME copper, which rallied 1.6 per cent.

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

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

  8. MaxIG
    Written by Kyle Rodda - IG Australia
    More information, greater confidence: Markets have been awash with data over the last 24 hours – and traders love it. It’s a behavioural quirk in financial markets: whether good, bad, or otherwise, an inundation of information paints a full and colourful picture of the world and satisfies that innate human desire for (an illusion) of control and certainty. The phenomenon echoes lessons that were reinforced upon the world all the way back in 2008 by one of that years’ seminal cultural events. No, not the zenith of the Global Financial Crisis, but Christopher Nolan’s The Dark Knight and Heath Ledger’s inimitable portrayal of The Joker. In a scene that epitomizes the philosophy of the uber-anarchist Joker, the character ruminates during a monologue: “Nobody panics when things go according to plan. Even when the plan is horrifying… nobody panics. Because it’s all part of the plan.”
    Fundamentals unchanged: Why bring this up? Outside taking pause to remember a time before the ills of the GFC ailed the global economy, it sums-up quite well the attitude of market participants in times of turmoil. Yesterday saw the release of a swathe of economic and financial data, which assessed on balance, delivered unremarkable and mixed results. None of it fundamentally changed the outlook for the financial world, but the fact that it filled in some blanks and confirmed a few existing biases meant that everything, overall was judged to be ok. Herein lies the problem for now: the issues that ignited October’s sell-off have yet to disappear, meaning that markets remain just as liable to the extreme bouts of panic and volatility that last month delivered us.
    Adjustments still underway: The biggest problem here is that when assessing the balance of buyers and sellers, and their overall behaviour, not much has changed. The market was led higher yesterday by a drive into tech-stocks and other growth/momentum sectors – apparently based on a so-so earnings update from Facebook, and an anticipation for upcoming Apple results. If there is one thing that can be taken away from the market commentary in the last 2 weeks, the financial market pros out there – the big money managers, the institutional players, the stock brokers, and the like – believe it’s time to shift away from growth investing into value investing. Assuming they are to be trusted, the players controlling the ultimate fortunes of the market are shifting funds away from areas that have propped markets up this week.
    Same behaviour driving week’s recovery: Thus: here comes the fissure at the centre of it all: if traders are still chasing momentum flow in growth sectors, and the fundamental outlook for broader financial markets hasn’t changed yet, then October’s shake-out probably has further to run. Now, several factors will surely insulate punters from such extreme bouts of volatility. Oft-cited share buy backs will kick-off in a significant way now, plus seasonality suggests markets are entering a fruitful time of year. Moreover, earnings are still strong even if the medium-term outlook has changed, and economic growth (in the US, but to a lesser extent other geographies) is powering along. However, these factors paper over the cracks – and the truly structural factors – which means while financial calamity isn’t expected any time soon, greater adjustments (that is: more corrective action) in financial markets may well loom.

    Risk one: higher rates: The two biggest factors remain the prospect of higher global interest rates, and the possibility that markets have already reached peak growth. Regarding the former, it is conspicuous and questionable that traders have reduced their bets of a rate hike from the US Federal Reserve in December and lowered their expectations of the number of hikes in 2019. It appears a classic conflation by market participants that weakness on Wall Street necessitates weakness on main street.
    Though fortunes can quickly change, economic data continues to affirm that the US economy is in a strong position and price pressures are building – which will require a firmer hand and tighter policy from the US Federal reserve. US bond yields have fallen, and the USD has rallied of late, inviting investors back into equity markets. Last night’s trading session saw bond yields tick higher again, implying that the risks of rising rates haven’t been fully discounted, and sustained volatility on this basis persists.

    Risk two: slower growth: Secondary to tightening global monetary conditions, the other factor that precipitated October’s market rout remains – and was, in fact, reinforced yesterday. The prospect of weaker growth ex-US economy, due to the trade-war as much as any other cyclical causes, looms large on the horizon. Chinese PMI data yesterday undershot forecasts once more, with the Manufacturing component to that release inching closer to a sub-50 “contractionary” print, pushing the off-shore Yuan ever closer to 7.00; while the BOJ during its meeting yesterday downgraded it growth and inflation forecasts.
    The fears across Asia added to the nervousness catalysed by this week’s soft European growth numbers – although it must be said that the perception of European growth did receive a boost last night when it was reported that a Brexit deal may arrive as soon as November 21. Nevertheless, if the market correction October was in a big way foundered upon shakier global growth prospects, little revealed this week so far should be interpreted as diminishing that risk in the short-term.
    Today for the ASX200: SPI futures are indicating that, to start the new month, the ASX200 will participate in the relief rally sweeping markets and add 26 points at the open. Despite sluggishness throughout the day, the Australian market jumped just before the end of yesterday's session, courtesy of a buy-up in bank stocks following ANZ's better than expected results. A full turn around isn't yet underway for the ASX200, but the seeds are there to potentially break the corrective pattern hobbling the index -- with a break and hold above 5930 a definitive sign of this. Just like the rest of global equities, the risks and challenges remain, but yesterday's weak CPI print at least affirms that RBA policy will probably remain supportive of asset markets. The next two days of trade will be significant for the Australian market's nascent recovery, as NAB reports today, and macro watchers eye local retail sales figures tomorrow, and the more significant US Non-Farm Payrolls release on Friday night.
     
  9. MaxIG
    Written by Kyle Rodda - IG Australia
    Risk? No, thanks: Markets have given a resounding “nope” to all varieties of risk overnight. Equities have been slogged on Wall Street, following to a sluggish day in European markets, that saw the FTSE drop 0.2 per cent and the DAX shed 0.85 per cent. Here it looks like this is the convergence punters have been calling: US shares are playing a rapid catch-up with their global counterparts. The losses are piling up. The NASDAQ has been hit the worst in the North American session led by falls in FANG stocks. At time of writing, with about half an hour left in the session, the losses for that index are hovering around 3.00 per cent. That’s not to say the picture is any prettier for the other major US indices: The S&P500 is down just-shy of 2 per cent, and the Dow Jones is much the same.
    The havens: Typically, US Treasuries have maintained their bid. The yield on US 10 Year Treasuries has dipped to 3.05 per cent, while the yield on US 2 Year note has fallen further, down 3 points to 2.77 per cent. The markets are scrambling for safety once more as volatility spikes again: the VIX is up to about 21, and that is ample reason for investors to bail-out of equities. The US Dollar is suffering from the drop-in yields, and the Japanese Yen is accepting the safe-haven bid, along with the EUR, which is eyeing off 115 again, supported by (slightly) diminished anxiety around the Italian fiscal crisis. Of course, the Australian Dollar and New Zealand have pulled back, trading at 0.7290 and 0.6840, respectively, although it must be mentioned that commodity prices are holding well enough.
    Risk factors: The US Dollar Index is threatening to break short-term trend line support, and this is clearly helping gold prices: in another example of a flight to safety, the price of the yellow metal has climbed to $US1224 per ounce. Calling a top for the greenback is way too rash, and in time if this level of volatility continues, a return to the almighty Dollar would surely manifest. What is happening here, for now, though, is traders are pricing in a more dovish Fed, against what is being presumed as the start of “slower global growth” narrative leading into 2019. The hostilities between the US and China flowing from the weekend’s APEC summit fanned these fears, as has the deteriorating situation around Brexit. But ultimately, they tie back to the belief that the Fed may have overcooked their tightening regime.

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

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

  10. 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
  11. MaxIG

    APAC brief 25 Mar

    By MaxIG,

    Global growth the primary issue right now: The monumental tug-of war between improving financial conditions and deteriorating economic conditions continues. On Friday, it was the latter that took home the points, if only this time around. Both variables truly sit diametrically opposed, and as far as market participants are concerned, which force will prevail remains speculative. It’s written into the mixed-messages markets have been signalling in the last several weeks. It must be said, with the end of last week’s trade, such discrepancies are becoming less pronounced. The dominating concern pertains to the outlook for global economic growth. The world economy’s health is looking worse than previously imagined, and the re-introduction of dovish rhetoric from global central bankers is proving an inadequate remedy.
    European growth (seemingly) imploding: A crumbling of European economic growth prospects is at the epicentre of concerns. European PMI numbers were released on Friday night, and they were shocking. As has been the trend of late, the services element of the data releases were respectable enough. But manufacturing PMI in Europe is falling off a cliff and has dropped well into “contractionary” territory. Most troubling, is that the core of this is apparently being driven by weakness in Europe’s power-house economy, Germany. Remembering 50 is a neutral print when it comes to PMI data: German Manufacturing PMI printed a woeful 44.7. It’s a reminder that with all the risks plaguing the global economy from East-to-West, its Europe that’s stuck in the middle of it all.
    A return to a negative-yield world: The consequences of the bad PMI numbers were immediate and explicit. The yield on 10 Year German Bunds raced to its ignominious and long-awaited milestone, cracking into negative yield for the first time since mid-2016. If there is any evidence necessary that the global economy is at the end of a cycle, it’s that ****-bit of information. The rush into government bonds on Friday was ubiquitous, however, and has created some worrying price action. Conspicuously, the rush into US Treasuries has put the yield US 10 Year Treasuries to just above the current US OCR at 2.40 per cent. Furthermore, Japanese Bond Yields have travelled further into negative territory itself, with the 10 Year JGB yielding -0.08 per cent. 

    Currency traders seek-out JPY and USD: Reactions in currency markets have been somewhat predictable. The Euro has been slapped down below the 1.13 handle, as traders seek their safety primarily in the Japanese Yen, but also the US Dollar. The Greenback spiked to end last week, edging once more well into the 96 handle, according to the DXY. The CAD, NZD and Australian Dollar are also down, however perhaps not by as much as circumstances ought to dictate. The Scandi currencies are also mixed because of Europe's woes, as is the Swiss Franc, despite its status as safe-haven. And even in the face of US Dollar strength, the growing list of safe-securities delivering negative yield has supported the appeal of Gold, which is fetching $1315 per ounce.
    Rate cuts being priced-in across the globe: The falling yield environment is, of course, being driven by a pricing-in interest rate cuts in developed economies the world-over. Though directly caught in the fray on this occasion, as far as the disappointing data goes, the materialising prospecting of weak global demand has seen traders boost their bets on a US rate cut in the next 12 months. The implied probability of a cut from the US Federal Reserve by January next year leapt to almost 80 per cent. The price action has led to a disturbing event in rates markets: the spread between 3 Year and 10 Year Treasuries has fallen to 0 basis points, inverting the yield curve between those two maturities.

    Recession risk considered to be higher: Although not an infallible indicator, such a signal is often cited as portending a recession in the not-too-distant future. It might be for this reason that despite the pricing in on Friday of more activist central bank's globally, equities were generally thumped. The S&P500 was down 1.90 per cent, dragged lower by stocks in the US tech-sector. Of maybe greater concern was the more domestic growth sensitive, small-cap Russell 2000 index: it fell by quite a remarkable 3.62 per cent on Friday.  This lead sets up the Asian region for a tough start to the week. SPI Futures are indicating the ASX200 will clock a 50-point loss at the opening this morning.
    Trump and May to seize focus today: Unfortunately, too, the economic calendar today and (relatively speaking) the rest of the week, is looking quite empty. Inferring from what was dominating the financial press over the weekend, it will be politics on both sides of the Atlantic that will capture attention. Brexit rolls on, and volatility in the Pound is expected to rise as noises about UK PM Theresa May's leadership rises to a cacophony. And out this morning: early days, but Robert Mueller's report on collusion between the campaign team of US President Trump and the Russian Government during the 2016 US Presidential has found no conclusive evidence to support that allegation.
    Written by Kyle Rodda - IG Australia
  12. MaxIG

    APAC brief - 9 April

    By MaxIG,

    An uneventful day on Wall Street: A flat, somewhat mixed, and low activity day on Wall Street, market participants seem to be eyeing events later on in the week. After Friday’s Non-Farm Payroll induced rally, traders have apparently looked-down below their feet, realized how far this market has climbed, and decided a fresh-wind is required before scaling to new record-heights. Such a milestone stands only 1-and-a-half per cent away for the S&P500; and sensibly, the market is in no rush to get there. Generally, though, the chatter in the commentariat betrays an overall confidence that the S&P will get there. As has been said a-plenty before: market conditions are looking quite “Goldilocksy”. Only a little more fuel is required to propel US stocks to where bulls wish for them to be.

    A backloaded economic calendar: The reasoning behind the lukewarm day on Wall Street overnight, aside from just being a Monday, is the economic calendar is backloaded this week. There seems to be a reluctance to get ahead of the data; with the preference being to position for it and react to it as it comes. US CPI data and FOMC Minutes will be the releases for US markets, and will, for the bulls, ideally confirm without qualification the Fed’s need to stay-put on interest rates. But Brexit-drama will also be closely monitored, as we creep ever-closer to the April 12 Brexit-deadline; as will the IMF’s economic updates due mid-week, and the ECB’s Monetary Policy meeting, for insights into the global growth outlook.
    Currency traders positioning for event-risk: In contrast to stock-indices, shuffling in currency markets was more pronounced on the litany of macro-headline risk. The central thread to the moves was a fall in the US Dollar, though much of this move came as an extension of positioning in the Euro ahead of Wednesday’s ECB meeting, just as much as it was a positioning for CPI data and FOMC minutes. Growth appetite is generally higher, it must be said though, with commodity currencies, such as the AUD, NZD, CAD, and NOK rising – the latter two owing to a spike in oil prices – and safe havens like the Japanese Yen and Swiss Franc falling.
    US earnings to determine Wall Street’s fate: Looking slightly higher above the fray, and US earnings season is coming-up, and may centre market-participants’ minds a touch. Not that any tremendous surprises are forecast; though earnings growth is expected to have softened a little this past quarter. That much won’t derail markets, and estimates are that a healthier growth in US corporate earnings should return as 2019 unfolds. Only the severest miss in earnings growth would curtail the recent bull-run across the S&P500. And not to mention that, with the US Fed keeping yields and discount rates low, the price-to-earnings ratio across the index remains relatively attractive, while dividend yields are also becoming of greater appeal, too.
    ASX facing domestic headwinds: A similar dynamic could conceivably prevail across the ASX200 in time, though some headwinds might keep momentum subdued. The ASX is showing a high correlation with iron ore prices at-the-moment, as the materials sector underpins the market’s gains. Though welcomed, the rally in iron ore is on shaky ground, given its being driven by supply disruptions rather than global economic growth. There are other areas of upside in the index it must be said: namely in biotech, which has benefitted from the recent turnaround in risk-appetite. However, not to be forgotten, the uncertainty in Australia’s property keeps weighing on the financials sector; as is the global slipping in long-term bond yields, which is keeping upside financial stocks globally limited.
    ASX in the day ahead: Nevertheless, looking just to the day ahead, and SPI Futures are indicating that the ASX200 will open around 8 points higher this morning. A clear indication of where the market might go today is missing currently. It comes on the back of a day which witnessed a very broad-based rally for Australian stocks. Lo-and-behold, it was another big rally in iron prices, and a slight lift in industrial metals generally, that underpinned a run-higher in mining stocks, and the overall ASX200. But breadth, too, was strong overall: 72 per cent of stocks were higher on the day, with the communications and financials sectors the only laggards for the session.
    Oil price rally accelerating: One theme to follow today will be the renewed rally in oil prices to begin the week. Supply-side risks have led the price higher once again; this time, courtesy of internal political instability in Libya. Actual supply disruption is yet to be confirmed, making the spike in prices sensitive to rapid retracement. According to the daily RSI, while upside momentum remains strong, the market is flashing signs of being overbought. However, given the current geopolitical dynamics, ahead of key OPEC meetings this week, future production cuts from major oil producing countries is still being priced-in. The WTI futures curve went into backwardation overnight, reflecting the pricing-in of perceived oil undersupply in the medium term.


    Written by Kyle Rodda - IG Australia
  13. MaxIG

    APAC brief - 30 April

    By MaxIG,

    Wall Street adds to its record-highs: The first day of the financial week has been done and won, and its resulted in another small victory for Wall Street indices. US stocks have added to their record highs overnight, as market participants become increasingly bullish across asset classes. The story wasn’t quite so rosy for markets in other geographies yesterday: Asian equities generally slid amid low activity, while European stocks were positive, yet tepid in their trading. Still, it seems, the one clear bright-light in global financial markets is in the US, with the question once more becoming: how long can this latest bull-run last?
    Momentum picking-up in US equities? There remains a general reluctance from market participants (to use an American idiom) to drink the Kool-Aid in this market. The fundamentals, though solid-enough, don’t seem to justify it entirely. Valuations aren’t stretched, but they are largely as attractive as they are due to discount factors, rather than true earnings growth. Nevertheless, perceptions are shifting, with some of that FOMO-money, long sitting on the sidelines in this rally, apparently making its way into US equities. The great momentum play stocks, are exhibiting some of the behaviour they did during last-years run-up, suggesting a growing exuberance in the market.
    US tech playing catch-up: As one with a clear enough memory may recall, the centre of last year’s flow chasing rallies and busts was the US tech-sector. Perhaps remarkably, and reassuringly for the bulls in the market, although valuations across the S&P500 has crept towards levels reminiscent of October last year, valuations in tech stocks have so far lagged the broader market, this time around. It’s a state of affairs that’s rapidly changing, but using the NASDAQ as the barometer, valuations in US tech, at 35:1 price-to-earnings, is still well below the eye-watering 48:1 and 53:1 P/E ratios registered in October 2018 and December 2017.  

    Treasuries fall, despite no-change to the rate outlook: Another area in which the eagerness to chase risk is manifesting is in the US Treasury market. Bond yields are ticking higher across the curve, without much of a fundamental macro-economic catalyst, as traders sell safe-haven assets to join the equity market rally. US 10 Year Treasury yields climbed around 3 basis points overnight, to trade around 2.52 per cent, and the US 2 Year note’s yield edged 1 point higher. Despite still looking very bent out of shape, the slight steepening of the yield curve speaks of a market increasingly comfortable in the long-term growth outlook for the US economy.

    Global inflation risk generally low: Part of this dynamic can be explained by the actions of the Fed, coupled with the low inflation environment the global economy is apparently mired within. This perception could change quickly, depending on what comes out of Thursday’s US Fed meeting. However, there’s little justification that it ought to, and this was backed-up by yesterday’s key macro-economic release: US PCE inflation figures. That release revealed once more that price growth in the US economy has continued to recede: annualized core inflation is at a stubbornly low 1.6 per cent, implying the Fed possesses little need to return to a rate hike bias.
    Financial conditions supportive; eyes on China today: So, little concern right now exists that financial conditions globally may tighten and strangle the risk-on run. It’s probably in part why the VIX remains so supressed: liquidity isn’t seen to be much of a problem. But though accommodative monetary conditions will continue to underwrite market strength, some semblance of fundamental growth will be required to keep the market-moving forward. And today, the next little leap forward will come in the form of Chinese economic data: the market moving Chinese Manufacturing PMI data is released today, with market-bulls eager to see whether the “rebounding Chinese growth” story still holds merit.
    ASX200 to open lower: The revelations contained within the Chinese Manufacturing PMI numbers will likely be the ASX’s key determinant of activity today, in the absence of any other tier-1 data. Otherwise, Wall Street’s flattish finish, that saw the registering of a new all-time closing high at 2943 for the S&P500, will translate into a 3-point drop at the open for the ASX200, according to the SPI Futures contract. Aside from these two variables, market participants will be keeping an eye out for Australian Private Credit figures this morning; while action in bank shares may also be worth watching, ahead of the half-yearly reports from the ANZ, NAB and Westpac.

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

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

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

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

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

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

     
  16. MaxIG
    Wall Street rout: Wall Street capped-off last week with another day of considerable losses, even despite Europe posting an okay day. Come the end of the trading session, the Dow Jones had lost 1.81 per cent, the S&P500 had lost 2.06 per cent and the NASDAQ had lost 2.99 per cent. The fact markets are entering the thin holiday period doesn’t help. One assumes that many-a investor would be rather reluctant to be sitting at Christmas lunch this year holding open-positions in equities given this market. Friday’s volume was extraordinarily high, especially in the Dow Jones, which saw activity 140% of its 30-day average. That statistic is particularly remarkable when considering that the past 30 days have seen volumes at levels very elevated by broader historical standards.
    A down day, week, month, quarter: Looking at the S&P500 as the natural benchmark, US equities have shed 12.5 per cent so far in December, and 17.1 per cent in the fourth quarter. The 14-day RSI is flashing signs of an oversold market presently, however historical trading patterns suggest the S&P can dive lower, and momentum indicators are showing bearish-momentum is still building. A technical bear market, defined as a 20 per cent drop from previous highs, looks reasonably imminent given the current context. The NASDAQ, for one, is already there. Perhaps another concerning signal, IG’s sentiment measure is indicating traders are 70 per cent net long the S&P, implying that many traders may be trying “catch a falling knife”. If big-money keeps selling, the unwinding of these long positions could hasten the market’s tumble.

    Market-wariness: With all of this in mind, even if this bearish-trend feels overdone, and that therefore an inevitable bounce must be in store, it pays to understand this can get worse. That isn’t to prophesize and suggest that it will, but more that these circumstances require higher vigilance. As the cliché goes, the trend is your friend: with panic causing normal behaviour and correlations to break-down, falling back on that one may be comforting. Of course, these ideas only speak for 50 per cent of the traders in this marker presently. The uber-bears – particularly the ones who have been calling a central bank engineered market burn-out for years – are presumably feeling vindicated at-the-moment. If not that, then at least a little richer this Christmas than compared to last year’s.
    It’s still the Fed: To address the driver of current market activity: it is still fundamentally about the Fed. There seems to be an unshakeable notion held by market participants that the US central bank is way off the mark with their policy and views on the economy. A handful of central bank speakers have hit the hustings, so to speak, in the last several days to defend the bank’s position. An interesting question that keeps getting asked (more-or-less) is if by the bank’s own modelling inflation is going to undershoot, why lift rates now at all? The answer is frequently something that resembles the “data dependant” line, made to mean that the Fed’s forecasts are dynamic and therefore so is their decision making.
    Trump’s Powell-problem: The problem is, traders aren’t buying it: they likely want to hear here-and-now that hikes will stop. It’s been made a little more difficult in the last 48 hours to get a read on how this sentiment is evolving in markets. Looking at US Treasuries for one, there’s been a slight risk premium seemingly priced into yields after US President Trump drove the US government into shut down over the weekend. This may be exacerbated today and into the week by reports over the weekend (since denied by White House Treasury Secretary Steven Mnuchin) that the US President had several serious conversations last week about firing Federal Reserve Chairperson Jerome Powell because of the central bank’s recent policy actions, and views on the US economy.
    Political instability: He couldn’t do it, could he? According to many, legislation does open-up the possibility that a President can fire the Fed Governor for “cause”. It’s an ambiguous one, and a low probability event at this stage. But all this institutional dysfunction is spooking market participants. Not that the political instability hasn’t been the norm in last few years; the perception is though it’s getting a trifle worse. It’s an international phenomenon and strikes at the core of international political system. It’s manifesting in Brexit, in US politics, in France’s yellow vests movement, in the trade-war – and on and on. Financial markets take an amoral position on such subjects; however, they do manifest emotion, and right now the political climate is leading to a lift in fear.
    Australia: Trading in sympathy with Wall Street’s rout on Friday, the last traded SPI Futures price has the ASX200 opening 40 points lower today. There’s been a level of bemusement in the financial press about how rapidly this sell off took hold. Another down day today brings into clearer view the boundary line of the ASX200’s post-GFC bull-run trend channel at about 5380. The Aussie Dollar will also be an interesting one: it tumbled to rest on support at 0.7040 over the weekend. As fears build about the strength of the Australian economy, and greater volatility in global markets leads to diminishing risk appetite, an AUD/USD exchange rate with a 6 in front of it at some point this week is becoming a stronger possibility.

  17. MaxIG
    The pull-back is here: The pull-back markets were waiting for – the one we inevitably had to have – has arrived. It’s risk-off across financial markets and the optimism that drove global stocks off their December lows has subsided. Relatively speaking, it’s been a day of significant downside, but nothing yet to warrant tremendous fear. It should be common knowledge, but it bears repeating: proper validation that global equities have truly established a recovery ought to be judged not by the latest high, but by where markets form their next low. The retracement which is apparently upon market participants now hands a golden opportunity to judge this market for what it truly is – have the bulls reclaimed their dominance, or have the bears lulled them into a trap, and now stand poised to assert further downside?

    The market’s rationale: A greater look at this subject and Wall Street’s price action later. In relation to the overnight sell-off, the rationale was as feeble as the one that got stocks to their recent peaks in the first place. It’s been chalked up to reduced positivity towards the trade-war, and renewed concerns about global growth. To begin with, very little data throughout the past week has provided a clear and substantial picture on economic growth. The boost in sentiment has come from geopolitical or monetary policy developments that was assumed to be supportive of the growth outlook – at some point in the future.  Some nice-noises made between the US and China in trade negotiations here, and a few dovish comments from a handful of US Fed speaker there, is what ignited the latest part of the risk-on rally.
    Awaiting confirmation: Hence, it was naturally the inverse of this situation that’s prompted the leg lower in global stocks. US Fed speakers have quietened down as markets prepare for the central bank’s next meeting at the end of the month. And a story-or-three about storm clouds looming on the horizon for the global economy has quashed the naïve hope that incremental improvements in the trade-war will lead to a renewal of the global growth story. Now, bullishness may yet return to markets, and quite soon at that: US reporting season hands the opportunity to be able to assess meatier, fundamental data, rather than shallow headlines. The issue now may prove the uncertainty in the lead-up to such information: we are a fortnight away from getting a complete picture on US corporate earnings.
    The overnight headlines: Sifting through the stories that mattered to markets in the last 24 hours, and one can understand why bullish sentiment has reached a lull. The downgrading by the IMF of its global growth forecasts established the context, but it was fresh fears of a major Chinese economic slowdown that really got traders edgy. They were piqued first by news that the US is sticking with its pursuit to have Huawei’s CFO extradited to the US; and then exacerbated by a speech delivered by Chinese President Xi Jinping about the deteriorating state of his country’s economy. The latter was especially unsettling: President Xi warned of potential social instability if China failed to regain control of its economy and deliver the growth required to keep satisfied the nation’s people.
    Brexit and UK data: Not that it registered as highly on trader’s macro-agenda last night, but the UK economy did share in the focus. Of course, the Brexit drama continues to unfold: Opposition leader Jeremy Corbyn made his play in the House, tabling a series of votes designed to avoid a no-deal Brexit. The news ought to be friendly to markets, and perhaps the Bremainer cause, but it didn’t do much to move UK markets. What did however, was the release of UK labour market figures overnight, which showed an increase in wages and a fall in the unemployment rate. The data, in the face of Brexit-uncertainty, pushed the Cable toward the 1.2980 mark, and lifted the implied probability that the Bank of England would lift interest rates at some point in 2019.

    A risk-off day: Looking forward to the day ahead and the economic calendar is fuller, but little jumps out as possessing the weight to turn the tide in sentiment. The Bank of Japan meet this afternoon, New Zealand’s CPI numbers are released this morning, and stories from the World Economic Forum in Davos will filter through throughout the day. Safe-havens will maintain their bid, one assumes: equities are being sold-off, the JPY is higher, gold has climbed, oil is retracing, and US Treasuries have rallied 4-to-5 basis points across the curve. The Australian Dollar, as its wont to do in these situations, has dipped, and looking as though its latest run higher is done-with. The local unit is presently just above 0.7100, as it eyes support at 0.7040.
    ASX test ahead: SPI Futures are suggesting a 31-point fall for the ASX200 at time of writing, in sympathy with Wall Street's sell-off. The ASX200 closed the day 0.5% lower yesterday, at 5858, led by a noteworthy enough tumble in the bank stocks. The short-term uptrend has now been broken, with support at 5800, 5700 then 5630 now in view. The RSI confirms a meaningful slowdown in momentum for the market, however unlike US markets, volume is well below the 100-day average still. The daily chart has established an apparent reversal pattern now and indicates a new high has been made. Just like its global counterparts, the market's essential strength will be tested, with the capacity to form another higher-low crucial to confirming a true bullish trend in the market.

    Written by Kyle Rodda - IG Australia
  18. MaxIG
    A thus far settled start to the week: It was a day of low activity and mixed results, generally across global markets in the last 24-hours. Equities were patchy in their performance, on much lower than average volumes, while a retracing in bonds revealed stable risk-sentiment. It hasn't been so for some time, but yesterday market participants behaved in a classic "Monday" way. There was a lack of a unifying theme to drive market activity in a macro-sense, leaving traders to trade-off the idiosyncratic stories moving prices region-by-region. Granted, the trade-war negotiations currently going-on in Beijing were of top priority, however the interest in that event extended only as far as speculation by the commentariat. For traders, fresh leads are being awaited, to add some semblance of volatility to the market.
    Traders awaiting tradeable leads: The data docket is stacked to the end of the week, so perhaps it'll be another couple of days of listless trade before global markets really start to reshuffle the deck. Of course, a surprise could ignite some excitement; but naturally that's inherently unpredictable and difficult to position for. Chinese markets returned to the fray yesterday, adding that lost liquidity from markets. Japan was offline instead, creating some choppy trade in the CHF in very early trade. The reintroduction of Chinese markets may well have soothed the bull's concerns temporarily. After a week away, during which plenty of market moving events occurred, Chinese traders felt it fitting to ignore the noise, and jumped back into stocks, to deliver a 1.82 per cent gain for the CSI300 yesterday.
    Iron ore prices rocketing higher: Iron ore prices demonstrated best the impact of the return of Chinese demand to markets. Having continued to climb despite the absence of Chinese traders, and in light of further concerns about future production and supply into commodity markets after the tragic Vale dam collapse, iron ore burst out of the gates upon the reopening of the Dalian Commodity exchange. So much so, that on the first tick, the active iron ore contract reached its limit-up level, and effectively froze trade in the market. The price in iron ore is looking aggressively overbought in the short-and-medium term and is likely to attract short-sellers; however, there’s no knowing how long worries about iron supply into markets will linger, meaning countering this trend is not for the faint hearted.

    ASX200 held together by strength in materials sector: Australian markets are, as one can easily imagine, benefiting from iron ore’s parabolic rise. Despite an overall lacklustre day in domestic equities, during which breadth was quite balanced and volume was below average, a 16-point gain from the materials sector proved enough to staunch much of the ASX200’s losses. On the back of this, today SPI Futures are indicating a 14-point jump at the open for the index, probably once more courtesy of, in a big way, further falls in Australian Commonwealth Bond yields, and the depreciating Australian Dollar. Price action in the short-to-medium term is showing an ASX200 somewhat in no man’s land: at 6060, and with slowing momentum, the market eyes support at 5950, as it pulls gradually away from 6100/05 resistance.

    Markets keep pricing in weaker Australian growth: The Australian economic growth outlook is still looking clouded. Markets have been leading policy makers on this fact, and after the RBA’s admission last week their growth forecasts aren’t as strong as they once were, traders have taken another leap ahead to price-in weaker growth and inflation, and lower rates for the Australian economy in 2019. The pivotal event to watch will be GDP figures when they are released to gauge the merit of this view; but unfortunately, market participants will need to wait for the start of March to receive that information. The day ahead does contain NAB Business Confidence figures however, which may prove illustrative in a small way how the supply side of the economy views the domestic economy now and into the near future.
    Greenback rallies on weaker European growth outlook: In reference to currency markets, the US Dollar sustained its rally overnight, as the combination of a desire for safe-haven assets and higher yields push-up the greenback. The conspicuous loser out of this dynamic has been the EUR/USD, which has broken below the 1.13 handle once again overnight. Although they climbed yesterday, the trend lower in European bonds yields looks to be manifesting in the shared currency, as traders price in the prospect of a major European slowdown. The flight to the greenback weighed heavily on commodity currencies, too. The Australian Dollar registered an overnight low of 0.7057, pressured by widening yield differentials, with the spread between the very interest rate sensitive 2 Year ACGBs and USTs widening to 82 basis points. 
    The UK experiences its own growth concerns: Still in currency land, and the Pound was one of the worst performing G10 currencies overnight, following the release of a slew of weak economic data during European trade. Most conspicuous was the fall in headline month-on-month GDP, which printed at -0.4 per, driving a miss in the more-impactful quarterly figure of 0.2 per cent – a skerrick below the 0.3 per cent that economists had estimated. Remarkably, even in light of the data-dump, which clearly illustrated the sluggishness of the UK economy, interest rate markets scarcely moved. A likely reflection of (an arguably Panglossian outlook for) Brexit expectations, interest rate traders are still maintaining an implied probability of 33 per cent that the Bank of England will hike interest rates before year end.
    Written by Kyle Rodda - IG Australia

  19. MaxIG
    A rocky start to the week: The first day of the week’s trade can be reasonably said to have ended – and it was a tumultuous one. US President Trump’s tweeting of new tariffs on the Chinese economy sparked a level volatility not experienced in the financial markets for several months. It certainly had the effect of waking some (perhaps) complacent market participants from their slumber. And although the panic has abated somewhat, sentiment has been dented again this morning, after an announcement from Robert Lighthizer this morning that US tariffs on Chinese goods will be increased this coming Friday.
    US trade showed greater equanimity: Wall Street was closed when this information became public. However, during US trade, the S&P500 progressively climbed over night, after gapping considerably at its open. On any other day, one would suggest that the action seen in US equities overnight was negative: the S&P500 is down just shy of 0.5 per cent, with market breadth a lowly 26 per cent. But considering the circumstances, along with lead handed to US traders from Europe and Asia, the price action ought to be viewed with a silver lining. The buyers in the market still seem to outweigh the sellers in the big picture, for now.
    Volatility is re-awoken: Volatility has spiked and remains elevated globally. That dynamic may linger for some time yet, too. Arguably, measures of volatility were mispriced anyway, with the VIX trading as low as 11 up until only recently. It’s at 15 now, after lifting above 19 at stages yesterday. The dust will settle this morning in Asia’s trade, despite this morning’s new trade-war developments. So much is being portrayed in futures markets: our ASX200 for one, after shedding 0.82 per cent in rapid fashion in yesterday’s trade, will regain 25 points at today’s open, according to the SPI Futures contract.

    Chinese stocks at the forefront: The real interest for macro-watchers today, though, will be how Chinese stocks perform. For reasons that need no explanation, they got whacked in Asian trade yesterday, with the CSI300 sustaining losses close to 6 per cent. The extension of this was an underperformance in risk assets everywhere. It was especially true for the Australian Dollar, which traded at an intraday low of 6963 overnight. Safe havens have naturally prospered in this environment, driving gains in high-grade government bonds, lifting currencies such as the Japanese Yen, US Dollar, and Swiss Franc.
    Letting the dust settle: For the discerning punter, today’s trade should reveal far more about the truth of the impact of US President Trump’s policies. The trade-war after all disproportionately impacted Chinese and European equities when trade-tensions were last this high. On top of this, it will be curious to see how participants in Chinese markets, who’d more-or-less priced out an escalation of a trade-war, approach equities. The turnaround in trade overnight (seemingly) came consequent to news that China would still be attending trade negotiations in Washington, with interest now as to whether this news alone is enough to settle bearish sentiment in Chinese markets.
    The RBA to seize focus this afternoon: All other news was practically washed out overnight by the reaction to US President Trump’s trade-war Tweets. But today, for Aussie traders, the RBA, at least momentarily, will be the centre of attention. For the first time in several years, market participants approach an RBA meeting with its outcome genuinely unknown. On the one hand, pro-cutters suggest that given the recent poor CPI data, and softer overall economic activity, the RBA should stick strictly to its mandate and cut rates. On the other hand, pro-holders possess a “wait and see view” suggesting more rate-cuts will yield diminishing (and insufficient) returns, anyway.
    What are the markets expecting? Interest rate markets are very marginally pointing to a hold decision from the RBA. Around 12 basis points of cuts are baked into the market right now. It’s expected to be a relatively volatile event no matter what: either the RBA cuts, and the market must rapidly price-in the extra 13 basis points of cuts not “in the market”; or they hold, and the market must price-out the 12 basis points of cuts. If the former proves true, the AUD and bond yields will likely tumble, and stocks should get a solid lift; while if the latter proves true, the inverse ought to occur. 

    Written by Kyle Rodda - IG Australia
  20. 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
  21. MaxIG
    Written by Kyle Rodda - IG Australia
    Day 1 of 5: Monday looks like it may be one of those days where Wall Street hesitantly pulls itself up out of the dirt in the final hours of trade. There is just under two-hours to go in the US session, and at a high level, things appear not-too-bad. Let's return to America a little later. Whichever way we happen to end the first 24 hours of trade for the week, heightened risk, growth fears and bearishness is still driving sentiment. There has been no shift in market behaviour to indicate a market turnaround is upon us yet. If anything, the headlines regarding the macro-landscape added to the negativity. The data traders received was mixed; rather it was the numerous developments in the politico-economic sphere that inflamed trader's trepidation.
    The Brexit tragicomedy: The big story overnight must be Brexit. This week ought to be about the state of Europe, and at its outset, it has been. If the potential consequences weren't so dire, the situation would appear comical – akin to some absurd, but all-too real life Waiting for Godot re-boot. First-up, the European Court of Justice released a ruling that the UK could unilaterally cancel Brexit and revoke its action of Article 50. UK Prime Minister Theresa May has dutifully shut down that notion. But things did get sticky when Prime Minister May announced she would delay a vote in Parliament of her Brexit bill, on the understanding she lacked anywhere near the required votes to get it passed lawmakers.
    European price-action: It's relatively raw news at time of writing, but Prime Minister May's decision looks as though it will drag Brexit-uncertainty into 2019. The Cable has been pummelled consequently: it has pin-dropped 1-and-a-half per cent through a few resistance levels, to familiarise itself now with the 1.25 handle. The region's share indices were unaided by the news, though of course following the Asian lead, the session was always going to be a struggle. The FTSE registered a 0.8 per cent loss, despite the plunging Pound, the DAX shed 1.5 per cent, and the Eurostoxx 50 lost 1.3 per cent. The troubles seemed also to poison the shared currency, which has pulled back into the 1.13 handle.
    The European bear market: The year has been a write-off for European markets. Now that the macro-narrative is dominated by fears of slower global growth, it seems any hope things can turnaround for the continent is waning. Last night's data out of the region was mixed: UK GDP printed at the 0.1 per cent forecast, but manufacturing production was shown to contract by -0.9 per cent. Data out of continental Europe is still a couple of days away; there will be little in the way of fundamentals news and information that can shift the tide for Europe, however. We are so far in a bear-market in the region, any turnaround appears unlikely. If anything, with US growth and stock market performance converging with the rest of the world, the falls could easily accelerate.

    Asia and the ASX yesterday: The same goes for Asian markets - and more specifically, the hitherto resilient ASX200. Major Asian indices, from China, to Hong Kong, and Japan, all gave up considerable ground in the Asian session. But it was a filthy day for Australian equities yesterday, which was at the bottom of the table in terms Asian equity market performance. Previously solid support levels were brushed aside in early trade for the ASX, as traders collectively decided the share market isn't the place to be right now. Breadth was very narrow at 10 per cent, every sector was in the red, and volume was quite high, particularly for a Monday. The financials were the main culprits, hurt most by fears of domestic economic turmoil: it contributed 57 points to the markets losses.
    ASX price-watch: Everything points to a bearish impulse for the overall index. SPI Futures are indicating a bounce of 30 points today, but it pales in comparison to the 128 points given up yesterday. The bottom of a decade long trend channel is exposed in the bigger picture, now: about 5380 (or so) is the level to watch. If this is the unfolding of a true bear market – a 20 per cent correction from previous highs – the stop after breaking this trend would be around 5090. Getting carried away isn't helpful here, and it's too premature to make doomsday calls on the market. However, true bear markets do often correlate with major economic slowdowns: investors could be trying to tell us something here, so if a market bull, being alert (but not yet afraid) should remain the default setting at least for the time being.

    Wall Street: Returning to US markets, with less than an hour to go in trade, action could be (generously) described as mixed. It’s still risk-off, however the severity of risk aversion has diminished. US Treasury Yields have climbed modestly across the curve, benefitting the US Dollar, which flexed its might again overnight. The US Dollar Index is around 0.7 per cent higher and back above the 97-mark. Credit spreads have narrowed as the session has worn-on. The S&P500 looks like it could close flat, the Dow Jones has rallied late, and the NASDAQ has added around 1 per cent. Much of this comes courtesy of a bid higher in the major, mega cap FANG stocks. A word of warning (it almost goes without saying): breadth is 40% and uninspiring, with the rally attributable to gains in a select few big-tech names. Little of what occurred on Wall Street should be considered a firm sign of an imminent turnaround.
     
  22. 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
     
  23. MaxIG
    China’s data inspires relief: The Middle Kingdom was at the centre of financial market focus yesterday. Informally dubbed the “monthly economic data-dump”, market participants were granted the opportunity to test the thesis that the global economy’s Q1 malaise is turning around. And though it was only one set of numbers, the answer received from the Chinese data to this quandary was to the affirmative. China’s GDP figures beat economist’s estimates, printing at 6.4 per cent against the 6.3 per cent forecast; and the litany of other data-points, most notably retail sales, industrial production and fixed asset investment, all either exceeded forecasts, or showed signs of improvement.
    The global economy’s resurrection? The Chinese data has added further credence to the notion that China’s economy, and therefore that of the rest of the globe, isn’t about to fall off the cliff. Judging by the improvement in the numbers, policymakers intervention and receptiveness to market and economic trouble, not just in China but globally, is apparently feeding through into economic activity. Although global equities, and especially Chinese equities, resisted reacting to the good news – the lower likelihood of greater monetary stimulus can explain that one – growth exposed assets conveyed the market’s greater optimism and risk appetite, boding well for risk-assets into the longer term.
    Traders bet on economic turnaround: As always, we need not look any further than our Australian Dollar to judge the merits of this case. Granted, it’s cooled its intraday rally somewhat now, but the local currency spiked upon the release of the Chinese data yesterday, breaking through (briefly) its 200-day moving average, and experimenting for a while with a life above the 0.7200 handle. The enthusiasm for the Australian Dollar was tempered overnight, as traders factored in more fundamental concerns pertaining to the Australian economy into market pricing. Nevertheless, the brief spike in the market’s favoured growth proxy proved that traders aren’t averse to placing bets on a global economic turnaround.

    Sentiment overriding A-Dollar’s fundamentals: Sticking to the Australian Dollar, and a reflection on the currency’s fundamentals portrays the opposing forces driving its price action, at present. In fact, market-action yesterday reflected the “growth-proxy” versus “weak-fundamentals” dilemma well – with the latter proving an inhibitor of the enthusiasm demonstrated by the former. Prior to the Chinese data release, the Aussie-Dollar looked ready to shed its recent gains, after New Zealand CPI figures notably missed economist’s estimates. The response from traders to that release was to price-in more aggressively rate cuts from the RBNZ and, due to belief the New Zealand and Australian economies share major commonalities, the RBA, too.
    Iron ore retraces its gains: Another driver of A-Dollar upside went missing yesterday, too: iron ore prices have rapidly retraced their recent gains, falling over 7 per cent from its recent highs. The tumble in the price came counter to the intuitive logic that perceived improvements in the global economy ought to lead to a lift in commodity prices. Proving once more that iron ore’s rally has been a function of supply shocks rather than economic fundamentals, the market sold contracts for the mineral after news hit the wires Vale would be reopening one of its major Brazilian mines, potentially marking the beginning of the end of underproduction in that market.

    Fall in iron ore prices drag on the ASX: Naturally, iron ore’s fall legged materials sector stocks yesterday. It was one factor, combined with the rallying Australian Dollar and slight lift in discount rates, that lead to an overall fall in the ASX200. The theme seems likely to continue today, too. According to the SPI Futures contract, the index ought to drop about 21 points at this morning’s open. Today may prove one of those days where the markets direction is determined by the resilience of the banks: financial stocks added 17 points to the ASX200 yesterday, masking a weak day for Australian stocks, which traded on less than 40 per cent breadth.
    A busy day leading into the long weekend: Trade across the rest of the globe in the next 24 hours may well be dictated by pre-positioning for the Easter weekend holiday. Wall Street trade was characterized by relatively higher activity overnight, but the results were underwhelming, with the S&P500 dropping 0.23 per cent, and (fittingly) closing bang-on 2900. Despite the assumed reluctance from traders to make big bets leading into a long weekend, economic data will be dense: Australian employment figures are released this morning, before focus turns to a swathe of high impact European PMI numbers, and US Retail Sales data tonight.
    Written by Kyle Rodda - IG Australia
  24. MaxIG
    Written by Kyle Rodda - IG Australia
    ASX yesterday: The ASX200 put in a very respectable day's trade yesterday. It was looking gloomy at the outset. Market participants were preoccupied with the economic struggles in China and the Friday sell-off on Wall Street. However, the 32-point drop forecast for the Australian market didn't materialise, providing scope for the index to cling-on to the 5600-mark, and forge gains throughout the day. The Australian session ended with the ASX200 1.00 per cent higher. It must be remarked that though positive, it was a day of light news and thin trade. The MYEFO release, coupled with BHP's share buyback and special dividend boosted sentiment, but volumes were quite some way below average, signalling a lack of conviction behind the day's rally.
    ASX today: The gains look quite certain to be unwound this morning, however. SPI futures markets are indicating a 90-point drop for the ASX200, taking us almost squarely to where we were ought to have opened yesterday morning. The Wall Street chaos appears an inescapable lead today. It'll be touched on in a moment, but US shares a copping a battering (again) to start the new week. Financials and growth-stocks might be the barometer today. The banks are receiving a belting, falling yesterday even within the market's overall rally. US tech is heading the losses on Wall Street, as are health care stocks, following a ruling by a Texas judge that Obamacare is illegal. Using recent history as a guide: this is a generally solid indicator that Australia's technology and health care space will be shorted today.

    Australian rates and bonds: Australian traders welcome the RBA Minutes this morning. Though probably ineffectual in the context of the day's trade, it will garner some attention from rates and currency markets, who are pricing in the prospect of a weaker Australian economy in the year ahead. Australian bonds are rallying once again on the prospect of a more accommodative RBA in 2019. The yield on 10 Year Australian Government Bond has fallen to 2.44 per cent, as break-evens in the bond market point to inflation languishing around 1.70 per cent moving forward. ASX 30 Day Interbank Cash Futures contracts have an implied probability of an RBA cut by mid next year at around 10 per cent, with any chance of a hike effectively non-existent now according to rates traders.
    The RBA Minutes: Markets will keep taking their cues from overseas developments to judge the macroeconomic outlook for Australia, given the concerns about a synchronised downturn in the global economy in the coming years. However, today's RBA's minutes will be perused for commentary on the strength (read: deteriorating state) of the Australian consumer. The MYEFO release yesterday forecast wages to grow at 2.5 per cent next year and 3.00 per cent the year after. Given the burden of high private debt levels, a narrowing savings rate and falling property prices, wages growth at the projected rates is unlikely to overcome such drags, meaning future slackness in domestic consumption is likely. It’s this is what is driving the bearishness towards the Australian economy, which risks being hit from both sides if weakness in domestic demand conspires with a marked slow-down in the Chinese economy.
    Australian macro: The problem of the Australian consumer is a medium-to-long-term matter for traders, and the RBA's Minutes will probably take a glass half full approach to the economy, as they are wont to do. The harsh realities of a weaker domestic demand will manifest over time in our markets, especially our embattled banks, which find themselves caught in the global bear market in financials stocks. The Australian Dollar ought also to remain in focus, primarily as concerns about Chinese growth raise issues about our terms of trade. The strength or weakness in the AUD rests on a combination of Fed policy and Chinese fiscal policy. If global-growth jitters persist, the A-Dollar as a risk-off growth- proxy currency should presumably suffer: the next key level of support is at 0.7150, before steep downside opens-up from there.
    Global indices: Coming into the last hour of Wall Street's session, things are looking bleak. If you're an investor or any other kind of equity market bull, you'd be nervous. If you're a bear, then you've experienced another day of vindication. The major European indices were down overnight: the DAX was off by 0.86 per cent and the FTSE100 by 1.05 per cent. US stocks have followed suit: after numerous failures to break-through, support on the S&P 500 and Dow Jones has been breached. The psychological barriers of 2600 and 24,000 have been cleared. Barring another miraculous final hour rally in US shares, the 2 major US indices are poised to register fresh lows at levels not clocked since early-April this year.

    Risk-off today: As can be assumed, it's risk-off wherever you look in global markets. US Treasuries have rallied - the US 2 Year Note is yielding 2.70 per cent and the US 10 Year note is yielding 2.85 per cent. The greenback has been sold consequently, giving the EUR a boost to 1.1350, and the Pound a lift to 1.2630. The Yen is back in the 112-handle as the carry trade unwinds, boding poorly for the Nikkei today. The Australian Dollar is steady against the greenback but weak mostly everywhere else. Gold has rallied to $1245 courtesy of the weaker USD, but oil has been smashed with WTI plunging below $50 on renewed fears of a glut. Spreads on junk bonds have blown-out subsequently, trading as wide as they have been for two-years. Ultimately, The action is culminating in an Asian session that shapes as another one for the Bears, as Santa's rally looks increasingly likely to be skipped this year.
     
  25. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 17 Dec 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends this week
    Index Bloomberg Code Effective Date Summary Dividend Amount PSI20 COR PL 17/12/2018 Special Div 8.5 RTY PRA US 20/12/2018 Special Div 50 RTY HTLF US 20/12/2018 Special Div 5 RTY SYX US 21/12/2018 Special Div 650 RTY EVI US 24/12/2018 Special Div 13  
    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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