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MaxIG

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  1. The bulls keep control: SPI futures are indicating that the ASX200 will climb another 20 points at the open, adding to yesterday’s bank-led 1.95 per cent rally. Another solid day on Wall Street can also be pointed-to for the market’s start in the green, with US shares continuing their run-higher. Quietness in Asia courtesy of the Chinese New Year holiday has kept some negative headlines way, aiding the bullishness. Global bond markets are steady, gold is off its highs, and credit spreads keep narrowing. Locally, the RBA’s optimism also gave the Aussie Dollar a kick-higher and lifted domestic yields. It’s a risk on attitude, for a multitude of reasons, here and abroad. There’s so much reason to be wary in markets currently; however, the bulls have seen enough to take a gamble in this environment. Some classic-cases of can-kicking: One lesson from financial markets in the last week: no person wants to be the one responsible for making necessary changes to something in the long-term, if it means inflicting pain in the short-term. It’s a characteristic of human fallibility and is arguably evidence as to why when crises occur, they tend to hurt more than perhaps what is necessary. There is a parallel with what we’ve seen in the US in the last 7 days, and what has transpired in Australia this week. In the US, it was US Federal Reserve Chairperson Jerome Powell wilting under the pressure of Wall Street in his bid to normalize interest rates. In Australia, it was the Hayne Royal Commissions failure to make the necessary systemic changes to improve the nation’s financial system. An invidious dilemma: When presented with the opportunity to make meaningful, structural change, individuals back away from doing so, to clear themselves of culpability for instigating a crisis. Sympathy to these folks who are handed the crushing responsibility of making these invidious decisions. Surely any other rational person would behave and make choices in the same way if put in a similar position. But removing single agents from the equation, and it becomes the case our human-systems remain tremendously difficult to reform without seeing them collapse first. People are motivated by short-term incentives, it ought to be inferred, and will seemingly (more-often-than-not) act according to those incentives, even if it means perpetuating a system that is dysfunctional, or worse, perhaps even immoral. No-one wants to be the fall-guy: One can make a blanket, high-level assertion as to why this is so. Our social, political and economic systems are entrusted to people whose mandate is to either ensure compounding prosperity, and a progressive and inexorable improvement of quality of life. When single individual’s take temporary control of a system that will outlast their tenure, they are incentivised to use it to serve their most immediate interests. For the people in power, it doesn’t matter so much that by failing to take responsibility now, they are adding to the grief to be worn by those in the future. It’s better for them to keep the machine rolling and take a gradualist approach of incremental (and superficial) change, even if it means compromising in the future what is being fought to preserved in the present. No-one benefits (now) from change: But sometimes, like the broken fridge that keeps needing its parts replaced bit-by-bit to keep it alive, it’s better to throw the whole machine out, even it means going without food for a day. The actions we saw out of the Hayne Royal Commission, for one, amounts to the tinkering of the system, without fixing the whole thing. An oligarchy of private banks has proven to be socially disruptive, but to break up what some call the “cartel”, it would mean major financial and economic disruption. Credit growth would go cold, pressuring the property market and the broader-economy that relies upon it; bank shares would depreciate and erode wealth, weighing on people’s future prosperity; and the Government’s coffers would become emptier, meaning it could do less to serve the nation. When it’s good, it’s fine; when it’s bad, it’s too late: As alluded to earlier, the phenomenon witnessed in the fall-out of the final Hayne Report can also be seen in the decision-making of the US Federal Reserve recently. For years, global asset markets have prospered courtesy of the innovative practices central banks have used to support a system that is disposed towards chaos. The pain of making true systemic change is deferred, to keep in place order and stability in the present. When it becomes necessary to unwind some of these practices, when it is justified, if not necessary, just like we have seen in the US recently, the prospect creates convulsions and disarray. Although it’s known that long term objectives will be compromised by short-termism, immediate self-interest once again comes to the fore, and bastardizes the process. Instant Karma is (not) going to get you: So much of what happens in financial markets is driven by short-term benefit, in the (often) naïve hope that when things turn truly bad, you’re not the one left carrying the can. Hence why Wall Street has rallied the way it has since the Fed took its dovish turn last week, and why the banks (and therefore the entire ASX) experienced its extraordinary rally yesterday. Market participants are enjoying their spoils now, in the knowledge that if they don’t, they’ll miss-out on the opportunity to take a slice of the good times while they are still on the table. It’s well known certain things need to be fixed, but no one wants to forego short-term benefit, or be the one responsible for bringing about short-term pain, so the system rolls on. Written by Kyle Rodda - IG Australia
  2. Global markets relatively still: Wedged between the beginning of Chinese New Year and Superbowl Sunday in the US, financial markets, on a global scale, have been a relatively quiet place in the past 24-hours. The excitement, anxiety and anticipation that has catalysed movement and activity in global markets lately was noticeably absent. Last week was a hard act to follow, what with the Fed, US corporate earnings, trade-war negotiations, Brexit, and a litany of fundamental data to keep traders occupied. Not to mention that being a Monday, news flow in the financial press is always a little lighter than what it is the rest of the week. Overall, the major equity markets in Asia closed in the green yesterday, Europe was on-balance lower come the end of the session, and Wall Street should finisher the day higher. The Hayne Report handed-down: Considering the quietness – and as this is being written, the hope is US President Trump keeps his fingers away from Twitter – it provides a good opportunity to pop-on the parochial Australian hat and look at how local markets are evolving. In a reasonably significant way, Australia was where the locus of interest lay, if only in the Asian session, during yesterday’s trade. The final report of Kenneth Hayne, QC’s Banking Royal Commission had Aussie markets on edge throughout the day; and had global investors curious as to what game-changing findings would come out of the report. The pre-positioning in the morning’s trade had the ASX experiencing much larger volumes than the average Monday, though that petered out as the session unfolded and attention turned to simply awaiting the report’s release. The initial reactions: Avoiding the legalese and focusing simply on the initial market sentiment, and it might be fair to say that investors are quite pleased with the findings handed down in the final Hayne Report. It’s only a very early indicator, and the move was modest, but upon re-opening yesterday afternoon, SPI futures registered a quick 12-point jump after digesting the report’s findings and the subsequent Press Conference addressing them from Treasurer Josh Frydenberg. The move was pared as the European and Middle Eastern markets took control of price action. However, what the activity reveals is that the emotional money – the one that reacts straight-out-of the gates to news and noise – judged what was contained and prescribed within the Hayne Report as being on-balance beneficial to bank stocks. Smart money buying bank bargains? Taking a slice of Wall Street’s overnight upside as well, and SPI Futures at time of writing are pointing to a 28-point jump at the open for the ASX200. During intraday trade, the ASX managed to deliver a positive day for market-bulls. Whipsawing for the first hour of trade, the bulls took control of the market as the day unfolded, led by the bank stocks, which added over 17 points to the ASX200 by the day’s end. The price action screams of the classic “dumb-money-versus-smart-money” dynamic: the dour headlines about the Royal Commission spooked the emotional retail investors, who sold at the market’s open and pushed the price lower, only to establish better buying conditions for the “smart” institutional investors, who bid the banks and the index higher throughout the day. The banks avoid the worst-case outcome: Given the activity in futures, the market reaction could simply be a matter of “buy the rumour and sell the fact”, as the cliché goes. Alternatively, it could be a sign that market participants believe the 76 recommendations in the report were a little softer than expected on the financial services industry. Looking at what was recommended, and the kind of structural change that some pundits were calling for did not get mentioned. In short: the banks won’t need to be broken apart, and ASIC and APRA will remain the “two-peaks” of the regulatory framework. Most of the pain falls upon mortgage brokers and financial planners, with the general intent of the recommendations looking at existing laws and institutions to kill dodgy sales practices, abolish perverse remuneration programs, improve financial advisory practices, and hold future wrong doers to account. Credit and trust: The Royal Commission itself, we’ve been told, is to restore trust in the banking system, while ensuring ample credit-conditions and the necessary competition remain in the financial system. It’s always a poetic reminder: the origins of the word credit come from the Latin word “credere”, which means to “believe” or to “trust”. The extension of financial credit – the thing that invents and keeps capital in the world moving around – is essentially an exchange of trust. Fortunately, given what’s been revealed the Banking Royal Commission, consumers need not believe in the goodwill of a monolithic institution to extend their trust to it. We have legal coercion instead. The hope is now, out of all of this, even if power isn’t redistributed by breaking-up the banks, the legal institutions who are there to “keep the bastards honest” start doing their job. RBA day and Retail Sales: Staying focused on the fortunes of the Australian economy, the day ahead will be headlined by local Retail Sales data and the RBA’s first meeting for 2019. It’s a fitting mix, considering the major risk to the domestic economy and RBA policy, given mounting household debt, sluggish wages growth and falling property prices, is the strength of the Australian consumer. Today’s meeting from the RBA is the first we’ve formally heard from the central bank since the start of December. Given the many developments in the world economy since then, there will be plenty for the RBA to catch-up on. They won’t move rates today; that much is known. But the guidance moving forward is key, with rates markets still pricing in a 40 per cent chance of a rate cut this year. Written by Kyle Rodda - IG Australia
  3. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 4 Feb 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends this week Index Bloomberg Code Effective Date Summary Dividend Amount NIFTY INFO IN 24/01/2019 Special Div. 4 TOP40 NTC SJ 23/01/109 Special Div. 40 RTY CZNC US 25/01/2019 Special Div. 0.1 How do dividend adjustments work? As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements. This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  4. US economy still leads the pack: The bounce in global equity markets has been uniform, but the economic data is pointing to a return of the “diverging global growth” narrative. It was what dominated the latter half of 2018: the US is humming, while the rest of the world economy languishes. The difference in economic fortunes isn’t quite so stark now, however it remains conspicuously extant. It becomes a matter of how long such a dynamic can last. Frankly, market participants had resigned themselves to the fact it was already over. But a quick review of even Friday’s economic data alone suggests the narrative still has legs. An all-encompassing global economic slowdown is likely to arrive, eventually. For now, though, the US economy has its head above the water, while rest of the world doesn’t. Financial conditions and economic data supportive: The dovish Fed are, and will continue to be supportive of this, as financial conditions loosened once again in response to last week’s FOMC meeting. It’s no mystery to markets: the correlation between a recovery in financial conditions and the performance in equities is clear. The fears of a US recession, based purely on the macro-data, is still unfounded. The numbers coming out of the US on Friday weren’t spotless, but they were still very strong. ISM Manufacturing PMI beat economist consensus forecast, and US Non-Farm Payrolls showed an increase in jobs in the US economy of 304k. The jobs data was marred by a downgrade in previous months jobs-gain numbers, a dip in annualized wage growth, and a tick-up in the unemployment rate. Overall, however, the data showed a still strong US economy. Asian and Europe tangibly slowing: This contrasts with what came out of Europe, and really the rest of the world, during Friday’s trade. Europe is clearly heading for an economic slowdown, and it’s becoming a matter of true concern. Chinese economic data reminded traders too that the Middle Kingdom finds itself in its own strife. PMI numbers released from both geographies greatly disappointed market-bulls. The Caixin PMI release revealed a far steeper contraction than what had been estimated, while the balance of several European PMI numbers showed general weakness in the Eurozone – especially the embattled Italian economy. To be fair, European CPI numbers did beat forecasts slightly. But at 1.1 per cent annualized, it remains so far below target that the notion the ECB will hike rates before the next recession seems laughable. Financial markets neutral bias on Friday: As soft as the numbers were, they didn’t appear to faze traders a great deal. One assumes that the outlook reflected by the data was largely priced into the market. If anything, markets were pricing in a worse (collective) result to the weekend’s data. Interest rate traders lifted very negligibly their bets of rate hikes from the ECB and the US Fed – though it must be said the balance of opinion is in favour of no moves at all in 2019. Bonds sold off based on this, and emerging market assets, which had benefitted most from the dovish Fed, pulled-back to end the week. The US Dollar is in a short-term downtrend, apparently keeping gold prices elevated. The Australian Dollar kept range bound though, hovering around the mid-0.7200’s. The recovery keeps on rolling: Friday’s trade when assessed on its full merits belonged to the bulls though. Really, the entirety of last week did. It wasn’t a unanimous decision by any means; but it was enough to keep the “V-shaped” rally in equity markets intact. The extremeness of the January stock market recovery has pundits increasingly questioning what the next sell-off will look like. The “shape” of this price action is quite unusual, they are telling us. What was experienced in the last quarter of 2018 was somewhat extraordinary, so perhaps an extraordinary recovery is a necessary consequence of that. Where the market puts in its next low is a point of curiosity: Wall Street has visibly broken its downtrend, so the next low in the market builds the foundations for the next possible uptrend. ASX poised to gain this morning: The US lead will translate into a 20-point gain for the ASX200 this morning, according to the last traded price on the SPI Futures contract. Friday’s trade wasn’t quite as bullish for the ASX as it was for other parts of the global equity market. The index closed effectively flat, on a day of above average volume and relatively poor breadth. Iron ore prices, which have maintained a consistent rally since the tragic Vale dam collapse, have fed a rally in the mining stocks. The materials sector added 4 points to ASX200 on Friday and looks poised for further upside moving forward, as another shifter higher in oil prices, a weaker USD, and general market bullishness support elements of international commodity markets. The banks under scrutiny today: The challenge for the market will be trying to sustain a move higher while there remains so many concerns about the financial sector. The final report from the Hayne Royal Commission is released after-market today, and the uncertainty generated by what will be recommended in the report is keeping upside in bank stocks, and therefore the ASX200, at bay. Only time will truly tell what recommendations will come from the report – with less than 12 hours until its released, markets need not wait long for answers. Whatever is revealed, it will be assessed through the lens of how it may impact future credit conditions in the Australian economy, especially given the major slowdown in Australian property prices, and the recent slowing of consumer credit growth in the overall economy. Written by Kyle Rodda - IG Australia
  5. Dear IG community, There will be some changes to some of our Asian markets over the upcoming Lunar New Year, starting Monday 4 Feb. We will continue to make out of hours index prices throughout any breaks (excluding Taiwan and Malaysia). See the table below for the relevant information.
  6. Fed sparks bullish sentiment: Traders were bullish overnight, but as far global equities go, the ultimate results were mixed. Activity has been very high, that’s irrefutable. Volumes flowing into stocks have been much higher than average, no matter where you look. Fundamentally, the Fed has lit a fire under markets, and traders are repositioning to adjust to a new set of circumstances. The fundamentals have shifted in quite a meaningful way. It’s the notion that the Fed will maintain monetary policy support that has made this so. A world of relatively easy monetary policy and loose financial conditions has market participants believing the record bull-run can be sustained. It may prove fleeting, merely a boost in sentiment, but at the very least today, markets have found their justification to buy-in. Bond markets start to adjust: Look no further to rates and bond markets to see the true impact of what the Fed has done. US Treasuries had been a boring market to watch for most of January, at least when compared to the events of late 2018. The US 10 Year note had been less than a 10-basis point trading range. The ultra-dovish Fed yesterday morning put an end to that. Implied probability for a rate hike this year from the Fed has for all intents and purposes has now been erased. By the end of the year, interest rate traders see little more than a 1 per cent chance that a rate hike will occur. US Bond yields have tumbled consequently, with the US 2 Year Treasury now yielding little more than current US Federal Funds rate. The greenback smack-down: The US Dollar is losing its advocates it seems. The pro-Dollar cheer squad espoused two reasons to justify their hitherto bullishness: if the economy regains its strength, then that means higher US rates, ergo a stronger greenback; if the economy goes into decline, that means greater risk aversion, ergo a stronger greenback. That idea is very cogent and could prove true in time, but here-and-now, the price action flies in the face of Dollar bulls. The USD is well off its highs, and although receiving a lift from a weaker Euro last night, a lift in our Australian Dollar (along with other risk-currencies) to above 0.7260 suggest traders are more than happy to short the greenback where it presently trades. Global economic data shows further weakness: Which leads to the irony, or perhaps contradiction, in financial markets at-the-moment: global growth keeps showing signs of a synchronized slow down. A weaker global economy in 2019 is all but a given if you listen to the analysis of the global economic elite. Last night though, markets were delivered another dose of reality about what the “real” economy is up to. A truckload of macro-data was released yesterday, and though there were some solid numbers here-and-there, most of it was quite ugly. Canadian GDP figures showed a contraction in growth for the quarter, German Retail Sales data missed by a long way, Chicago PMI disappointed, Italy is entering a technical recession, and Chinese PMI figures remain in contraction territory. Trade-war pain hurts Europe: It didn’t help sentiment toward global growth that US President Donald Trump decided to hit Twitter to discuss the trade war overnight. He said nothing inflammatory, in fact he was quite positive about trade negotiations. However, the US President made quite clear that a trade breakthrough couldn’t be expected until he and Chinese President Xi Jinping sat down to nut out the final details. Seemingly, European markets copped the brunt of that news, and it showed up in its currency and fixed income markets. The EUR was down across the board last night, as German Bund yields collapsed to a 2-and-a-haf year low -- primarily as recession risks in the European economic bloc, and a subsequently idle ECB, forced traders to price-out the prospect of monetary policy normalization in Europe in 2019. ASX200 bucked the theme: Not that is represents much, but the to-and-fro between the optimism regarding a more dovish Fed, coupled with the grow anxiety elicited by slowed economic growth, has SPI futures pointing to a slim 5-point gain for the ASX200 this morning. Defying the theme in global markets yesterday, the ASX200 closed just shy of -0.4 per cent lower for the session, sustaining most of its losses during the after-market auction. Notably once again, the index failed to break through stubborn resistance at its 200-day EMA, selling-off that point once more during intraday trade. Upside momentum is diminishing in the market in the very short term, but perhaps in favour of the bulls, an ascending triangle pattern has emerged in the price action, maybe signalling an upside break is building within the market. The Fed, Hayne, and Iron Ore: The down day in Aussie stocks could be interpreted as a sign bearishness is gripping traders, but yesterday’s activity should be put into the context that the sell-off into yesterday close was probably symptomatic of a bit of end of month rebalancing in the market. Financial stocks are languishing too, as traders apparently stay out of the space ahead of Monday’s release of the final report from the Hayne Royal Commission. The beacon in the market has been the materials sector, owing to the recent rally in iron ore prices, following the devastating Vale disaster, which has thrown into question the safety (and therefore future productive capacity) of the mining industry in Brazil. To see a day in the green today, it may rely on mining bullishness outstripping banking-sector bearishness. Written by Kyle Rodda - IG Australia
  7. Sentiment weaker; but ASX to rise: SPI Futures are indicating an 11-point gain at the outset for the ASX200 this morning. It's perhaps a surprising result, given overnight activity. The chorus of pundits calling an economic slowdown grew louder, backed up by weak data and some unfavourable headlines. The Australian Dollar is better reflecting the dynamic: it's fallen through the 0.7100 level to eye support at 0.7040. Perhaps the weaker A-Dollar is behind some of the expected lift in Aussie stocks – along with a trifle greater optimism for the fortunes of Aussie banks after NAB’s rate hike yesterday. Whatever way in which we start the day today though, it will occur within the context that pessimism about global increased just a little bit in the last 24 hours. Australian employment: Australian employment data portrayed a mixed picture of the Australian labour market yesterday. The headlines were attractive. The unemployment rate fell to a very solid 5.0%, supported by jobs growth of 21k in the month of December. Digging deeper however, and the outlook is slightly less rosy. The fall in the unemployment rate was primarily due to a decline in the participation rate, and perhaps worse still, the data showed a -3k contraction in full time jobs. Nothing to panic about, by any means. But it does highlight a level of spare capacity in the economy, and further slack in the labour market. It suggests an economy still some way off meaningful wages growth and inflation for which the RBA is waiting. Australian Dollar and rates: Markets ran with the positive headline number, regardless of the fine print, happy enough with seeing a jobs market nominally at full employment. The Australian Dollar lifted, supported by an increase in Aussie bond yields, and a slight unwinding of rate cut bets by the RBA in 2019. It all proved rather short-lived however, following the announcement that NAB would be increasing its standard variable mortgage rate, in line with its Big 4 peers. The Aussie Dollar fell through feeble support at 0.7120 on this news, as traders factored in the likely negative consequences that higher rates will have on highly leveraged households, and therefore future domestic consumption. Asian equity indices: The ASX responded positively to the NAB news however, with traders welcoming the implications for earnings growth in one of the market's mostly heavily weighted constituents. It was a positive day overall for the ASX200, which managed to add 0.4 per cent for the session to close at 5865. The modest upside developed within what was a rudderless day for Asian equities. China Bulls are attempting to squeeze as much from the optimism surrounding trade talks and new PBOC stimulus. While Japanese equity markets were controlled by the Bears for the day, after Japanese PMI numbers crept closer to the contractionary zone, as the trade war continues to bite Japan's export heavy-economy. Global PMI data: It was a day for PMI Manufacturing figures across the global economy. Comparable data was released right across Asia, Europe and the US overnight. Though there were upside surprises, the data, which is considered a strong forward-looking indicator for global growth, was mostly disappointing. Indeed, the US and French number were better than forecast. But the big concern is the marked decrease – into contraction territory – of the German numbers, which apparently contributed significantly to a big miss in the overall European Manufacturing PMI figure. It supports the growing notion that Europe's economy, if not that of the rest of the world, is trending toward a downturn. ECBs increasing dovishness: This fear (more-or-less) was explicitly enforced by European Central Bank President Mario Draghi last night, following that central bank’s monetary policy meeting. Markets were pricing in a very dovish Draghi, but the price action suggests that he may have “out-doved’ market participants expectations. He emphasized carefully that risks to the European economy have “moved to the downside”. The Euro tumbled below 1.13, breaking trend, and German Bunds rallied in response, with the yield on the 10 Year Bund dipping to 0.17 per cent. Rate hikes from the ECB have continued to be taken off the table now, falling to an implied probability of 25 per cent that the bank will hike at all this year. Wall Street’s mixed day: There's an hour left in trade for Wall Street and US stocks are heading for a mixed-to-slightly-lower session. The NASDAQ is up based on better than expected earnings from US chipmakers. But the sentiment was controlled by (misinterpreted) comments from Trump trade-war ambassador Wilbur Ross that the US and China are "miles and miles" away from a trade pact. The S&P is dancing with that crucial level again at 2630 - a developing pivot point between bullishness and bearishness. It's still a risk-off day, however. US Treasuries have caught a bid on haven appeal, and the US Dollar and Japanese Yen are up courtesy of the nervousness in the market. It's probably not a make or break day; just further confirmation that the recovery might be due for a pullback. Written by Kyle Rodda - IG Australia
  8. The control of the market: The bulls and bears are circling one another, with neither to take control in a meaningful way this week. There is a vacillating in sentiment, maybe as each side recognizes that not enough information has emerged this week to tip favour towards one camp or another. Moments like these can be opportunities whereby markets build to a breaking point. It becomes a matter now of waiting for the necessary evidence to buy-in or sell-out. Headlines are determining intra-day moves in presently, as traders jump at shadows any time the theme of “global growth” or “trade war” arises. The impact of such stories appears to be diminishing now: and impatience has developed. Market participants want substance before they commit themselves to their next move. The imminent catalysts: It won’t be long before such opportunities arise. US earnings season remains one of them, and overnight earnings beats by the likes of IBM and Procter and Gamble galvanized temporary upside. A slew of PMI figures out of Europe will also be released, before central bank policy comes to the fore too, with the ECB due to meet on Thursday. As can be inferred, the next 24 hours may well centre on Europe, and its apparently ailing economy. Recall, it was the last round of PMI figures released out of Europe that showed a contractionary figure in that measure in several sovereign economies. Coupled with what is assumed to be a dovish ECB President Mario Draghi tonight, and the outlook for global growth may prove up for revision. Geopolitical noise: Other ongoing geopolitical concerns will dominate, too. Momentum in trade war negotiations has seemingly diminished, adding urgency to those talks. Davos is delivering fodder for intellectual debate about the state of the markets, though little has come yet of market-shaking significance. And Brexit-drama keeps is keeping its hold of a big part of trader’s attention. Relating to Brexit, the GBP continues to appreciate, for reasons easy to rationalize but hard to truly understand. The Cable maintained its short-term rally overnight, breaking through 1.30, on what seems to be a market pricing in the real prospect of a delay of Brexit beyond the March 29 D-Day. Far be it to argue with the will of the market, but that could prove misguided and prone to correction. Australian jobs numbers: It’s not of broad-global significance – as it shouldn’t be, with the history defining events taking place in global-macro presently – but Australian employment figures will be one to watch this morning. Economists are forecasting few changes to the employment outlook: the unemployment rate is tipped to remain at 5.1 per cent, aided by estimated jobs growth of 17.3k last month. The labour market is as strong as it has been for the best part of 7 years, as the Australian growth engine hums a long at a respectable rate of knots. Rates and currency markets are reflecting this dynamic: expectations are for a fall in both, but the strong backward-looking data are keeping pronounced swings in these markets at bay, despite a weakening global outlook. Aussie economy health-check: A surprise in today’s labour market figures would of course lead to a touch of greater volatility. Markets are pricing in something of a slowdown in the Australian economy this year: interest rate markets have an implied probability of 40 per cent that the RBA will cut rates this year. The reasoning is simple enough to understand: major concerns are building about the strength of the Chinese economy, and Australia’s domestic property market has recently accelerated its decline. The two pillars of our economy, mining exports and residential construction, are vulnerable to this set of circumstances. While it is of low probability it will show up in today’s numbers, the pessimists are waiting for gloomier outlook to show-up in tier 1 indicators, such as employment numbers. Chinese policy intervention: Australia’s status as lucky country will hinge greatly on China’s ability to stimulate its way out of trouble. Policymakers are ramping up these efforts, only yesterday introducing a new policy tool to deliver credit to businesses, via safe and stable financial institutions. That news bolstered sentiment fleetingly, particularly towards Chinese equities and the markets exposed to them. Confidence isn’t high yet that these measures will be successful, with traders really waiting a true breakthrough in the trade war. It is in part what lead to the “risk-off” tone to the week: stocks are off their highs, and safe havens like US Treasuries are somewhat in vogue. It feels like a major boost is needed to reignite the bullishness that has fuelled January’s recovery rally. Wall Street’s lead for the ASX: Entering the final hour of US trade and Wall Street stocks are clawing their way back into the green. The Dow Jones is up, courtesy of the solid IBM and P&G results, but the S&P is currently flat, wrestling with what is becoming a key pivot point at 2630. SPI Futures are translating Wall Street’s lead into an expected 8-point drop at the open, backing up another day of losses for the ASX200. It must be said that it was a battle throughout the day between the buyers and sellers on the ASX on Wednesday. The sellers took the biscuits in the end, with selling heightening in the last hour of trade. 5780-5800 is where the index may find its support in the short-term and determine whether a further sell-off is looming. Written by Kyle Rodda - IG Australia
  9. 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
  10. Bullishness settles: The ASX200 was sold into the close on a day where the market's bullishness stalled. Nevertheless, the index ended the day in the green, adding 10 points. It's a very headline driven market currently, and the finger is being pointed to news that the US and China are squabbling over intellectual property protections as the cause for the cooler sentiment. US markets were closed for the Martin Luther King Day public holiday, so the lack of tradeable information probably hindered the market too. But almost universally yesterday, financial markets traded on markedly lower activity. The ultimate result was an overall down day for stocks, a mixed day for bonds, a tinge of a bid for safe-haven currencies, while commodities were higher underpinned by well-supported oil prices. ASX set for flat start: SPI futures are positioned for the ASX200 to open flat-to-very-slightly-higher come today's open. It's a resilient market at present, with the trend line derived from recent lows looking clean and dutifully respected. The bulls guided the-200 above the 5900-mark for the first time in roughly two months yesterday. As widely expected, the market met resistance at the index's 200-day EMA around 5909 during intraday trade, registering a daily high only a skerrick above that point. Yesterday’s daily candle indicates one slightly more vulnerable to bearish control in the very short-term: the sellers overwhelmed the buyers into the back end of the day, bringing about a close in the green, but well-off the day's high. A strong start in 2019 for the ASX: Sifting through the ASX on a sector-by-sector basis, and the activity in the market indicates the burgeoning hope and bullishness of traders. Year-to-date, the energy sector has paced the gains, led naturally by oil’s recent recovery. While the high-multiple information technology and health care sectors, and the growth-sensitive consumer discretionary sector, also sits high on the table of year-to-date returns. Perhaps unlike US equity markets, the buying in Australian equities lacks evidence of deep conviction, as revealed by relatively lower breadth and volumes so far this year. Regardless, this phenomenon could be waved-off as reflecting normal trading dynamics: January tends to be a month of lower activity when compared to other stages of the year. The latest in Brexit: Brexit developments were high on the agenda overnight. Following the profound defeat in last week’s “meaningful vote”, UK Prime Minister Theresa May delivered to the House of Commons her amended vision for a way forward for Brexit. Maybe to the chagrin of traders, little of substance again could be gleaned from the UK House of Commons. The spectacle displayed the same partisanship, gridlock and frustration exhibited last week. Despite this, the Sterling maintained its recent rally and the yield on UK 10 Year Gilts stayed above the 1.3 per cent. Markets still hold the belief that the political dysfunction will force an extension of Article 50 and a delay of Brexit; or even another referendum (despite PM May denying such an event will go ahead), with recent polling suggesting a victory to the Bremainers if it were to occur. Chinese data goes to plan: Turning attention to global-macro themes in the past 24-hours, and the most watched fundamental news was China’s economic data-dump yesterday. In the lead-up, it was a potential make-or-break situation for growth-sentiment, and a potentially pivotal set of numbers for the global growth outlook for early 2019. Lo and behold, despite the high anticipation, upon their release, little came from the data. As far as traders were concerned, the figures received came-in at expectation: China’s economy is slowing (GDP printed 6.4 per cent) but at a rate that was already implied in market pricing. There wasn’t much of a kick-up in many parts of the market after the news. Chinese stocks rallied half-a-per cent, bonds fell slightly, and the Yuan dipped – though that may be due to a stronger USD. Global growth downgrade: The news pertaining to global growth that proved of greater import was the IMF’s downgrade of its expectations for global GDP in 2019. It’s the second downgrade in three months from the institution, and this time highlighted the impact of Europe’s economic slow-down as being a major cause for concern. Of course, the trade-war has been highlighted as a drag too – Europe’s troubles could well be tied back to that issue, anyway. The drop in the continents economic activity poses challenges for European and global policy makers, as the ECB fights to normalize its monetary policy settings. As it stands, markets are still pricing in a 35 per cent of a rate hike from the ECB this year, but the odds are progressively diminishing. Eyes on the elite at Davos: It bares reminding that as a bloc, the Eurozone economy constitutes comparable economic output to the US. A slowdown in Europe will be a considerable drag on the global economy. World leaders gather in Davos beginning tomorrow and the subject-matter will be high on the agenda, along with the trade-war and tighter global monetary policy. How the economic and financial elite broach these issues will be closely watched by market participants. Financial markets at the core are being dictated still by concerns relating to a drop-off in global economic growth, coupled with the impacts of potentially tighter global monetary policy settings. Language will be scrupulously analysed by traders as world leaders speak – maybe in search for a market moving headline or two – with sentiment liable to swaying on what and how something is said. Written by Kyle Rodda - IG Australia
  11. The bulls are coming back: Traders received the greenlight to jump into risk assets on Friday. It culminated in a substantial jump across global equities and a certain “risk-on” attitude to trading. The impetus was arguably more technical than fundamental. The boost in sentiment in being attributed mostly the leaked news that Treasury Secretary Stephen Mnuchin was planning to lift US tariffs on China. Whatever the motive, nefarious or simply untrue, that story was quickly denied by the White House. However, it signalled enough to the market that progress was being made in trade war negotiations. That extra fuel to this recovery’s fire supported a push above very significant technical levels in Wall Street indices, attracting buyers and further validating the view that the December sell-off is behind us. The stock market’s biggest fan: There’s one market participant who is apparently willing that notion to be true: US President Donald Trump. The US President obviously uses the stock market’s performance as a measure of his success – rightly or wrongly. And over the weekend, amidst the very many Tweets that were Tweeted by Trump, this one outlined his view on the US economy and stock market: “the Economy is one of the best in our history, with unemployment at a 50 year low, and the Stock Market ready to again break a record (set by us many times)…” Quite a pledge to make – and one markets participants aren’t going to take too seriously. Regardless, it does provide a perversely comforting story for markets, to know that the US President is wishing this market higher. Technical indicators strong: For now, at least, the direction for US, and therefore global stocks, is up. The recovery has scarcely taken a breath to start the new year. Indications are now too that the market (as a whole) is starting to believe that 2019’s early rally is for real. Technical indicators for Wall Street’s benchmark S&P500 were as solid as they have been all year on Friday. Resistance at 2630 was broken through, clearly attracting the many sceptical or nervous market-bulls, pushing the index 1.32 per cent higher for the day. Volume was well-above average for the first time in several weeks too, at 9 per cent above the 100-day average. Breadth was also highly impressive, with 91.3 per cent of stocks higher, and every sector in the green for the session. The ASX200 set to follow: Friday’s solid session in US stocks has the ASX200 poised to jump 43 points at the open, according to the last traded price in SPI Futures. The ASX enjoyed its own strong performance on Friday, though it lacked the substance of its US counterparts. Like Wall Street, every sector gained ground on the day. But breadth and volume weren’t a shadow of US markets – in line with the trend of recent weeks. IT stocks were the only sector to attract meaningful interest, largely by way of virtue of a 11 per cent rally from Afterpay Touch Group, after it updated its underlying sales numbers. The ASX200 will eye its 200-day EMA in the day ahead at 5909, a level the index ought to exceed at the open according to SPI Futures. China in the spotlight: For all the excitement that markets have achieved the turnaround they were looking for, the week ahead hurls-up several challenges to this narrative. The macroeconomic drivers of market sentiment remain the dual concerns of global growth and US Federal Reserve monetary policy. The biggest risk to global growth comes from China’s economic slowdown – and how the trade war is exacerbating that. Deep insight into the Chinese economy’s state-of-affairs will come today: a major data-dump from the Middle Kingdom arrives today, with GDP figures headlining the lot. Much of the upside experienced in markets recently has come from hope and speculation that the Chinese (and therefore global) economic outlook is better than previously expected. The data from China today will put this hope to the test. Australian Dollar: As it always is on these occasions, the Australian Dollar will likely prove to be the barometer for sentiment relating to today’s data from China. There’s been relatively thinner commentary about currency markets, and the A-Dollar by extension, in financial markets recently. There was the flash crash which generated headlines, however putting that aside as a temporary quirk of market malfunction, volatility in currency markets has been quite subdued. Realized volatility in the AUD/USD is presently 5.45 – a very low reading, especially for currency so exposed to risk/growth dynamics – with the pair trading within a 100-point range for best part of 2 weeks. Though by no means guaranteed, perhaps today’s Chinese growth figures will ignite some of the action speculators are craving. Other risk events: US markets will be closed on Monday for the Martin Luther King Day public holiday. Several of the secondary and tertiary risk-factors moving markets will keep relevance in the next 24 hours. Brexit will hit the headlines as UK Prime Minister Theresa May prepares to table alternatives to the House of Commons after last week’s failed “meaningful vote”. The US Government shut down will drag on further, after Democrat leaders declined to cooperate with President Donald Trump’s latest salvo to end the stand-off over the funding of his border-wall. And the international economic elite will gather in Davos this week for the World Economic Forum, where issues such as global trade and the normalization of global monetary policy will be the hot topics. Written by Kyle Rodda - IG Australia
  12. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 21 Jan 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends this week Index Bloomberg Code Effective Date Summary Dividend Amount NIFTY INFO IN 24/01/2019 Special Div. 4 TOP40 NTC SJ 23/01/109 Special Div. 40 RTY CZNC US 25/01/2019 Special Div. 0.1 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.
  13. Mixed trade across the globe: Global equity indices have traded mixed in the last 24 hours. Asian trade was soft, European trade was poor, while US indices look as though they will deliver another day in the green. This may not be such a bad thing: perhaps the differing performance across regional indices is a sign of a more discerning market place. Panic about the global economic landscape has subsided for now, allowing traders to take a more nuanced view of the asset class. There is a degree of divergence happening again between US equities and the rest of the world – though it must be said the ASX is still following the lead of Wall Street. Optimism about fundamentals in the US is progressively being restored; that of the rest of the world is still in doubt. US macro-outlook apparently strong: The notion the US economy is still on solid footing was supported by strong economic data last night. Both unemployment claims and the Philly Fed Manufacturing Index beat expectations, boosting confidence that the labour market and business activity is strong in the US. As has been repeated many-a-time throughout the recent stock-market funk, economic fundamentals could well be secondary or tertiary to other forces previously supporting equity markets. There are still doubts about the future of financial conditions (read: Fed tightening) and the state of the profit cycle. While the US economy is delivering strong data however, the perma-bears and recessionistas should remain sidelined – at the very least, on the basis that the US economy doesn’t yet appear to be spiralling into recession. Risk-appetite higher: Price action reflects the change in attitude of market participants. US Treasuries have ticked higher as interest rate traders price out rate cuts from the US Fed in 2019. The yield on the US 10 Year note has climbed to 2.72 per cent, and the yield on the US 2 Year note has reached 2.55 per cent. Even more promisingly, the curve is taking on a slightly healthier shape. It’s still quite unattractive, that’s undeniable. But the 2-to-10 spread is widening, as markets price a better economic outlook and a more accommodative Fed. The lift in oil prices has helped this – one point that is still understated and underestimated by many. The recent rebound in the price of the black stuff has led US 5 Year Breakevens back to 1.65 per cent. The elusive goldilocks zone: It will still stay a tight rope walk for equities, especially in the US. The financial system is arguably inherently unstable, and policymakers’ job puts them in the invidious position of keeping markets at an equilibrium, despite this instability. Hence, it’s never the case that markets aren’t at risk of losing balance and falling towards one extreme or another. The particular issue with the set of circumstances market participants find themselves in now is that the tight rope is narrower, and the risks have closed-in tighter around them. Economic data needs to remain strong to keep the recessionistas at bay on one side, but not so strong that it results in the necessity of a hiking US Federal Reserve. US earnings season the new priority: So far, so good for US markets, but of course we are only half-way through January, and there’s a long path ahead of traders, given the risks out in the market place. Focus has been set on US reporting season, given the radio-silence in the trade-war, along with the more dovish-Fed. The financials sector cooled its run on Wall Street overnight, after Morgan Stanley’s results bucked the industries trend of beating forecasts this earnings season. It hasn’t proven so far enough to undermine Wall Street’s recovery. The real interest in gauging US corporate strength will come when the tech-giants begin to report next week. For now, though, keep your eyes peeled for Netflix’s results out this morning: it’s often a volatile stock, and there are big expectations for that company’s latest results. Risks being shrugged off: Back on the risks to market sentiment, and whatever little issue has been hauled at markets this week has been effectively shrugged off. The news about Huawei facing charges in the US on tech theft didn’t undermine sentiment for long. And the bigger headline story this week, the UK parliamentary vote on Brexit, has actually engendered positivity. The GBP for one is edging higher, with the Cable eyeing off 1.30 now. A better indicator of traders’ attitude towards the UK economy is in bond-spreads. The spread between US 10 Year Treasuries and 10 Year UK Gilts has narrowed further to 142 basis points, as markets price in the chance that UK will be heading for another referendum – one that could well yield a Bremain result. A trade-war sentiment boost? There’s an hour left in Wall Street trade at time of writing, and sentiment has apparently received the boost it was looking for: news has crossed the trading terminals that the “US weighs lifting China trade tariffs”. Volume has spiked on the news and the S&P500 has broken resistance at 2630. It’s contentious whether this story has merit. Conflicting reports are coming out suggesting there is more to the story than just the headline. A Treasury spokesperson has leapt out to say that neither Treasury Secretary Mnuchin, nor trade Ambassador Robert Lighthizer have made any recommendations to ease tariffs. It’s causing markets to whipsaw. This one might be a live issue this morning. Keeping abreast of its developments in the day ahead could prove beneficial. ASX keeps grinding: In line with US cash equity markets, SPI Futures are dancing around as traders try to process the news delivered to them. At present, that contract is suggesting an approximate 20-point jump for the ASX200 this morning, up from about 15 before the news release. Whatever the extent of the rise, traders were pricing a positive start for Australian shares this morning. The ASX200 kept defying gravity yesterday, closing trade 0.26 per cent higher at 5850. Indicators relating to the conviction of the session’s move were lacking once more. It’s still January however, and activity is generally lower this time of the year anyway. The ASX200 index looks now to chase down its 200-day EMA at 5910, which itself could prove a significant hurdle. Written by Kyle Rodda - IG Australia
  14. Bullishness rolls on: The bullish correction in financial markets continues, and global equity markets are rolling on. It’s a matter of contention as to why this rally hasn’t been faded, just in the short term. Stocks were oversold on a technical basis, and the market internals were very over-stretched at the deepest trough of the recent sell-off. An elastic band effect was expected – a brief snap back in to place. Perhaps complacency will bite at some stage, and the rally in risk-assets will prove a mere counter-trend. Analysing the price-action however, the buyers are controlling the market. Keys levels in several major share-indices have been tested and breached. Yes, without overwhelming conviction, but the technical breaks of resistance are there. One must respect the will of the market. Fear falling, confidence rising: Substance in the move higher is lacking, just at present. Fundamental justifications are emerging, though not in such way yet that justifies out-right bullishness in this market. Earnings season in the US has gotten off to a good start, with bellwether banks beating analyst forecasts thus far, and the overstated effects of Brexit have been contained. The meaty part of reporting season is still ahead of us, so evidence US corporates are in a better than expected shape remains wanting. The simple explanation for why market participants are more confident now is that they believe policymakers have their back. Separating the philosophical arguments about whether that ought to be proper reason to take-risk, invest and trade in a financial market, for self-interested traders, that’s enough of a cue to buy-in now. The political-economic power-axis: The economic and financial world rests on a tripartite axis of economic power: there’s the US, Europe and China. Every other national economy is in some way a satellite to these economic giants. The best set of circumstances for markets is when all three economies are growing and possess solid financial conditions. At-the-moment, only the US comes close to passing that test in the mind of traders. In the absence of solid fundamentals, the next best thing for markets to hear is that the powerful people in these economies intend to do something big about their problems. This week, and more-or-less since the equity market recovery has taken hold, that is what markets have gotten. After months of feeling abandoned, market participants now feel comforted by policymakers soothing assurances. Policymakers making the right noises: There has been delivered numerous announcements from key policymakers in the US, Europe and China. The US Federal Reserve has launched a concerted campaign to soothe markets’ nerves, going as far as implying interest rates will remain on hold until signs of greater financial and economic stability emerge. European Central Bank head Mario Draghi acknowledged in a speech this week that the Eurozone economy is sputtering but pledged that the ECB will stand-by with policy support if necessary. And China’s key-economic boffins have implemented a range of policies – from cutting the Reserve Ratio Requirement for banks, injecting cash through open market operations, and sweeping tax-cuts – which have done enough for now to prove to traders they are serious about tackling China’s economic slow-down. The G20 meeting: The temporary reliance on policymakers to support market sentiment will be put to the test to end the week. Global financial leaders will meet in Tokyo to discuss global economy and the financial world at the latest G20 meeting, in what will certainly be scoured for signs of unity and conviction of purpose. These events are often talk-fests, with little coming out of them more than a rosy-joint press release. But with the way markets have been behaving since the start of January, this may be all that market participants need to keep talking risks and buying back into equities. Talk of stimulatory fiscal policy, looser monetary policy, and better yet, the reduction of trade barriers (read: ending the trade war) will underwrite such risk appetite. The test of fundamentals: Of course, it’s too reductive to suggest that market activity hinges in the immediate future on the outcome of this G20 meeting. Fundamentals will have to come into play and drag sentiment, wherever it goes, back to reality, whatever that happens to be. The good thing is too, that markets won’t have to wait long to get that reality check. Earning’s season is ramping up now, and while some of the more popular companies haven’t yet reported, some important information is being gleaned. In a positive development, Goldman Sachs reported before the US open last night, and broadly beat expectations by way of virtue of solid results in its M&A division. The numbers further eased concerns that the US banking sector, and therefore US economy, is in an increasingly tough-spot. Wall Street to the ASX: The sentiment boost there has lead Wall Street higher, supporting what at time of writing looks like an 8-point gain for the ASX200 this morning, according to SPI Futures. Promisingly, the benchmark S&P500 continues its grind through a marshy resistance zone between 2600-2300, which if traversed, will add weight to the notion US stocks have executed a recovery. The ASX200 is arguably a little further down the true-recovery path: yesterday’s trade saw the Aussie index add 0.35% to close at 5835. Buyers ought to become thinner at these levels, with the daily RSI close to flashing an overbought signal. The next key level to watch out for is approximately 5870 based on a read on the hourly chart, however resistance there doesn’t shape-up as particularly firm. Written by Kyle Rodda - IG Australia
  15. ASX’s looming recovery: The ASX200 has clawed itself to a level on the cusp of validating the notion that the market has bottomed. It might feel that we ought to already be at that stage, given we sit 7-and-a-half per cent of the markets lows. But turnarounds take time to be confirmed, and now having broken psychological-resistance at 5800, Australian equities are inches away from that point. There are counterarguments to be made, to be fair: the recent rally has come on the back of lower volumes, and the buyers have lost a degree of momentum. Nevertheless, the capacity to push beyond 5800, and then when the time comes, form a new low when the inevitable short-term retracement arrives, would give credence to the “market-recovery” narrative. ASX today: SPI futures this morning is pointing to a gain on 7 points at the open, at time of writing. There are several risks that could undermine that outlook. As the laptop’s keys are being tapped, there is 2 hours left to go on Wall Street, and the UK Parliament have just begun the process to vote on UK Prime Minister May’s Brexit Bill. More on that later. ASX bulls today will be searching for a solid follow through from yesterday’s 0.71 per cent gain. The daily candle on the ASX200 chart showed a market controlled by buyers from start to finish: the market never dipped below its opening price, and it finished by leaping to a new daily (and 2-month high) at the close. Sentiment; jumping at shadows: There’s a lot of noise in the commentariat about what the price action this week means. It is entirely justified. The December sell-off has punters and pundits hyper-vigilant for a catalyst for the next 4 per-cent intraday move. Collectively, it’s an irrational fear given how rare such occurrences are, but because it is understood that circumstances haven’t changed so drastically from then to now, such a phenomenon feels conceivable. The sentiment in markets has centred largely on speculation about the strength of China’s economy. On Monday, the fall in risk assets was over-attributed to the poor Chinese trade data, while yesterday it was attributed to the announcement that China’s policy makers are preparing stimulus for the world’s second largest economy. Mixed price action: The activity in stocks would lend itself to the belief that it is that story moving markets. The price action doesn’t give such a cut and dry indication to that. Indeed, equities were up across the board, and Chinese and Hong Kong stocks led the way. A better barometer for macro-economic drivers are currencies and bonds, and the activity there was rather mixed. US Treasuries have traded largely unchanged. The Japanese Yen is down, revealing greater appetite for growth and risk, as is gold, for the same reasons. Commodities are mixed: oil is higher, mostly due to diminishing fears of global over-supply. However, commodity currencies like the A-Dollar are down, on the basis that there has been a bid on the USD at the expense of the EUR. European slow-down: The major laggard in the (major) currency-world was the EUR overnight. It’s come as-a-result of a speech delivered by Mario Draghi, who made uncomfortably clear his view that the Euro-zone economy is slowing down. Much of this view has been baked into markets, as it is. A series of really-poor PMI figures across the continent in the past month shows economic activity is in decline. It has diminished the prospect of a hike in interest rates from the ECB at any point this year. Markets have lowered their bets from a 50/50 proposition to less than a 40 per cent chance. German Bunds have rallied consequently, with 10 Year Bund yields retracing their recent climb to settle back at 0.20 per cent. Brexit vote: Bringing it back to unfolding events, UK Prime Minister May’s Brexit bill, as expected, has been rejected by Parliament. What was perhaps unexpected was the margin of the loss. It was always going to be ugly for May, but the final vote was an abysmal 432-202 against the Prime Minister’s bill. Thus far, and this is fresh as its being written, the price action appears to reflect the old situation of “buy the rumour sell the fact”. The GBP/USD has bounced on the news, rallying from its intraday low at 1.27 to currently trade above the 1.28 handle. Wall Street now, with an hour left to trade, has pared some of the day’s gains. The benchmark S&P500 is battling with the key 2600-level. The Brexit-vote fall-out: The commentary will come thick and fast for the rest of the day on Brexit. Members of the house are still speaking on the matter. Another referendum is being called by some, a general election is being called by others, a popular view seems to be one suggesting a delay of Article 50. How this affects the ASX this morning is contentious. SPI Futures have given up its overnight gains and are currently flat. In all likelihood, given that this morning’s events culminate in another little kick of the can down the road, the lift in volatility will pass for stocks. Markets hate uncertainty, so this relieves that anxiety for now. Using the AUD as a guide, the popular global risk/growth proxy is trading flat as of 7.00AM this morning. Written by Kyle Rodda - IG Australia
  16. A (shallow) sea of red: There is a lot of red across the board for global equity indices to start the week, but the extent and strength of the downside swings have so far proven quite benign. The theme dominating markets yesterday and overnight was that of slower global growth. It kicked-off more-or-less following the release of some abysmal Chinese trade figures, that added further concern that the Chinese, and therefore global economy is heading for a significant slow-down. The data sparked a generally bearish mood in global markets, prompting a bid-higher in traditional safe-haven assets. At time of writing, the JPY is up along with gold, equities are down, copper is off, commodity-currencies like the A-Dollar has dipped, while bond prices are relatively steady. A still quiet day: The VIX index jumped at the start of day’s session but is paring its gains. It remains below the 20 level still – far from its lofty December heights. Concerns about slower global growth is the theme as mentioned, however it’s not rattling trader nerves right now as much as it might have in the recent past. Activity has also been thin. Volumes in every major share market were markedly below average. The swings we have seen in prices too are very modest compared to what one might expect in a market still inhibited (somewhat) by thin holiday liquidity. Global growth is a major headwind, markets are sure of that. However, the behaviour of traders could just as readily be attributed positioning ahead of several weeks of event risk and possible uncertainty. Asia pullback: This was especially true in Asia, where Japanese markets were closed for a bank holiday. Looking beyond our local borders for now, Chinese and Hong Kong markets were of primary concern for market participants yesterday. The CSI300 looks like its abandoned its bounce, failing to break through 3100 again. The Hang Seng is trading in a very choppy way and shed 1.38 per cent during trade. Once more: this did occur on rather low volumes. The curious point of price action manifested the USD/CNH, which perhaps owing to the weaker greenback, managed to maintain its rally, to end trade at 6.76. Nevertheless, it was a lacklustre and bearish day in Asian markets, that subsequently flowed into a similar day across Europe. Start of reporting season: For US markets, reporting season tops the list of priorities for traders. It commenced today, with the first week of the season dominated by the financials sector. Citigroup was the first cab off the rank and though it posted lower revenues, it's aggressive cost cutting proved enough to lift earnings for the last quarter. It's a supportive signal for macro-watchers, Citigroup's solid result, given the overall downtrend in bank stocks for the better part of 18 months. The sector is considered often a canary in the coal mine for the broader economy. It sets the tone for the other major financial institutions to report this week, which though unlikely to shift overall market sentiment by way of virtue of their results, will provide handy clues about the economic outlook moving forward. Light-data, Brexit the event-risk: The sentiment generated from US reporting season and the North American session will probably colour Asian trade again today. The economic calendar is very light-on meaningful data, so traders’ leads, in the absence of surprise events, will be taken from Wall Street's activity. In terms of surprises, whispers coming from Westminster Abby could be a possible cause. The "meaningful vote" on UK Prime Minister May's Brexit-deal will transpire in the next 24-48 hours. Betting markets are overwhelmingly pointing to a failure for the bill to pass through the House of Commons. All the anticipation already has traders jumping at shadows: rumours that the pro-Brexit European Research Group would support Prime Minister May's exit-Bill led to a spike in the Pound, before it retraced its gain when that story proved more fluff than something truly substantial. ASX200: Despite Wall Street’s weak-lead, SPI Futures are pointing to a gain of between 5 to 10 points this morning. For the first time in several weeks, the ASX’s trade was dictated by a game of catch-up to news from US markets. It made the session frankly rather dull – although for many surely that was welcomed. There was another challenge and failure of 5800 resistance in the early stages of the session. The bulls quickly gave up the ghost as the broader region’s traders came on line, resulting in a sluggish day for the ASX200. A silver lining for the bulls is that once again, Australian stocks managed to stage a meaningful rally into the close – a sign oftentimes that the “smart” money sees value in the market. Support for the ASX: Even still, like Wall Street indices, the market’s recent rally is looking tired. Upside momentum has truly slowed, and the RSI is flattening out at a stable level around 60. Markets tend to test lows to confirm that whatever sell-off preceded its current level is truly over. On that basis, and given that US earnings, growth-data and Brexit are raising the odds of a significant risk-off event in the short-term, the ASX200 may look to test several possible levels to the downside. 5700 will hold psychological significance, before 5630 opens-up as previous support/resistance. This is followed by 5550, at which the market bounced off twice, with the final and most relevant support level at 5410 – a point that represents the make-or-break between a true recovery or further falls. Written by Kyle Rodda - IG Australia
  17. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 14 Jan 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends this week Index Bloomberg Code Effective Date Summary Dividend Amount UKX IHG LN 14/01/2019 Special Div 2.621 RTY AJX US 14/01/2019 Special Div 5 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.
  18. Global stocks: Global equities will be forced to prove their mettle this week. Price action suggests that for many equity indices, the market is ambling at a cross-road. The macro-economic challenges moving markets in general haven't been resolved. That remained true during last week's trade, which saw global stocks move higher, in general. The difference this week is there are more numerous and higher impact risk-events that could make or break the stock market's recovery. There will be no shortage of potential catalysts to move markets, in the short term, into its next phase. Opportunity for both upside and downside exists. Though given the one-way run experienced on Wall Street, perhaps it should be judged that the risk is skewed slightly to the downside, for now. US market’s cross-roads: The will of the Bulls was under scrutiny in the latter part of last week. The lingering question has yet to be answered: are we experiencing a recovery, or will this be a faded rally? The S&P500 couldn't manage to break the big-psychological resistance level of 2600. The bulls appeared to simply stall on Friday, with the US market according to the S&P500 closing a very narrow 0.01 per cent lower. Friday's trade amounted to the only negative session for the major-US stock index for the week. The upside-momentum is apparently waning for US equities. The VIX is lower it must be stated, so fear is diminishing in the market. But perhaps confidence is still rattled somewhat by December's market-rout. Reporting season looming: A decision to push the market higher or let the recent rally fade must be imminent. Short-activity, according to IG's data, is gradually building in US indices. There will be no room to hide shortly, as traders prepare for the kick-off of reporting season this week. In total, earnings growth is increasingly expected to slow by more than first-assumed. The overriding concern in markets presently is given the weaker macro-economic outlook whether the growth expectations of US corporates will diminish in-turn. The first week of the reporting season is dominated by bank earnings: fittingly enough too, given its the banks that could prove the canary in the coal mine for any fundamental problems in the market and the US economy at large. ASX200: Once again, the ASX will likely trade in the slip-stream of US stocks this week. SPI futures are indicating a 15-point jump at today’s open, according to the last traded price on that instrument. Like US equities, the conviction of the bulls in the ASX on Friday demonstrated signs of diminishing. The 5800 level is for the ASX200 what is 2600 is for the S&P500: a significant psychological barrier that is coming to represent the difference between recovery and a fading rally. The technicals for ASX200 are looking softer, based on Friday’s market-activity. Breadth was a tepid 37 per cent and volumes were 36.60 per cent below the 100-day average, as the index shed 0.36 per cent to close at 5774 to end the week. Australian Retail Sales: Sentiment towards Australian economic fundamentals were bolstered on Friday, despite the ASX’s retracement. Domestic Retail Sales data surprised to the upside, printing 0.4 per cent m/m compared to the forecast 0.3 per cent. Below the surface, the numbers weren’t as strong as the headlines betrayed: the driver of the solid figure was probably the transitory effects of the Black Friday and Cyber Monday promotional periods. Moreover, annualized sales growth fell to 2.8 per cent, from a previously 3-and-a-half per cent. Irrespective of those details, consumer stocks climbed on the news. However, the implied probability of a rate-cut from the RBA increased slightly to around 30 per cent – though the Australian Dollar did mask this fact, which rallied above 0.7200, in-line with the Chinese Yuan. Brexit’s meaningful vote: As any market participant would be aware, in this market, any number of surprises can jump-out to rattle traders. Assessing the calendar and data-docket for the week ahead though, little comes close to challenging the mid-week “meaningful vote” on Brexit in UK Parliament as the most significant scheduled event. To put into the context of prevailing sentiment, aside from swings in UK and European rates and currencies, the subject of Brexit has been down the list of trader’s biggest concerns. It makes sense: global growth and Fed policy has far greater economic impacts, while the US-China trade-war is the more pressing geopolitical issue. Nevertheless, Brexit and its implications are an ongoing concern, with the result of Wednesday’s parliamentary vote to influence trader’s outlook for the global economy in 2019. A weaker outlook for Europe: It’s expected that UK Prime Minister Theresa May’s Brexit-bill will fail to pass the House of Commons. Assuming it does, from there markets are confronted by a series of unknowns. There’s been talk of Labour tabling a no-confidence motion in May and her government; or perhaps even a general election or a second referendum. The balance of risks remain irrefutably to the downside for markets out of this event. The area which ought to worry economic-boffins is, amid what looks like a protracted Brexit-campaign, is Europe’s economy looks headed for a marked slowdown. Although its GDP figures surprised to the upside on Friday, boosting the Cable and UK gilts, the UK’s manufacturing data revealed a considerable contraction in activity, adding to a slew of very weak manufacturing numbers across the European continent. Written by Kyle Rodda - IG Australia
  19. Written by Kyle Rodda - IG Australia Sentiment cooling: Sentiment is cooling and the drivers that have sustained global equity's recovery are subsiding. It's no cause for alarm (yet) by any means. The markets are demonstrating a level of short-term exhaustion after its chaotic December. The same risks remain; traders have just shifted their views. The concerns regarding a slow-down in global growth have abated somewhat, though the issue is still simmering. The outlook for how the Fed will approach policy is being judged as more-dovish, however it remains an ambiguous matter. The US and China appear to be pushing for a trade-deal, but it's known that it will be a protracted process to arrive at one. The US government shut down is down the list of worries for markets for now, although it is gradually gaining greater significance. ASX200’s crossroads: SPI futures are currently indicating a modest jump of 5 points for the ASX200 at the open. The conviction for Aussie-market Bulls will be tested today. The ASX200 stands before a reasonably significant wall, that if climbed, goes some way to validate that it's recent rally is more than a counter-trend. The zone between 5780 and 5800 has proven a marshy resistance area in the last two-days. The Bulls have done well to push the market through prevailing downward trend-line resistance, but now a meaningful push through 5800 is required to confirm the move higher. After a lukewarm day, the ASX managed to close at 5797, courtesy of a somewhat inexplicable 0.3 per cent jump in the index's price in the post-market auction. Australian Retail Sales: The macro-news for Australian markets has been relatively dull lately. Local shares, along with other assets, have traded very much in sympathy with developments on Wall Street. For justified reasoning too: sentiment to begin 2019 has been dictated by renewed optimism relating to the trade-war – a conflict that impacts the Australian economic outlook more than most. Overall, that will remain so given critical juncture US stocks are at. However today, Australian traders get their first real-dose of economic data: local retail sales figures for the month of November. The print is expected to reveal that sales expanded by 0.3 per cent month-on-month – a figure that is expected to be underpinned by strong Black Friday activity that month. Australian interest rates: Following the weaker December GDP figures, and against the backdrop of high private debt levels and falling house prices, analysts have generally expressed the concern that households are in a difficult spot. Given consumption contributes just over 50 per cent of total GDP, the perceived economic headwinds for consumers is driving markets to price in some-degree of an economic slow-down in 2019. On current pricing, interest rate markets have an implied probability of about 30 per cent that the RBA will cut rates before December this year. Today's retail sales figures will offer one of the first glimpses into what state the Australian consumer is in, with rates markets, and the AUD, sure to shift in the event of an upside or downside surprise. Global-macro: Of course, given Australia's status as an export driven economy, subject to the whims of the globe's economic (mis)fortunes, the broader macro-backdrop is crucial. Several data releases rattled market's nerves in the last 24 hours. Chinese CPI and PPI figures missed forecasts by some way, indicating softening demand within China's domestic economy; and ECB Monetary policy minutes all but confirmed the continent is heading for a slowdown in economic activity. Stock indices were unmoved on the news; however, a level of risk aversion was observable within markets. US Treasuries caught a small-bid and the US Dollar climbed on a pullback in the Euro. While a rotation into non-cyclical stocks, took place in Europe and to a less extent the US, as growth appetite diminished. Powell speaks again: Once again, the night's biggest release came out of the US and related to the US Federal Reserve. Fed-Chair Jerome Powell delivered a speech, and in all, while received in a better way than some of Powell's other addresses, markets didn't like the tone. There was a lot of emphasis on the unwinding of the Fed's balance sheet, and how that endeavour may progress in the year ahead. He also seemed to go to pains to emphasise how flexible and patient the Fed would be. Although it hasn't derailed US stocks so-far today, traders didn't hear enough of what they wanted to turn overly bullish on the market. With an hour left in play, the S&P500 is hovering between slight gains and slight losses for the day. Trump dumps Davos; CPI data tonight: To be fair on Mr. Powell, his speech did coincide with a Tweet from US President Trump announcing that he would be abandoning the economic summit in Davos to deal with the US Government shut-down. Markets didn't like that either: it was expected President Trump would further trade-talks with Chinese President Xi Jinping at the summit. Nevertheless, if US stocks were to close right now, the activity in the market would add-weight to the notion the recent rally is more bounce than recovery. The jury is still out, but momentum is slowing and at about 2600, the market is being faded. US CPI data is released tonight, so that may provide the impetus for even balanced battle between the bulls-and-bears to tip in one direction or the other.
  20. Written By Kyle Rodda - IG Australia The bullish week continues: The pointy end of the week has arrived, and so far, the news flow is lining up well for the bulls. The big release, perhaps for the whole week, was this morning’s FOMC Minutes. Naturally, the information is old, relevant mostly to the December 19 period in which the central bank met. But given the market turmoil experienced since then, along with January’s nascent recovery, this set of Fed minutes has taken on slightly greater significance. The reception, as far as investors and other bulls are concerned, has been positive. The document reveals a much more dovish Fed than the one that Chairperson Jerome Powell presented at that meeting’s press conference. The Powell-put is in, it is being judged: the market has Fed support. Confidence boosted by dovish Fed: That’s the perception, anyway. It could change but considering sentiment has vacillated recently on shifting “narratives”, a rosy outlook is apparently enough to pique risk-appetite. Combing through the fine-print of the Fed Minutes and few details jump out. Confidence about future growth has waned very slightly, and the need for higher interests has come into question. In fact, a few members voiced their belief the Fed should have kept rates on hold at the December meeting. The board also highlighted the disconnect between financial markets and the “real” economy, though it did add that downside risks to the US economy had increased. Without quoting line for line, the document contains the nuanced and market-sympathetic tone the bulls have been waiting for, vindicating this week’s upside turn in global equities. Market response: The response by traders has been to buy stocks and bonds, sell the US Dollar, and seek out other risk-on-assets. The comprehensive S&P500 is dancing with the 2600 pivot point, and the reluctance to go beyond that level shows. Note: it was that psychological-level of support the market bounced off twice before beginning its dive into bear market territory. US Treasury yields have also dipped. The US 10 Year note has fallen by 1 basis point to 2.72 per cent; however, the yield on the more interest rate sensitive US 2 Year note has plunged 4 basis points to 2.54 per cent. Credit spreads, especially on junk bonds, have narrowed further, supporting equity markets, and risk-appetite in general. The Greenback tumbles: The US Dollar has maintained its fall consequent to the FOMC Minutes, which it must be stated, experienced the lion’s share of its overnight tumble after a speech from Fed-member Raphael Bostic, after he’d stated that he believed interest rates were very close to neutral. The greenback looks vulnerable to further falls now, having retreated already by 2.3 per cent from its December highs. Gold is looking increasingly in vogue courtesy of the weaker USD and the absence of other appropriate currency safe-havens, climbing to $US1292. While the AUD/USD, having broken resistance at 0.7150 during Asian trade yesterday, is continuing its march towards 0.7200 support/resistance, even despite traders pricing an increased chance of RBA rate cuts at some point in 2019. In other news: Of course, the FOMC minutes, though certainly the biggest event in the last 24-hours, wasn’t the only news moving markets. Oil prices rallied by over 4 per cent last night on data showing crude inventories contracted in the US, along with greater expectations that OPEC’s recently announced production cuts would lower global supply. The dynamic has supported the lift in equity markets, aided the narrowing of credit spreads, and pushed-up the yield on US 5 Year Breakevens, as traders re-price for higher inflation. Positive noises coming from US-China Trade negotiations also improved the outlook for growth, adding to the week’s positive momentum toward a trade-war resolution. The only major dark-point thus far this week has been the ongoing US Government shut-down, which is showing no signs of ending any time soon. ASX at crossroads: SPI Futures are pointing to a jump at the open for the ASX200 of 13 basis points, at time of writing. Much like the S&P500, the ASX200 sits just shy of a key pivot point for the market, between about 5780/5800. The market yesterday attempted on several occasions to breakthrough that level, only to find any such challenged faded. The ASX is still trading primarily on the lead handed to it by Wall Street, and if that relationship holds true today, a play above the 5780 level ought to be on the cards at the market’s open. From here, a close above 5800 will be hoped for by market-bulls, to validate a change in the short-term trend, and subsequently open upside to ~5950. The state of play today: The data-docket is light in the Asian session ahead. The positioning in markets today will largely be concerned with a speech scheduled to be delivered by US Fed Chair Jerome Powell tonight. The tide does feel to be turning in equity markets. Volatility is lower, and the bulls have had delivered to them what they’ve been crying for: good data and a dovish Fed. Debate will continue to rage between the bulls and bears about where markets go from here. The former suggests the worst of the shake-out is over, a bottom has been put in place, and there is more upside to come; the latter points to historical precedent to suggest we are just experiencing a bull trap, and the bear market has only just begun.
  21. Calmer trade, vigilance remains: The sense of cautious optimism in markets remains. Extreme swings in sentiment have been absent. Calm prevails, albeit within a mindset of greater vigilance. There hasn’t been a face ripping rally, nor a vertigo inducing fall, in global equities this week. The trading activity does feel distinct from that which was experienced in December. Fear and subsequent volatility is unwinding. The VIX continues to edge lower, though at a slower pace now. Several of the panic-inducing issues that drove the bearish activity in markets in the last quarter of 2018 appear to be progressing positively. But it’s understood that in the case of almost all these matters, ranging from slowing global-growth, to the trade-war, to Brexit and to Fed policy, that there is much more to unfold. US stocks await their test: An inflection point will arrive where market participants will have to decide whether to push this rally in global equities from simple bounce to true recovery. The United States stock market sits at the epicentre of financial market volatility right now and judging by the price action on the S&P500, we may be inching towards that point. Putting aside the nuance of individual geographies, the S&P500 has set the tone for trade in the rest of the world’s markets. As it stands, the index has demonstrated an initial higher low, following its recent bottom at 2350. The Bull’s fight really begins now, as traders eye a cluster of resistance levels between 2580 and 2630, which will determine in a big way whether this rally has legs. The risks and opportunities for US bulls: The impetus to get US stocks through that cluster becomes the question. We’ve arrived at this juncture courtesy of confirmation of a still-strong US labour market and a dovish-Fed. That is: good data, and (relatively) easy monetary policy conditions going forward. From here, to sustain the market’s run, that’s what the bulls want to see. There are several opportunities coming up toward the back-end of the week to test these two parameters. FOMC Minutes get released tomorrow, Fed Chair Powell speaks on Friday, and US CPI data is released early Saturday morning (AEDT). Moderate inflation and a cool, supportive and deliberate Fed is what bulls are after. An overshoot of the former (which isn’t expected) and a more Hawkish tone from the latter could drag the rally-down. Geopolitics: trade-war and Brexit: There are a couple of other not-so-fundamental macro-events that may also dictate sentiment. The trade-war and the ongoing negotiations between the US-China in Beijing is one; the other – and this is very much secondary to the trade-war – is Brexit and the upcoming “meaningful vote” on a Brexit bill in the UK House of Commons. Trade war negotiations are progressing well, from what is being reported: talks have been extended another day, as China’s top economic policy maker, Liu He, joined the fray in the past 24 hours. Brexit is looking far less optimistic. In-fighting and chaos remain in UK Parliament and in the Tory party, in-particular. Article 50 looks as though it could be extended, however a no-deal Brexit still appears the likely outcome at this stage. Risk remains “on”: The confluence of stories has developed into a metanarrative that is supportive of risk-taking. It must be said that the fundamentals haven’t changed that much, however sentiment has shifted and markets are now playing follow the leader. The effect of this in the last 24-hours saw gains in global share-indices (with the notable exception of China), another leg lower in global bonds, a lift in commodity prices, a contraction in credit spreads, and a bid-higher of riskier growth-currencies. The US Dollar climbed slightly overnight, but that was mostly due to a weaker EUR and Pound following Brexit developments and very weak German Industrial Production data. Gold, the proxy for risk throughout the recent market volatility, continued its pullback courtesy of the stronger greenback and generally lower risk-aversion. The ASX200’s climb: SPI Futures are pointing to a lift for the ASX200 this morning, of about 19 points. The Australian share-market is demonstrating activity still below average, though well within the normal range for this time of year. Nevertheless, the bulls did well to maintain control of the market yesterday. Following a sputtering start that saw the ASX200 dip below its opening level, the buyers wrestled control of trade, and after several attempts, managed to push the index clear of resistance at 5700. Breadth was solid at a 70.5 per cent, and every sector finished in the green for the day’s trade. Promisingly too, two of the better performing sectors were health care stocks and information technology stocks, revealing an appetite for growth by investors. The Aussie market’s test: Like its US counterpart, the ASX200 confronts a handful of resistance levels that mark potential inflection points. The resolve of the bulls has proven ample this week in general: downward sloping trend-lines have been broken, and yesterday the index managed to close above its 50-day moving-average. Such with the S&P500, a higher-low has been established in the price, follow the recent bottom at 5410. The hurdles for the market in its bid to prove a recovery in the day ahead is twofold: major trendline resistance, traced back to the ASX200’s decade-long September high, exists at a scratch above 5670, before a play to 5780-5800 exposes itself. A break and hold above these levels will add credence to the notion a bottom has been formed in the market. Written by Kyle Rodda - IG Australia
  22. Wall Street’s follow-through: Markets have basked in the afterglow of Wall Street's bull-friendly Friday session. They've gotten what they've been screaming for: some strong data and a more-dovish US Federal Reserve. For the first time in a month, perhaps more, trade has been characterised by a relative sense of calm. The VIX is drifting lower and toward the 20-mark. Stocks are up on Wall Street after a solid day in Asia, and global bonds are down. This could all change in an instant, that much is known. There are too many moving parts in this market to truly believe stability will be an ongoing theme. For now, a recess from the mad volatility that capped the end of 2018 is being welcomed by investors - and perhaps lamented by your risk-loving active-trader. Markets placated… for now: It's the behaviour one might consider akin to that of an obstinate child. Markets, particularly in the equities space, threw as many toys out of the pram as they could find in the past 3 months, in protest of the Fed's tough talk. US Fed Chair Jerome Powell's back down and soothing words finally placated markets, giving the financial equivalent of a candy-bar in exchange for markets' good behaviour. Last night, Fed Speaker Bostic backed his chief up and reaffirmed the dovish-tone: he sees little more than one hike this year, even amid a solid growth outlook. Taking aside whether it’s the right kind of positive reinforcement, the question becomes whether the underlying problem has been fixed or is just a distraction from the facts. Improved sentiment: Perceptions relating to the growth outlook have changed again, and that much is a positive for the bulls. The general description regarding the data coming out of the US is that it's mixed, amid deteriorating activity in Asian and Europe. That in and of itself is justification for hope: there have been some economic low-lights lately, but they aren’t enough to establish a trend. It's a precarious balance and will likely result in further volatility down-the-line as traders become accustomed to a patchwork economy. A dynamic such as this might be palatable for the Bulls in the short-to-medium, on the proviso that the Fed is standing at the ready to jump in to save markets once true signs of economic stress manifest. However, orthodoxy suggests that, at some point, it must. The big contradiction: The everyday punter would be happy with this result. An absence of the daily doom and gloom about capital markets’ hardships would be good for economic sentiment. The central conceit remains that a harmony can exist between economic fundamentals and the monetary policy makers seeking to manage them. The primary contradiction confronting financial markets is this: growth needs to be strong so to ensure attractive returns, though not strong enough to inspire a hawkish Fed. Where the middle ground lies in this dynamic is nebulous and up for debate. 2019 could well prove the year that markets and policymakers strike a tacit accord to maintain this condition. It’s understand though that this as an assumption would that far too optimistic: the more likely outcome is confusion and uncertainty. An ongoing balancing act: Market participants are often on the look-out for that elusive "Goldilocks-zone" where markets operate calmly in the middle of its inherent extremes. Arguably, the global financial system as it operates now exists to fulfil that objective: to iron out the extremes of unbridled capitalism. And sometimes it succeeds, even if the successful policy amounts to simply kicking-the-can down the road. The challenge (and opportunity) facing markets now is that today's "Goldilocks-zone" is narrower than what it's been in the recent past. The parameters are obscure and moving, meaning achieving market stability takes on the qualities of walking a tight rope. A push from weak economic data will send markets off the rope one way; a push from higher US interest rates will send markets off the rope the other. “Risk-on”: Until the next market spill, risk will be “on”. The S&P500, with half an hour left in trade, is tracking roughly 0.9 per cent higher, on solid breadth of about 84 per cent. Indicative of higher risk appetite, consumer discretionary and IT stocks have led the charge. European stocks were lower for the day, as Brexit speculation returned to newswires. US Treasury yields are up very slightly across the curve, which has flattened its inversion somewhat. Credit spreads have narrowed, especially that of “junk bonds. Oil has climbed very slightly on positive-growth sentiment. The US Dollar is down with the JPY and gold is effectively flat, as currency markets take a punt on riskier currencies like our A-Dollar, which is trading around 0.7140. ASX200: SPI Futures are indicating a flat start for the ASX200 as it stands, following on from a respectable 1.14 per cent rally yesterday. Activity was still light in the Australian share market, and the psychological resistance level of 5700 was faded when it was reached. But overall, the market belonged from start to finish for the bulls. The materials sector reflected the easing concerns regarding global growth to add 22 points to the index; higher bond yields meant the financials sector was the second greatest contributor. The day ahead has Aussie Trade Balance figures on the calendar, which will inform local investors about whether the economy’s trade surplus held together to end 2018. Not much of a response to that data is expected, however. Written by Kyle Rodda - IG Australia
  23. A shift in perceptions: The fundamentals shifted on Friday. It wasn't a complete "180", but enough to change market sentiment in favour of the Bulls. The highly anticipated monthly Non-Farm Payrolls figure, along with US Federal Reserve Chair Jerome Powell's interview, delivered the goldilocks outcome market participants were craving. For those holding hope for financial markets and the global economy, the information gathered from each event soothed nerves that a major global economic slowdown is upon us. It's too early to make a solid call and form a trend from the circumstances, it must be noted – especially following the poor US ISM Manufacturing data and Apple's revenue downgrade. However, the news was enough to spark bullishness in traders, driving a rally into risk assets and out of safe havens to cap-off last week. US Non-Farm Payrolls: The US Non-Farm Payrolls print was blistering, arguably revealing the best set of jobs figures out of the US for 2018. The jobs-added number smashed forecasts, printing at 312k for the month of December, above economist estimates of 179k. Previous month's figures were also revised higher, for a net gain of 58,000 in October and November. The unemployment rate did tick higher to 3.9 per cent from 3.7 per cent, but only on-the-back-of a climb in the participation rate, suggesting spare capacity exists even still in the tight US labour market. And most crucially, wage growth numbers revealed a climb in workers’ pay to 3.2 per cent on an annualised basis -- the best rate of growth roughly since the GFC. A dovish Powell: The set of data could have been accused of being too hot, and a potential impetus for a hawkish Fed. The price action pointed to the contrary, perhaps courtesy of US Fed Chair Jerome Powell's interview on Friday night. Markets have been crying-out for attention from the Fed since October, around the time Chair Powell made his “a long way from neutral” comments. For those sympathetic to the view a central bank should be a back-stop for financial market volatility, Powell finally delivered the dovish stance markets had been calling-for. Perhaps taking a few pointers from his predecessors, and interlocutors for the night, Ben Bernanke and Janet Yellen, Powell assured the Fed is “listening carefully” to markets’ concerns and is “prepared with flexible policy”. Risk-on: Markets had been pricing in a significant increase in the risk of recession last week, sending Wall Street shares tumbling, consequently. The solid US data and Chairperson Powell’s speech did something to settle these fears, albeit not entirely. In another day of above average activity, Wall Street rallied into the back end of the US session, adding around 3.43 per cent according to the S&P500. While still twisted in an ugly way, the US Treasury Curve flattened out somewhat, as the yield on US 10 Year Treasuries rallied 11 basis points, in response to interest rate markets unwinding bets of a Fed rate-cut in 2019. Gold and the Yen pulled back on diminished haven demand, while emerging markets currencies, and their key proxy the Australian Dollar, went on a tear. ASX: SPI Futures are indicating a very solid 69-point jump for the ASX200 this morning, according to that contract’s last traded price. Despite being wedged between the dual global concerns of slower global growth and tighter global financial conditions, the Australian share-market has shown resilience recently. Aside from a temporary tumble on thin liquidity prior to Christmas to new multi-year lows, the ASX200 has more-or-less traded range bound between 5500-5700 for the last month. Our share market hasn’t quite seen the high-octane activity lately that Wall Street has, with volumes below average and swings in price-action only really spurred by sentiment from US markets. There are general signs of consolidation occurring in the index, however a break in either direction, particularly upon the return of normal trading conditions, appears imminent. US-China trade talks: The fortunes of the ASX200 on a macro-scale will be dictated first by US markets, then by the outlook for China. The economic calendar presents as quite thin to begin the week, providing traders of riskier assets room to manoeuvre if the newswires remain clear of outside noise. The primary focus for now will be on the mid-level trade talks due to begin between the US and China today. Major breakthroughs are unlikely in the absence of each nation’s heavy hitter, but the communications coming out of this week’s talks will be crucial. Evidence is mounting that the trade-war is starting to bite, exacerbating existing economic challenges for both sides: market participants will be hungry for indications that an urgency amongst policymakers is building now to resolve it. The markets’ balancing act: Where markets head from here remains uncertain. Volatility will continue to show-up this week and throughout the rest of January. An easing of fears regarding the state of US economic growth is helpful, but it throws up the paradox: strong growth implies likely tighter monetary policy, which is bad for stocks and riskier assets; weak growth implies the possibility of a recession, which is bad for stocks and riskier assets. There is a middle way, as there often is, between both poles, within which the Fed must traverse. They may well do just that and keep this bull market afloat in doing so. There will be missteps along the way though, meaning (as has often been said) fear and subsequent volatility will spike as market conditions evolve.
  24. A bearish day: It was a hectic day on the dealing floor, yesterday. Several surprises smacked markets during early Asian trade, and the subsequent 24-hours has since belonged to the bears. The “slower global growth” narrative is gaining momentum, driving traders from riskier assets into safe-havens, as fear snowballs. The VIX is well off its highs from last week, but it did lift overnight, nevertheless, with price action indicating the markets are bracing for further pain. Overall, it was mostly one-way traffic for equity markets – the exception being the ASX, which stands out amid the sea of red, for reasons soon to be discussed. However, yesterday’s rally will likely prove the exception to the rule, as SPI Futures prepare Australian investors for a 38-point fall for the ASX200 this morning. ASX bucks theme: Trade was thin in Australian markets during Thursday’s session, as can be expected this time of the year. Despite the doom and gloom stifling the rest of the financial world, the ASX200 performed quite well. The index closed 1.36 per cent higher for the day, closing above a cluster of resistance levels at 5633, on solid breadth of 79 per cent. There was a touch of debate as to how this could happen on a day of bad news, and where US Futures were getting pummelled. The best answer came from the Twittersphere: the tumble in the AUD combined with the big-fall in ACG bond yields increased the attractiveness of Australian stocks, as a lower currency and its effect on earnings, coupled with lower discount rates, improved the relative value of equities, translating into a general lift in the ASX200 index. A flash-crash? Nerves were rattled early in the Asian session by what is being dubbed a “flash crash” in currency markets. It’s a very emotive phrase, “flash crash”, eliciting thoughts of the Swiss Franc’s collapse in January 2015. But it’s the one the financial press is running with, and it isn’t entirely inappropriate, though the scale of the issue was perhaps overstated. It was a rapid and unfortunate chain of events that precipitated the “crash” yesterday and unfolded quickly: roughly in the space of 10 minutes did the AUD/JPY plunge over 7 per cent – really, an almost absurd move in what is a relatively liquid currency pair. Similar moves were witnessed in the USD/JPY and emerging market currencies, causing chaos in currency markets temporarily. A chain of events: An explainer of the series events is warranted, with the caveat that the description is simply the markets best guess about what happened. Apple Inc.’s poor results and singling out of Chinese economic weakness as one cause inspired a sell-off in growth/risk currencies. The unwinding of the JPY carry-trade as traders sought safety bid-up the price of that currency from what were already extreme levels. Because of the time of the day and that Japan was on a bank holiday, liquidity was very thin, leading to some turbulent trade and a widening of spreads. It seems that a bundle of large “stops” were blown out at key support levels in the currency pairs impacted, causing a cascade effect. From here, it is being speculated that the algos took hold, following the momentum of the market and exaggerating the move. Apple Inc.: The 30 minutes of madness was unsettling and sapped sentiment, however despite presumably broad individual losses, it wasn’t indicative of anything sinister on a grander scale. Traders apparently were able to acknowledge this, and focused their attention picking apart the major-underlying story: Apple’s cut of its Q1 revenue guidance. In the details, the statement released by Apple CEO Tim Cook outlined several company specific problems that led to the revenue downgrade, ranging from a stronger USD, poor timing of product releases, and a reduction in sales due to supply constraints. The matter is nuanced, with many equity analysts breaking down the company’s micro issues. Traders though clung on to one detail in particular: the allusion to a weaker Chinese economy as a cause for the company’s woes. An economic slowdown: The news confirmed a strong bias held by market participants: that the global economy is slowing down at a rapid rate. In unfortunate circumstances, last night’s release of US ISM Manufacturing PMI – a powerful forward-looking indicator of economic activity – showed a remarkably weaker than expected print. It added fuel to the notion that a cyclical economic slowdown in both the US and China, exacerbated by those two countries’ trade-war, is upon us. The confluence of events has driven traders from equities into safe havens. Both European and US stocks were down, gold has burst higher to $US1293, the Yen has climbed across the board. Most significantly, US Treasuries have rallied, bending the yield curve into a very ugly shape, as traders price in the prospect of Fed rate cuts in 2019. Markets are fearful: This isn’t written flippantly: markets are demonstrating price activity that suggests traders are preparing for a US recession. Under what other circumstances would a 50 per cent chance of an interest rate cut in the next 12-months be priced into the market? Absolutely, markets could be entirely wrong – it’s a philosophical debate as to whether markets are a predictive measure for the economy, and whether they are capable of processing and reflecting the necessary information to signal things like recessions. Regardless, sometimes perception is reality, as the cliché goes, so whatever truth, the market believes a major economic slow-down is nearing. It makes tonight’s US Non-Farm Payrolls and US Fed Chairperson Jerome Powell’s speech even more interesting. Will further confirmation come that US and global growth is truly slowing?
  25. Written by Kyle Rodda - IG Australia First trading day of the new year: Traders picked-up right where they left-off in the first trading day of 2019. Hardly a true microcosm by any means, but the last 24 hours could be considered an appropriate metaphor for how analysts expect markets to behave in the year ahead. Dire warnings out of Asia about global growth, backed-up by lukewarm activity in Europe, finished by a wildly fluctuating Wall Street. Trading conditions haven’t totally returned to normal; activity was very low globally, especially in Asia. However, it is lifting slightly when compared to last week, as traders drag their feet back to their desks for another year. Volatility is retracing, to the delight of investors and perhaps the chagrin of (bearish) traders. The fundamentals haven’t shifted even if sentiment has, so let’s keep ourselves strapped in. House prices falling: Taking in isolation what was hurled at Australian markets yesterday, and it was a bad day for the bulls. As alluded to, volume was light in Asia, and the ASX experienced volumes 45.85 per cent below the 30-day average. The financial press was handed two big headlines to run with that meant it was left-right-goodnight and straight to the canvas for the Aussie share markets on day-one of 2019. CoreLogic released its latest reading on the Australian residential property market, and for home owners it left much to be desired. The slow-down in the market continues for the major Sydney and Melbourne markets, each down now from their respective highs by 11.2 per cent and 7.2 per cent, according to yesterday’s reading. China slowing: The ASX200 didn’t move a terrible amount on that release, though it was a drag throughout the day. The real gut-check came upon the release of Caixin PMI data out of China, which confirmed that Chinese manufacturing has dived into contraction territory. It’s the latest evidence that, owing to standard cyclical factors and the stifling impact of the trade war, the Chinese economy is decelerating in a significant way. Of course, where goes China so goes Australia, more-or-less, and the prospect of an industrial slow-down in the Middle Kingdom, combined with sentiment-sapping consequences of a domestic property collapse, piqued fears our economy is headed for some turbulent times ahead. Naturally, the financials and materials sectors were the big laggards on the ASX200 consequently, with index plunging 1.57 per cent for the day. Mining and property: It’s a great summary of the Australian economy, this statement: the Australian economy is founded on digging-up stuff out of the ground, selling it overseas, then blowing the income on residential housing. A bit crude, probably unsympathetic too, but quite pithy and somewhat true. Given it’s the case, a set of circumstances whereby Australian property and mining is facing headwinds is no good for the economy and no good for the ASX. As often appointed-out, for index watchers, half the ASX200 is comprised of materials and financials stocks. Problems for Chinese growth is a challenge for the former, and problems in domestic property is a challenge for the latter. When both problems emerge simultaneously, it’s a big problem for the economy and the share market. RBA and the Australian Dollar: The most noteworthy result of yesterday’s difficult circumstances is that traders are pricing in cuts from the RBA this year in a bigger way. A survey of economists built the early consensus that Australian interest rates won’t be hiked until 2020. Traders, often far less forgiving, have in the space of a month already run from holding that view, to one where there is a roughly 30 per cent implied probability that the RBA will cut interest rates this year. Needless -to-say, the dynamic has legged the Australian Dollar: the little battler held up resiliently during Asian trade, bouncing off psychological support of 0.7000. But as we wake up this morning, the local currency has plumbed lows of 0.6982, taking it to its lowest level since February 2016. Growth concerns, safe-havens: It can’t be surprising that this is so; arguably its over-due, though one only ever admits that after the fact. Despite the bounce in global equities in certain geographies this past week, assets tied to fundamental growth prospects are still ailing. Last night’s swathe of Europe PMI figures, while not as poor as their Chinese counterparts, were still tepid, and did little to relieve investor anxiety. Copper was off slightly on this basis overnight, and amid continued institutional dysfunction in the White House, gold held above $US1280 as a safe-haven, despite looking a little overbought in the short-term. US Treasuries also caught a bid, as interest rate hikes from the US Fed this year become progressively priced out, with the yield on the US 10 Year note falling to as low as 2.64 per cent. Wall Street and ASX Futures: There’s 30 minutes to go in Wall Street trade at time of writing and the benchmark S&P500 is lower by a small margin, and SPI futures are indicating a healthy 86-point bounce for the ASX200 this morning. After opening considerably lower, US stocks recovered and have traded within a 2.11 per cent intraday range. A boost in oil prices was the major catalyst, courtesy of some Saudi-data, revealing how important (and understated) the black stuff’s impact is on this market. Credit spreads are still flashing orange, but higher energy prices are keeping that contained. The trend is still to the downside for stocks, however the likelihood we are experiencing a bounce is higher: for the S&P500, a rally beyond 2600, and for the ASX200, a rally beyond 5800, would be a strong indicator that this is so.
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