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MaxIG

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Blog Entries posted by MaxIG

  1. MaxIG
    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
  2. MaxIG
    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
     
     
  3. MaxIG
    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
     
     
  4. MaxIG
    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.
     
  5. MaxIG
    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
  6. MaxIG
    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.
     
  7. MaxIG
    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.
  8. MaxIG
    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
  9. MaxIG
    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
  10. MaxIG
    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.

  11. MaxIG
    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?

     
  12. MaxIG
    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.
  13. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 31 Dec 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
     
    Special dividends this week
    Index Bloomberg Code Effective Date Summary Dividend Amount RTY HIFS US 4/01/2018 Special Div 50 RTY GBCI US 7/01/2018 Special Div 30  
    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.
     
  14. MaxIG
    Written by Kyle Rodda - IG Australia
    Friday’s trade: Activity in global markets was more settled on Friday. There isn’t a consensus yet whether the trading witnessed last week was a dead-cat bounce, or a true bottom. Nevertheless, perhaps the lack of substantial news flow was enough to keep the bulls and bears from clashing heads for one day. The ASX200 impressed the bullishly inclined, albeit once again on thin trade, to add 1 per cent during the Asian session. The index managed to chop through the cluster of resistance between 5600 and 5630, to end the week at 5654. The rest of the Asian region put in a mixed performance, with China’s market finishing 0.44 per cent higher and Japan’s Nikkei ending 0.31 per cent. Europe fared well, ending its week in a sea of green, while US indices were also mixed.

    Final day of 2018: Today is quite obviously the last trading day of 2018 and it caps off an extraordinary month – and an extraordinary year, at that. A reliance on the calendar as a way of defining and measuring market success is shallow. But for purely rhetorical purposes: who would have thought that a year that would contain two all-time highs for Wall Street would culminate in a negative year for global equities? In a similar vein: what about the gang buster earnings, and white-hot economic growth – does this seem like the end of a year that contained both those things? It’s reductive to distil the year’s market action to those two points, however it does highlight how unconventional and sometimes strange this year has been in global markets.
    Volatility: The year was much about the return of volatility. Volatility is a measure of fear, and fear is a function of uncertainty. Uncertainty breeds confusion, and the behaviour in financial markets at present is reflecting a state of confusion. It stands to reason and doesn’t necessarily need to induce pessimism. A collective view on the state of the world is absent – good, bad or otherwise, the aggressive swings in equity markets last week is a function of market participants seeking to price-in the most accurate representation of the financial world right now. Such a representation is far from being fully formed, and its shape is being pushed and pulled by opposing ideas and views. Until the will of either the bulls or bears can overcome the other, swings in markets, in an environment of tightening financial conditions, will continues into 2019.

    Bulls, bears and the Fed: Fundamentally, there is a disagreement between the bears and the bulls about future global growth and financial conditions. On the one hand, the bulls suggest the sell-off is overdone, and prices have corrected approximately to where they ought to be. On the other hand, the bears are of the belief that this sell-off has more to run, and that prices remain distorted. The logic begins with the US Federal Reserve, and market views on what the Fed will and ought to do, then expands to the many other major issues impacting market sentiment from there. A great many think that the Fed is overestimating the strength of the US economy and will lean on it in such a way that it will exacerbate a looming economic slow-down – so much so that Fed hikes have been effectively priced out for next year.
    Risk-off, anti-growth: It’s been over a week since the December 19 Fed meeting, and the central bank’s next meeting isn’t until January 31st, opening-up the chance of an uncertain and volatile month. In equities, beginning on Wall Street, the foundations of major turbulence are in place. Traders are bidding up safe-havens, and pricing out higher global interest rates, pushing the yield on US 10 Year Treasuries to 2.72 per cent, and the yield on US 2 Year Treasuries to 2.52 per cent. The US Dollar is looking exhausted as-a-result, falling to 96.40, supporting a push higher in gold, which rallied to $US1283 over the weekend. The anti-risk, ant-growth mentality of traders has also pushed the Yen deep into the 110-handle and held the AUD/USD to support at 0.7040.
    Trade war: It’s very unlikely to change the trend or status quo, however today’s focus, at the outset, should be directed towards riskier, growth exposed assets. A mere Tweet of course, though confidence again has been piqued by assurances from US President Donald Trump over his Twitter account that there is being made “Big progress being made (on a trade deal)”. Markets are used to this commentary, so the chances of a complete overturn of the prevailing view on the trade war is next-to-zero. Even still, it adds to what appears to be positive momentum in working towards a trade-resolution, at a time where Chinese equity equities keep plumbing to new lows, and fears mount for the health of the Chinese economy and financial markets.
    ASX200: As this all relates to the ASX200 today: the latest traded price in SPI Futures is implying a 22-point jump for the index today. The trend for the ASX200 is still lower, meaning market bulls should remain cautious. With its break through ~5630 on Friday though, the index apparently possesses some upside, even if for no longer than the short-term. The market is currently wrestling with the index’s 50-day EMA at 5669 – eyeing the psychological-barrier of 5700 presents as the next key level. Beyond that, a line-in-the-sand is draw at 5760: the level represents boundary line resistance, traced back to the index’s last high. Given that the fundamentals are yet to greatly shift, a break through this level seems unlikely. However, it might well indicate that at least for the ASX, the bears are losing control of the market.

     
  15. MaxIG
    Written by Kyle Rodda - IG Australia
    A pull-back amid interesting activity: Markets received their slingshot higher and continue to swing about in both directions. That’s the key takeaway from last night’s trade; of course, that’s all too general, though – akin to explaining a rally in the market to their being more buyers-than-sellers. Yes, it’s self-evidently true, however it does little to answer the question of “why?”. Overall, market activity in the last 24-hours has provided a much greater and more nuance picture than what we got from the one-way rally in US markets on Boxing Day. There are now burgeoning answers to some of the questions traders have been asking; like any complex phenomenon though, the answers only lead to more questions. As a trader, this is daunting, but reason for excitement: risk is everywhere, so volatility is higher – but opportunities abound.

    The real versus paper economy: It could be a far too grand a notion: the push and pull in financial markets at present is being driven by confusion regarding the current relationship between the “paper (or financial) economy”, and the “real economy”. The fact that such a distinction exists feels absurd. Shouldn’t proper functioning financial markets be the vessel to allocate capital efficiently throughout a (“real”) economy? In principle, that ought to be so. In this world, that axiom seems far from true. The battle being waged within markets at present – and this unfolded in a significant way overnight – is between economic policy makers (a la the US Federal Reserve) on one hand, and financial market participants on the other: the former says things are alright, while the latter is indicating everywhere that things are not okay.
    End of the cycle? It’s an obscure and distorted world, when it comes to the global economy and how it interacts with financial markets. It’s not necessarily the prevailing view, nor is it absolutely the truth, but times like these when there is such utter confusion in the financial world, it lends itself to the idea that markets have become dislocated from the economies they supposedly serve. Financial cycles (the concept goes) aren’t being driven by economic fundamentals. Instead, they are fuelled via credit cycles that drag real economic growth along with asset bubbles. (Ray Dalio recently discussed the matter in an article certainly worth “Googling”). In such a world, economic relations don’t dictate financial market behaviour, but the other way around – and, unfortunately, as an aside: to the benefit of a very few.
    The Fed’s part to play: Who to blame for that? It’s systemic, and structural and probably founded on some false-ideology. One big part of this system of thought however goes back to this “paper economy” and “real economy” binary. Analysing the rise of the term “real economy” and its usage over time, a spike in the phrase occurred around the early-1980s, around about the time the neo-liberal revolution and subsequent global financialization process began. Since then, policy makers (again, a la the US Federal Reserve) have rationalized away the emergence of massive, credit fuelled asset bubbles, seemingly exacerbating the already unstable underpinnings of the boom-and-bust cycle. That is: the booms and busts have become bigger as the response to each necessitates even more aggressive policy (i.e. monetary policy intervention) to keep the process going.


    Risk-off, anti-growth: This is all very abstract, to be sure. However, it is relevant in the context of last night and today’s trade because of the price action we’ve been handed. First-off, of course, the sell-off on Wall Street continued after the day prior’s historic rally. In saying this, the major Wall Street indices have rallied into the close, on lifted volumes, to add weight to the notion US equities have met their bottom. The real fascination ought to be directed to what has again happened in interest rate and bond markets overnight. Rates and yields have tumbled once more: interest rate traders have reduced their expectations of hikes from the US Fed to a measly 5 points in 2019 (at time of writing), while the yield on the US 2 and 10 Year notes has fallen by 4 basis points each.
    Soft US data: It reeks of the trouble markets find themselves in. The pull back in stocks had been on the cards all day, with US futures pricing that in throughout mixed Asian and European trade. The major driver of sentiment overnight though was the US consumer confidence print, which revealed consumer sentiment plunged last month. It piques concerns that the engine of the US economy – the almighty consumer – is sensing tough times ahead. Forget that the labour market is strong, and consumption has been hitherto solid, the everyday US punter thinks next year will provide them with less than what they have received in the recent past. It’s given the perma-bears the vindication they sought, who’ve once again wagged their finger at the Fed for being so naïve as to think the US economy could prosper without accommodative monetary policy.
    Australia macro and day ahead: Fortunately for Australian markets, we’ve not been forced to deal with such a struggle between markets and policy makers. We’ve yet to resort to extreme monetary policy measures to support our economy, and we’ve a simpler economic structure: at its core, if global (read: Chinese) growth prospers, so do we. There are risks there that may mean our economy will face headwinds in 2019, mostly in the form of the trade war. Tighter financial conditions will filter through to our markets, as well. Given the weightiness of the banks and miners in the ASX200, these variables pose reasonable downside risk for our market next year.
    So: today will be risk-off, in line with the lead passed to us from bearish traders in Europe and North America. Hence, SPI futures are indicating a 73-point drop at the open for the ASX200, on the back of a volume-light, but broad-based 1.88 per cent rally on the index yesterday. The market closed just below the significant 5600 level during yesterday’s trade – above which a cluster of resistance levels exists up towards 5630. The anti-risk, anti-growth feel to overnight trade has also harmed the Australian Dollar, which despite a sell-off in the USD, is testing support at around 0.7020, and eyes a break below the key psychological barrier at 0.7000.

  16. MaxIG
    Written by Kyle Rodda - IG Australia
    A big bounce, but a bottom? There’s little shortage of folks calling a bottom in the market this morning, but in truth it’s too early to tell if we are there yet. Sentiment indicators and other market internals suggest that the market could be oversold right now, however a short squeeze here-and-there and a shake-out of a few opportunistic bears doesn’t necessarily mark a change of trend. It’ll be returned to towards the end of this note, but in the interest of providing context, Wall Street is registering a solid day of activity, with its three major indices up over 2-and-a-half per sent so far in the session. It’s setting up a solid day’s trading for the Asian region, and likely Europe when it re-opens tonight, on what poses as a thin albeit positive day for stocks.
    Wall Street momentum to lift ASX: After a two-day hiatus, Australian equity markets reopen this morning. The last price on SPI Futures is indicating a 35-point pop for the ASX200 at today’s open, though that price, it must be remarked, comes from its closing price on December 24th. A lot has transpired in the 48 hours-or-so during the Christmas public holiday period: immense sell-offs in certain markets, more political chaos and uncertainty in the US, and now an ample bounce in US stocks. Considering the time of year, the Australian share market is more than likely to experience another session of thin trade today. Monday’s session, for example, saw volume 63.40 per cent below the 30-day average. In saying this, though unsubstantial, Wall Street’s momentum looks likely to carry our market higher.

    The stories moving markets: The financial press has been comparatively quiet owing to the holiday period, meaning major headlines from the media-machine are lacking so-far this morning. A recap is in order, perhaps, to touch-on some of the market moving stories this week. Much of the focus has centred on the machinations of US President Donald Trump and his administration, predictably. Given the US Government shut-down, the US President, by his own admission, has spent much of his time “all alone” in the White House –  apparently pondering who to fire next. Of course, his ire hasn’t left the US Federal Reserve and its Chair Jerome Powell. But in the last few days or so, rumours are circulating faster that the latest career-fatality on the White House merry-go-round will be US Treasury Secretary Steven Mnuchin.
    Mnuchin’s mistake: One can somewhat understand the frustration of US President Trump toward Mnuchin: financial markets seemingly experienced a dose of it Monday, after the Treasury Secretary called a crack-squad of America’s largest bankers to confirm that the market was supported with ample liquidity. Trader’s hated the notion, labelling it akin to calling-out in a crowded cinema “Nobody panic, the fire department is on its way!”. It was this move by Mnuchin that hobbled already weak sentiment on Monday and resulted in the worst Christmas eve performance in US stocks in history. Fortunately for Mnuchin (and his job-prospects), traders have moved passed the gaffe; however, the disorder in Washington, and even more so the White House, remains an ongoing concern.
    Risk appetite piqued: With a little over an hour to go in Wall Street’s trading session, the solid gains for the day look likely to hold. Appetite for growth stocks has led the charge: the NASDAQ is up over 4 per cent presently, courtesy of a surge in Amazon’s share price on the back of reports of strong holiday consumption within the US economy. Oil prices have also rallied in response to a commitment from OPEC over the holiday break that it remains committed to managing production and supply. The dynamic has narrowed credit spreads marginally and provided further support for equities, while risk-on sentiment has culminated in a climb in US Treasury yields and the US Dollar, with the yield on the US Year note jumping to about 2.80 per cent

    US growth expectations unchanged: The curious matter behind today’s moves though, is that under the surface traders are still pricing in softer US growth. Although equities are up, along with the US Dollar and bond yields, interest rate markets are still moving in the direction of pricing out hikes from the US Fed in 2019. It must be said that US break-evens have bounced with equities today, implying on the 5-year spread a rate of inflation around 1.55 per cent. However, in absolute and historical terms, that is still very low – a fact reflecting as much in implied probabilities of US rate hikes. There is presently only 9-basis points of interest rate hikes being factored in by traders for next year, suggesting slower than forecast fundamental growth is still baked in to market expectations.

    The jury is out: It begs the question whether last night’s activity is just a technical bounce, driven by short term factors. Picking tops-and-bottoms in markets is nigh-on impossible, so any argument for or against whether we are seeing a dead-cat bounce, or a meaningful turnaround, should be read in that context. The matter is, the bearish-narratives that have led the market lower haven’t dissipated yet. As such, volatility is still high – above 30 on the VIX – and considerable rallies, like last night’s, is the norm in bear markets.  The trend is the best guide, and the shorter-term trend remains lower for now. It’ll take a while to get there, but a retest of 2600 for the S&P500 may validate the view a reversal is in play; further falls to below 2290/2300 would provide firmer confirmation that the post-GFC bull run is over.


  17. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 24 Dec 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends this week
    Index Bloomberg Code Effective Date Summary Dividend Amount RTY EVI US 24/12/2018 Special Div 13 RTY ABR US 27/12/2018 Special Div 15 RTY CNXN US 27/12/2018 Special Div 32 RTY NRC US 28/12/2018 Special Div 5 RTY CHMI US 28/12/2018 Special Div 15 SPX CME US 27/12/2018 Special Div 175 SPX HST US 28/12/2018 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. MaxIG
    Wall Street rout: Wall Street capped-off last week with another day of considerable losses, even despite Europe posting an okay day. Come the end of the trading session, the Dow Jones had lost 1.81 per cent, the S&P500 had lost 2.06 per cent and the NASDAQ had lost 2.99 per cent. The fact markets are entering the thin holiday period doesn’t help. One assumes that many-a investor would be rather reluctant to be sitting at Christmas lunch this year holding open-positions in equities given this market. Friday’s volume was extraordinarily high, especially in the Dow Jones, which saw activity 140% of its 30-day average. That statistic is particularly remarkable when considering that the past 30 days have seen volumes at levels very elevated by broader historical standards.
    A down day, week, month, quarter: Looking at the S&P500 as the natural benchmark, US equities have shed 12.5 per cent so far in December, and 17.1 per cent in the fourth quarter. The 14-day RSI is flashing signs of an oversold market presently, however historical trading patterns suggest the S&P can dive lower, and momentum indicators are showing bearish-momentum is still building. A technical bear market, defined as a 20 per cent drop from previous highs, looks reasonably imminent given the current context. The NASDAQ, for one, is already there. Perhaps another concerning signal, IG’s sentiment measure is indicating traders are 70 per cent net long the S&P, implying that many traders may be trying “catch a falling knife”. If big-money keeps selling, the unwinding of these long positions could hasten the market’s tumble.

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

  19. MaxIG
    Fed on tap: It’s a commentary written on the fly this morning, as developments out of this morning’s US Federal Reserve meeting are being digested by markets. The Fed has hiked rates just as they were expected to do, with market participants now trawling through the fine print in the Fed’s commentary. We were expecting a “dovish hike”; what we got looks like a “less-dovish than-expected-hike”. The dot plots were revised as presumed: the Fed has told the markets that it expects interest rates to be lifted twice in 2019, rather than the three-times implied in the September dot-plots. It also downgraded its growth expectations and hinted unemployment is likely to pick up in the medium term. Overall, though, at first glance this looks like a Fed reasonably content with their policy position, as well as the position of the US economy.

    First responders: Price action in markets have been interesting. The message being delivered by the Fed is somewhat curious. Initial judgements are that they’ve struck quite an effective tone, albeit one that was probably different to that which was implied in market pricing prior to the event. US stocks are paring their gains for the day; volume has returned to Wall Street, after being below its average for most of the session last night. The NASDAQ is in the red presently: momentum stocks (read: information technology firms) are being hurt by the “less-dovish” Fed. Investors don’t want to buy into growth, it would seem. The intraday trend is pointing to a down day for Wall Street, though naturally that could turn in the next hour-and-a-half.
    Rates markets: The VIX is down currently, which is a good early indicator that markets are less-uncertain after the Fed’s announcement. That’s not always guaranteed and is liable to change today; one assumes policy makers would be pleased with that outcome. Interest rate markets, as the data presents itself in the Bloomberg World Interest Rate Probability data, aren’t presenting signs of adjustment yet. That indicator still implies only a modest 14 basis points of hikes into 2019 from the Fed – though it is showing a greater chance that the central bank will stop or even reverse course in 2020. Arguably, the most interesting price action has transpired in US breakeven inflation rates: the 5 Year indicator has dropped to imply future inflation of just below 1.6 per cent – well below the Fed’s target level of 2.00 per cent.

    Powell Press Conference: Fed Chairperson has delivered his commentary and is taking questions from the press. Markets are reacting quite well to what he is saying but most asset classes are still swinging around a lot. The “data-dependant” line is being touted once again, suggesting a flexibility to future policy decision. The dot-plots too, it has been stated several times, is not a consensus estimate or guideline and is subject to revision. Traders ought to take comfort from that notion: if things get uglier, for whatever reason, the Fed will provide some sort of a back stop – a low-premium Powell-put, perhaps. However, a positive – a less dovish, more hawkish – tone has been delivered. Powell is waving away some of the recent financial market volatility, despite acknowledging that financial conditions are less accommodative for economic growth.
    Bonds and currencies: Bond and currency markets have been the locus of activity, as one would assume. Sentiment is still shifting in response to new information, though some insights into the collective consciousness of traders can be inferred. The US Dollar is turning higher for the day, climbing toward 97 according to the US Dollar index. The greenback is performing best against risk and growth sensitive currencies like the Australian Dollar: our currency has been dumped, tumbling over 1 per cent to sit just above 0.7100, at present. Bonds are rallying across the board and all the way across the curve. US Treasuries are of course leading the drive: there is the feeling that risk aversion is taking hold now. Equities are selling-off: one criticism popping up now is the Fed is not taking financial market volatility seriously-enough.
    US Treasury yields: A cursory analysis of the yield curve is presenting some interesting information, too: the yield on rate sensitive US 2 Year note has fallen by 2 points at time of writing, but the US 10 Year note has fallen by an even greater 5. The spread between those two assets has narrowed to 13 points. Traders are suggesting, as they had been at stages in the lead up to this Fed meeting, it expects the Fed to keep tightening rates, even in the face of lower inflation and growth prospects. If anything is going to spark fear and further volatility today, it’s probably going to be based on that point. An imminent-enough economic slow-down is upon us, it is being implied, however the Fed will likely stick to its strategy of restricting financial conditions by lifting interest rates.

    The aftermath: The event is more-or-less over now: all the official information is out-there, and Powell has delivered his press conference. Now traders trade and speculate on what has been communicated to the market. After holding up well enough initially, US equities are being smashed and futures markets are pricing in a sell-off across both European and Asia markets. Looking at the market-map of the S&P500, it’s all a sea of red now, with just over half an hour left in trade. That index is clambering to hold onto the 2500 handle, while the Dow Jones has just registered a new year-to-date, intra-day-low. After all the formalities, market participants are behaving none-too-happy with what they have received this morning: stocks are off on volumes that have gone through the roof, credit spreads have widened, and safe-havens are being sought out.

    ASX today: Though it has suffered in the global equity sell-off, the ASX200 has held-up rather well of last, at least when compared to its global peers. SPI Futures have swung heavily this morning, vacillating all in the time it takes to type a sentence in a range between 7-to-25-points. Yesterday was a soft day for Australian shares as traders positioned for this morning’s Fed; the only bright spot for the session was the announcement from APRA it was going to lift lending restrictions on investor only loans. That fact gave the real estate sector, the banks and the consumer staples space a boost. What’s in store for the day ahead is hard to pick for a trader right now: the markets are shifting so rapidly. Anything more than a flat day for Aussie shares would be surprising. IG is pricing the ASX at 5560 as of 7.45AM, with the recent intra-day low of 5551 the level to watch today.
  20. MaxIG
    US Fed watch: The US Fed meeting has been kickstarted and the markets are shuffling around in anticipation. US equities at time of writing are putting in a mixed performance, though al major Wall Street indices remain trading below key technical levels. It comes following a day in which Asian and European markets sold-off in sympathy with Monday night’s rout in North American shares. A desire for safety has supported a bid in US Treasuries: they are higher across the board. Interest rates traders are also grinding away, pricing out point-by-point interest rates hikes from the Fed in 2019. The US Dollar has dipped as traders take safety in other haven currencies: the US Dollar Index is below 97, mostly courtesy of a play into the EUR and the Japanese Yen. The weaker greenback has provided a lift in gold prices, with the yellow metal trading just below support at $US1250 per ounce.

    The Fed’s biggest critic: Everyone has an opinion on what the Fed ought to do, it seems. The most powerful voice of all, US President Donald Trump, has certainly weighed in on the subject, Tweeting: “I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!” Never mind that President Trump’s policies, from major tax cuts and his trade war have contributed to the Fed’s invidious position. The President clearly is noting his concern about one of his hitherto favourite measures of personal success: the health of the US stock market. Whether rightly or wrongly, market participants, as contained within the price action in global markets, appear to agree with President Trump.
    Market sentiment: Cool it with the hikes, guys! Is the message. Traders obviously can’t take much of it any more. Risk is off the table and bets are being placed that we are in for a “dovish hike”. That is: a hike tomorrow, but a very careful downgrade in the projections for future hikes. It’s an incredibly tight rope the Fed must walk. On one hand, they’ll need to assure markets that they remain accommodative of US (and the globe’s) financial and economic health; while on the other, they can’t seem so accommodative as to reveal a level of genuine fear about what could be in store for markets and the economy in the future. The problem is, markets are going deep on the notion that a dovish Fed is upon us. The possibility is that the markets have set the bar too low.

    The big risk: Thus, even a sprinkling of hawkishness about rates could prompt a big repositioning in markets. The first reaction would be in rates markets, but that would transfer quickly into the prices of US Treasuries. Overnight, the yield on the US 2 Year note and the US 10 Year note dropped by 4 and 3 points, respectively. The spread between those two assets has gradually widened since narrowing to about 9 point a fortnight or-so ago, to sit around 17 points now. The back end of the curve will remain mostly responsive to growth and inflation expectations, but if the Fed adopt a more hawkish line, yields on the 2 Years could rally-hard, re-narrowing spread considerably. Out would come the recessionistas in such an event and the global share market, led by Wall Street indices, could possibly convulse.
    Danger signs still flashing: Highly sensitive market-participants wouldn’t appreciate the shock. Again, in last night’s session, amber lights were flashing in certain segments of the market. Junk bonds suffered the most, with the spread on high yield credit widening to multi-year highs. The dynamic was fuelled by another tumble in oil prices on fears of a slow-down in economic activity will cause a supply glut. Thinner liquidity brought about by tighter financial conditions isn’t making the situation any more manageable. The price of WTI is now at $US46 per barrel at time of writing, having fallen over 7 per cent in the last 24 hours. Energy stocks the world over, not mentioned the Loonie, have dropped, and assets pricing in implied inflation have modestly dipped – portending further difficulty for the likes of the Fed to maintain price growth at targeted levels.

    ASX resilience: SPI futures have been whipping around a bit in late American trade. There’s an hour to go on Wall Street as this is being written, and the major share indices are gravitating back to their opening price. It could be risk is (justifiably) being taken off the table here in anticipation for the Fed. So: futures are suggesting a give-up of 8 points for the ASX200 at the outset, adding to yesterday’s pain. To the credit to the Aussie index, the 5600-level isn’t being let go without a fight. The buyers entered the market yesterday on numerous occasions to push the market above that point, only to be overwhelmed by sellers, who rammed home the overwhelming negative sentiment. Technical indicators aren’t necessarily pointing entirely to sustained downside in the ASX200, but a succession of lower-highs in the past few sessions indicate the bulls could be getting exhausted.
    What’ll save us? Australian equities never became quite as elevated as their US counterparts did over the last decade, perhaps implying if we are entering a bear market, ours won’t be as severe. However, given the share market self-off has been inspired by fears of slower global growth, Australia’s exposure to any wreckage is all but unavoidable. The miners haven’t demonstrated the sort of stress one might expect, but the banks are being belted (they gave up 27 points yesterday), while the health care sector is unwinding the market leading gains of the year and the energy space is falling with the oil price. Arguably the best thing that could happen is a truce in the trade war to ease burden on the Australian economy; however, after Xi Jinping’s defiant speech yesterday, plus the issues of tighter financial conditions, perhaps the benefit of any improvement in global trade relations trade will be marginal.
  21. MaxIG
    Written by Kyle Rodda - IG Australia
    ASX yesterday: The ASX200 put in a very respectable day's trade yesterday. It was looking gloomy at the outset. Market participants were preoccupied with the economic struggles in China and the Friday sell-off on Wall Street. However, the 32-point drop forecast for the Australian market didn't materialise, providing scope for the index to cling-on to the 5600-mark, and forge gains throughout the day. The Australian session ended with the ASX200 1.00 per cent higher. It must be remarked that though positive, it was a day of light news and thin trade. The MYEFO release, coupled with BHP's share buyback and special dividend boosted sentiment, but volumes were quite some way below average, signalling a lack of conviction behind the day's rally.
    ASX today: The gains look quite certain to be unwound this morning, however. SPI futures markets are indicating a 90-point drop for the ASX200, taking us almost squarely to where we were ought to have opened yesterday morning. The Wall Street chaos appears an inescapable lead today. It'll be touched on in a moment, but US shares a copping a battering (again) to start the new week. Financials and growth-stocks might be the barometer today. The banks are receiving a belting, falling yesterday even within the market's overall rally. US tech is heading the losses on Wall Street, as are health care stocks, following a ruling by a Texas judge that Obamacare is illegal. Using recent history as a guide: this is a generally solid indicator that Australia's technology and health care space will be shorted today.

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

    Risk-off today: As can be assumed, it's risk-off wherever you look in global markets. US Treasuries have rallied - the US 2 Year Note is yielding 2.70 per cent and the US 10 Year note is yielding 2.85 per cent. The greenback has been sold consequently, giving the EUR a boost to 1.1350, and the Pound a lift to 1.2630. The Yen is back in the 112-handle as the carry trade unwinds, boding poorly for the Nikkei today. The Australian Dollar is steady against the greenback but weak mostly everywhere else. Gold has rallied to $1245 courtesy of the weaker USD, but oil has been smashed with WTI plunging below $50 on renewed fears of a glut. Spreads on junk bonds have blown-out subsequently, trading as wide as they have been for two-years. Ultimately, The action is culminating in an Asian session that shapes as another one for the Bears, as Santa's rally looks increasingly likely to be skipped this year.
     
  22. MaxIG
    Written by Kyle Rodda - IG Australia
    2018 reaches a climax this week: It’s effectively the last serious trading week of the year, and the economic calendar reflects that. Indeed, there’ll be a handful of days between Christmas and New Years to keep across, but with little news and thin trade, it’s tough to imagine anything coming out of them. The markets are still ailing, with the bears firmly in control of price action. There’s so many risk-events coming up this week, traders with a bearish bias are surely salivating. They did well to knock-off US equities in the final round of last week: the S&P500’s 1.9 per cent loss on Friday ensured another down-week for Wall Street. How this year is remembered and how next year will begin will in no small way be revealed in the next 5 days: if you’re a financial markets buff, it’s exciting stuff.

    Economic data: Concerns about future global economic growth tightened its grip on market participants last week. A slew of fundamental data was released across numerous geographies on Friday, and most of it was quite underwhelming. European PMIs undershot expectations, probably attributable in a big way to the impact of being caught in the middle of several domestic political crises and the US-China trade war. US Retail Sales data printed very slightly above expectations, to the relief of many, showing that the almighty US consumer is holding up well – at least for the time being. But it was a very soft set of Chinese numbers that had the pessimists tattling: the spate of economic indicators released out of China on Friday afternoon proved once more it’s an economy that is slowing down – and hardly in a negligible way.
    Recession chatter: Market commentary is continually focused on what prospect exists of a looming US recession. Financial markets, as distorted as they have become, do not necessarily possess strong predictive power of economic slow-downs. Nevertheless, your pundits and punters have taken a significant preoccupation with whether 2019 will contain a global recession. The signs are there, at least in some intuitive way. A google trends search on the term recession has spiked to its highest point 5 years, for one. Bond markets are still flashing amber signals: the yield curve is inverting, and US break evens are predicting lower inflation. Equities are still moving into correction mode, demonstrating early signs of a possible bear market. Credit spreads are trending wider, especially in junk bonds, as traders fret about the US corporate debt load. And commodities prices are falling overall, with even oil still suffering, on the belief that we are entering a period of lower global demand.

    Economic data: Concerns about future global economic growth tightened its grip on market participants last week. A slew of fundamental data was released across numerous geographies on Friday, and most of it was quite underwhelming. European PMIs undershot expectations, probably attributable in a big way to the impact of being caught in the middle of several domestic political crises and the US-China trade war. US Retail Sales data printed very slightly above expectations, to the relief of many, showing that the almighty US consumer is holding up well – at least for the time being. But it was a very soft set of Chinese numbers that had the pessimists tattling: the spate of economic indicators released out of China on Friday afternoon proved once more it’s an economy that is slowing down – and hardly in a negligible way.
    Recession chatter: Market commentary is continually focused on what prospect exists of a looming US recession. Financial markets, as distorted as they have become, do not necessarily possess strong predictive power of economic slow-downs. Nevertheless, your pundits and punters have taken a significant preoccupation with whether 2019 will contain a global recession. The signs are there, at least in some intuitive way. A google trends search on the term recession has spiked to its highest point 5 years, for one. Bond markets are still flashing amber signals: the yield curve is inverting, and US break evens are predicting lower inflation. Equities are still moving into correction mode, demonstrating early signs of a possible bear market. Credit spreads are trending wider, especially in junk bonds, as traders fret about the US corporate debt load. And commodities prices are falling overall, with even oil still suffering, on the belief that we are entering a period of lower global demand.

    ASX in the day ahead: There are signs a general risk aversion is clouding the ASX to begin the week. SPI futures are pricing a 32-point drop for the Australian market this morning, which if realized will take ASX200 index through last Tuesday’s closing price at 5576. There has been the tendency for the market to overshoot what’s been implied on the futures contract of late, as fear and volatility galvanizes the sellers in the market. This being so, a new test of last week’s low of 5549 could emerge today, opening-up the possibility for the market to register a fresh two-year low. On balance, the day ahead looks as though it may belong to the bears, with perhaps the best way to judge the session’s trade by assessing the conviction behind the selling. Although it appears the less likely outcome, a bounce today and hold above 5600 would signify demonstrable resilience in the market.

     
     
  23. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 17 Dec 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
    Special dividends this week
    Index Bloomberg Code Effective Date Summary Dividend Amount PSI20 COR PL 17/12/2018 Special Div 8.5 RTY PRA US 20/12/2018 Special Div 50 RTY HTLF US 20/12/2018 Special Div 5 RTY SYX US 21/12/2018 Special Div 650 RTY EVI US 24/12/2018 Special Div 13  
    How do dividend adjustments work? 
    As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
     
  24. MaxIG
    Written by Kyle Rodda - IG Australia
    A (relatively) settled session: It’s been a soft day for global equities. With almost exactly two-hours to go in the US session at time of writing, another modest rally has apparently been faded by traders. Indications are that Wall Street will close lower. If proven true, this will punctuate a mixed day for Europe, and quite a solid day for the Asian region. The former found little impetus to be bid higher, while the Asian session showed the ebullience of diminishing trade tensions. Scanning the major indices, volumes were up compared to their 100-day average, however were slightly down when compared to their 10-day and 20-day average. It reveals a market that is more settled than what it has otherwise been seen during the global share-market correction – but remains vigilant and prepared to turn at the sight of bad-news.
    Global growth: Given price action in last night’s trade was relatively more subdued, traders and analysts seemed able to take the clearer air to reflect on current market drivers. The theme that’s popped up consistently in the last 24 hours can be crudely articulated as “downside risks to growth”. It was a theme adopted by ECB President Mario Draghi during his press conference following last night’s ECB Meeting; and it was also referenced by PBOC last night in relation to China’s economic fortunes. It bears repeating: October, November and December in markets have been characterizes by bearishness, of course. However, the causes throughout this period have shifted. What was initially a sell-off catalysed by fears regarding higher US interest rates has transformed into one driven by fears about slower global economic growth.
    ECB meeting: Last night’s headline event captures this well. The ECB met and broadly met traders’ expectations: rates were of course kept on hold, and the central bank’s QE program will come to an end. As always, the commentary and press conference were where the interest lay, and ECB President Draghi delivered a cautious but stark message. The balance of risks to the EU economy have shifted to the downside. The ECB lowered its forecasts for growth and inflation, even further below what could be considered objectively strong figures. Overall, President Draghi was judged as quite dovish about the prospects for European monetary policy. Though it was not stated explicitly – central bankers rarely communicate in such a way – the subtext of the speech strongly implied that any true policy normalization from the ECB is some way off.

     
    Whatever it takes: It’s a fascinating conundrum for the ECB. After a decade of experimental monetary policy, on balance the central bank’s greatest endeavours haven’t seemed to work. President Draghi’s “whatever it takes” attitude has supported markets, but evidence for his success is scant. The counter-argument to this pessimistic take on the Eurozone and ECB always seems to go something like “yes, things aren’t good, but imagine how bad things could have if the ECB hadn’t done what it did!”. It could be a valid point – one better for the historians to take care of somewhere down the line. However, the situation is poised to be this: the global economy will eventually experience a recession, and the ECB will more-likely-than-not be at effectively negative interest rates. The whole affair engenders very little hope or confidence in the future of the European economy.
    The news flow: That reality considered, traders tipped their hat and gave a sympathetic nod to the ECB after its meeting, and more-or-less moved on. There wasn’t much bullishness to be found in markets last night, however it wasn’t a risk-off night either. A lot of commentary overnight has pointed to the trade-war being behind the session’s softness. China has reportedly detained another Canadian citizen on national security grounds, presumably in retaliation to Canada’s arrest of Huawei CFO Meng Wanzhou. While on the other side of the world, members of the Trump administration declared that China ought to concede more to resolve the trade dispute. Overall, there was little substantial or game-changing revealed to markets – mostly just noise relating to the familiar and ongoing concerns that have been long-rattling markets. Today’s big Chinese data dump will be now be the one to watch.
    Not risk-off; but not risk-on: The price action communicated this reasonably well. US Treasury yields have stayed (fairly) still: the US 10 Year note held at 2.90 per cent, and the US 2 Year note dipped 1 point to 2.75 per cent, widening the spread there to 15 points. Wall Street is heading for a flat day, though with an hour to go in trade, the Dow Jones is a skerrick higher. The DAX and FTSE were both down 0.04 per cent. The greenback pushed-higher, mostly due to a weaker EUR, which fell to 1.1364. The Pound is up a skerrick, while the Yen, reflecting the day’s sentiment, fell slightly, just like gold, which is holding support above $US1240. The Australian Dollar is practically trading sideways at 0.7220. Credit spreads narrowed on the perception of diminished risk. And in commodities markets, copper is flat, and oil and iron ore rallied.
    ASX200 today: This is the context for Australian trading today, and with all of that digested, SPI futures are telling us we are set for a 14-point drop at the open for the ASX200. The ASX took the momentum generated by the improved sentiment about global growth yesterday, with the cyclical mining, consumer discretionary and industrial sectors some of the best performing. The rally lost legs throughout the day, as traders seemingly opted to fade the run once again. Volumes were high, but breadth was uninspiring.
    The foundations are set for another lower-high for the ASX200 index, reinforcing the notion the market is in some bearish down trend. Some contrary evidence suggests the worst is behind us: the RSI is still showing bullish divergence, and downside momentum is moderating. As it currently stands, a new low, as far above 5510 as possible, and/or a rally through resistance at 5705, is broadly the challenge the market needs to overcome to demonstrate evidence of a possible bullish turn in this market.

  25. MaxIG
    Written by Kyle Rodda - IG Australia
    What’s making headlines: There’s an hour and a half to go in the US session and global equities are up. Let’s assume they finish that way – there is plenty of room for clarification (and rationalization) late-on, if need be. Traders have taken the new green shoots in the trade-war and spun them into a positive narrative. Sure, the old green shots lay trampled below the new ones, but perhaps this time around the positivity will be given a chance to thrive. The other story hogging headlines in the financial press is the vote motion UK Prime Minister May’s leadership of the Tories. Market confidence has been shaken by that development, but as we wake-up this morning, the balance of opinion seems to be suggesting that May will win the day.
    The data side-show: Politics is driving markets still, which is always dangerous – it’s often a distortionary influence on prices rather than a revealer of fundamental facts. However, the fundamental economic data that was handed to traders overnight supported their optimism. Arguably the most significant release for the week, US CPI figures delivered a bang-on forecast number. If you’re a bull, locked in an environment where there exists fear of a global economic slowdown on one side, and fears about higher global interest rates on the other, a moderate outcome to any data-release is welcomed. Fundamental data last night was light otherwise, with US crude oil inventories the next most important release. It overshot forecasts, but still showed shrinking supplies, which boosted oil prices and (at the very least) didn’t detract from the bullish sentiment.
    ECB on tap: The next release on the data docket is the ECB meeting tonight. It’s that central banks last meeting for the year and ought to be watched, considering all this talk about slower growth and hawkish central bankers. Given the noise in markets and the gradual stagnation in the European economy, it’d be a might surprise if ECB President Mario Draghi and his team deliver any surprises. The situation across Europe is fraught with political, social and economic danger. No central banker is going to want to light a flame under all of that. Going into 2019, France is burning, Italy is agitating for change, the UK is still trying to bail, and the custodian of it all, Germany, is about to lose its steady hand in leader Angela Merkel. The politico-economic landscape doesn’t inspire much confidence in the grand European project, and the ECB will probably reflect that.
    Another faded rally? Nevertheless, as mentioned, traders are taking in their stride the ever-present risks in this market. (Stream of consciousness status update: US equities are giving up their gains with about an hour-and-a-half in trade to go, however they remain ahead for the day. Again, let’s check in on that later.) The core question at hand on bullish days is to what extent are rallies a reflection of market-reality or mere perception. US stocks have ended as of today its latest downtrend – another in a line of aggressive sell-offs and rallies within what is overall a sideways pattern since the middle of October. There must be scope for a break-out from this pattern at some point soon. The S&P500 eyes the 2800 again now: maybe we assess the strength of the bulls by their ability to return US stocks to that level again.

    ASX200: SPI futures are tracking Wall Street’s performance this morning, as they are wont to do, suggesting an open 5 to 10 points higher for the ASX200, at time of writing. The performance of Australian equities yesterday was solid, in line with major regional counterparts, as fears of trade-wars abated once again. Volume was ample at 15 per cent above average and breadth came-in just below 80 per cent. Each a sign of strong bullish conviction. It seems a desire to get into cyclical, economic-growth stocks constituted the essence of yesterday’s sentiment. The greatest activity was to be found in the materials, industrials and consumer discretionary stocks. Irrefutably, this is a good sign for the many who hold optimistic-enough views on global growth; the test will be whether this view can be vindicated leading into the end of the year.
    The seasonal kick? The success and failure of the ASX200 will be strongly correlated to what happens to US stocks for the rest of 2018. It figures: the core issues in the market relates to the ongoing strength of the US economy, and how hawkish the Fed may-or-may not be. There is probably an inherent disconnect on some scale of looking at our market through that lens. The ASX200 never truly saw the parabolic rise in prices that the major Wall Street indices did during the easy money era (Australians engineered a residential property boom instead). All the same, if seasonality is a guide, a December run higher is on the cards come the last half-of December. The measure of any run’s sustainability should roughly be assessed by the index’s ability to challenge levels at 5705, 5790 and 5880.

    Price-check: The North American session is nearly at its close. Time for a review on the price action. Wall Street is off its intraday high but has still managed gains over 1 per cent. The benchmark S&P500 is 1.2 percent higher. This backs-up a day in which the DAX and FTSE rallied 1.4 per cent and 1.1 per cent respectively. US 10 Year Treasury Yields are up to 2.90 per cent, and the yield on US 2 Year Note is up 2.77 per cent, widening the spread there to 13 points. Credit spreads have also narrowed. Higher risk appetite has seen the greenback sell-off. The DXY is at 97-flat, thanks in part to a Euro that’s fetching 1.1375 and a pound that’s buying above 1.26. Gold is slightly higher $US1245. The growth-optimism has boosted our AUD to just above 0.7225, while oil is up, and copper and iron ore are down.
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