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Written by Kyle Rodda - IG Australia Brexit break-down: The headlines in financial markets are mostly Brexit related. What was suspected has become so: Prime Minister Theresa May’s deal with the European Union has fallen by the wayside, potentially (if not, likely) rendering it mute. 24 hours is of course a long time in markets, and this time yesterday optimism was blossoming about a potential Brexit deal to end the years of debate and gridlock. The harsh reality has now bitten though, and the brutal realpolitik has subverted that narrative: Dominic Raab – the UK’s key Brexit negotiator – has resigned from Prime Minister May’s cabinet, amounting to a no-confidence motion in the Prime Minister and her deal. It’s curious still as to what Raab’s motives are: he was in the room with Prime Minister May negotiating the deal with the Europeans. Nevertheless, he has pulled his support, and it’s now believed the castle is about to fall. Pound plunges: There was volatility in markets in response to the shock news, however it was mostly contained to Pound. The Cable plunged from the 1.30 handle to trade below 1.2750, in what amounts to its largest intra-day move in over a year, as yields on UK Gilts plunged on back of unwinding bets of more BOE rate hikes. Continental stock indices lost ground, with the DAX shedding 0.5 per cent for the day; however, the plunge in the Pound, coupled with more stable oil and commodity prices overnight, helped the FTSE100 close flat for the day. It’s a very premature call, but futures markets are pointing to a more stable day for European equity markets when they come on line in 10 hours-time, revealing that though Brexit is a massive social, cultural and political issue, for market participants, at least for the time being, it’s more a nuisance than a major concern. Wall Street bounce: Activity on Wall Street last night can attest to this: after hitting the skids in early trade as traders digested the Brexit news, US indices gradually turned to trade-off its own themes. It’s resulted in what appears to be a reasonable outcome for the day’s trade. At time of writing, the NASDAQ is up in the realm of 1-and-a-half per cent, the S&P500 has climbed 0.9 per cent, and the Dow Jones is trading 0.7 per cent higher. The real impetus for the shift in market sentiment came upon news that US and Chinese negotiators are in the process of knuckling down terms of a trade agreement to be discussed at this month’s G20 meeting. Industrial stocks have benefitted most from the dynamic, as fears regarding growth risks wane, while Treasury yields have popped higher, with the yield on the US 10 Year note-rallying to 3.12 per cent. US fundamentals: Markets were provided with ample material to judge US economic conditions during last night’s trade. US Retail Sales data was released and surprised to the upside, somewhat confirming the US economy’s sustained strength. Of greater import, US Federal Reserve Chairperson delivered two separate addresses in the last 24 hours, hammering-home in both his conviction that the US economy requires further interest rate hikes, even if that means some heightened volatility in asset prices. Traders largely took the news in their stride, taking it as a continuation of messaging markets have received from the Fed for the most part of the year. The US Dollar was rather steady on the news, as interest rate markets held to their current perception regarding future interest rate hikes: that is, a 75 per cent chance for a hike in December, followed by another 2-and-a-bit hikes for the entirety of 2019. The big paradox: Moving forward and looking at the bigger picture, herein lies the problem, however: markets are still under-pricing the likelihood that the Fed will hike the 3 times next year that it has flagged. Far be it to argue with the multitude of brilliant minds collectively deciding this. But as recent history has proven, the biggest spikes in volatility have come when traders have mis-forecast the fundamentals and underestimated the conviction of the Fed. It goes back to the big paradox dictating market behaviour currently (although it must be cited this up for debate and is rooted in contestable philosophical assumptions): stronger economic activity will force the Fed to aggressively hike rates, which will suck liquidity from the markets, stretch valuations further, and drive funds into safer, relatively higher yielding assets. The ultimate effect will be tighter financial conditions, higher volatility, and weaker activity in equity markets. ASX200: The big picture aside, and the day ahead is shaping up as a positive one for the ASX200. SPI futures are indicating presently a 16-point gain for the local market at the open, inspired primarily by Wall Street’s solid lead. Yesterday’s trade was rather grim for the bulls for the most part of the day, with the ASX200 down by as much as 0.7 per cent intra-day, to test the waters below 5700. Options expiries bailed out the ASX in the end, elevating the market after the formal end of trade to a neutral position for the day. The recovery was supported by positive price action on Chinese indices, which experienced (if using the CSI300 has a guide) a 1.17 per cent gain, along with a rebound in oil prices that lead the energy sector 1 per cent higher. Aussie fundamentals: In another example of stock market performance not necessarily marrying up to economic fundamentals, yesterday's local employment figures provided a very healthy upside surprise. The unemployment rate maintained itself at 5.0 per cent, even despite an increase in the participation rate, courtesy of a higher than expected jobs-added figure of 32k last month. The Australian Dollar shot through 0.7240 resistance to rally toward the next key level at 0.7310, opening the possibility of further short-term gains as short sellers continue to be squeezed. Even more remarkably, the labour market numbers resonated enough with (hard to please) interest rate traders: for the first time in quite some time, better than 50/50 odds of a rate hike from the RBA before the end of 2019 is being priced in, as some traders begin to buy the notion of a markedly improving Australian economy.

Written by Kyle Rodda - IG Australia The global market landscape: November’s gains, as modest as they were, have been snatched it would seem, across Wall Street indices and Australia’s ASX200. The bloodletting has been profuse once more this week, and it seems that diminishing number of momentum chasers have had handed to them another dose of market reality. To be fair, this latest round of selling has been precipitated by a new risk: tumbling oil prices. The price of the black stuff bounced overnight, but this was of course only after a considerable plunge that sent prices into a technical bear market. Energy stocks have been pummelled, and its sparked concerns that debt instruments secured to oil held by many corporates are at a materially higher risk of default. That’s turned a commodity problem into a real-financial problem. US markets: That’s what has manifested in markets overnight. Credit spreads on US investment grade credit have blown out again, compounding the existing concerns relating to the effects Fed tightening will have on (deteriorating) liquidity conditions. The 3-month Libor rate for one, despite relatively lower volatility since the end of October, has continued to march higher, further stifling financial conditions. The assumed affect this dynamic will have on global credit availability has hit financial stocks, and those areas of the market considered highly leveraged – like US tech – driving a remarkably synchronized sell-off across Wall Street Indices last night. At time of writing, the Dow Jones, S&P500 and NASDAQ have pared losses for the session, leading into the final moments of trade, but this turnaround only occurred after an announcement by UK Prime Minister Theresa May she has cabinet support for her Brexit deal. US Treasuries and US CPI: US Treasuries have caught a bid on last night’s trade, with the yield on the US 10 Year Treasury note falling to 3.10 per cent, and the yield on the US 2 Year Note falling to 2.85 per cent, narrowing the spread between those two assets to 25 basis points. A haven play into Treasuries was fortuitously supported by (on balance) softer CPI figures out of the US overnight: annualized core CPI dipped from a month earlier to 2.1 per cent. The figures momentarily dulled fears of inflation risk, permitting traders to discount such anxieties, as risk-off assets, such as US Treasuries, were sought. It’s a trade with shrinking efficacy, however, and it won’t be long before the new-normal of elevated volatility, caused by a hiking US Fed, snuffs it out. Fed policy and Powell’s speech: This is because despite all the volatility already seen in financial markets in recent months, it won’t be enough to stop this Fed from hiking interest rates. Indeed, circumstances could change, and a risk too difficult for the Fed to ignore could derail these plans. As it stands now though, Jerome Powell’s Fed has little sympathy for the crocodile tears of market participants. He and his team are concerned with Main Street and its wellbeing, and for now, the average American punter (at least, according to the data) is doing rather well. Wall Street will just have to adjust to this world of less accommodative monetary policy – just as markets ought to do when they are functioning properly, and without artificial support. For this reason, the day ahead will find itself hinging-on a speech to be delivered by Chairperson Powell, with traders waiting for any word that may indicate a more dovish view. Geo-political risks: There are genuine macro-risks currently, and although not as significant as the structural factors relating to US Fed policy, they have and will continue to drag on US and, as such, global growth. Ironically enough, even considering this week’s equity market plunge, the outlook for matters relating to Brexit and the US-China trade-war has probably improved. The so-called “all-level” talks between the US and China has been welcomed by investors, and as of early this morning, UK Prime Minister Theresa May has announced that she has secured cabinet support for her recently negotiated Brexit deal with the European Union. The warmer sentiment generated by both stories has led to a sell-off in the US Dollar in favour of the Pound and Euro, which are presently trading above 1.30 and 1.13 respectively; while the Australian Dollar has appreciated in line with offshore-yuan to trade at resistance around 0.7240. ASX200 yesterday: SPI futures have picked up very slightly as Wall Street pares losses to end the North American session. The good-news (for markets, that is) story about Brexit and its progress has delivered the sugar hit necessary to boost trader confidence, during what has otherwise been a challenging week for the bulls. Yesterday’s trade for the ASX200 saw technical levels kicked aside, with much of market activity surely attributable to some irrational panic. Energy stocks suffered throughout the day, as did high-multiple-stocks in the health care sector, along with the heavy-weight banking stocks. The 1.74 per cent tumble really kicked-off around mid-day when Chinese money-supply and credit figures spooked market participants. Weak Chinese Retail Sales data seemed to weigh on Chinese equities, with the CSI 300 shedding another 1 per cent. The day ahead: An already very broad-based sell-off – breadth ended at a narrow 15 per cent – accelerated by way of virtue of the weak Chinese data, leading to breaks of support at 5825, 5800 and 5785. Another day of plus-1 per cent losses is rather improbable today, especially given the positive Brexit news, and that employment data is the only major local release. The market isn’t demonstrably oversold yet, and momentum hasn’t crossed to a point where hastened selling should take place. Furthermore, though bright spots are hard to find, a small minority of bargain hunters are surely to be sniffing around for value after three successive days of declines. More generally, pressure remains to the downside in the medium term: 5690 should be watched for as the next key price-level, a breach of which could open-up downside to 5600, and see the local index return to the very sticky range it occupied for 6 months in 2017.

Written by Kyle Rodda - IG Australia Fleeting relief: The Chinese and Americans are talking again; and the UK and European Union are nearing a deal. Those are the two stories that have turned the dour sentiment that characterized the first trading day of the week into something resembling optimism. Perhaps it’s another relief rally – every time the world doesn’t end we get one of those. Like when US mid-terms passed with few surprises, things going as they ought to engender nice feelings in the guts of traders. And not unjustifiably, either: the trade war and Brexit have become the two biggest bugbears in developed markets. In fact, 2018 may well be remembered in financial market history as the year the three biggest economic blocs’ almost tore one another apart – well that, and the very significant turn in US Fed monetary policy, of course. Is this the turning point? If this sounds all a little grand, that’s because it is; and it is why although the headlines read well this morning, the text of the story is one that we’ve read before. Could this time be different? Quite possibly. The steps taken by Chinese Vice Premier Liu He and US Treasury Secretary Stephen Mnuchin to re-engage in talks is a considerable step forward, ahead of what is a planned meeting between the two nation’s Presidents, US President Donald Trump and Chinese President Xi Jinping, at the sidelines of this month’s G20. And the news that UK Prime Minister May has effectively secured a deal with her European Counterparts – one that includes an Anglo-friendly outcome on the Irish border, it’s been reported – bares the signs that (at the very least) the British and Europeans are on the same page. A long way to go: Nevertheless, there is an amplitude to cover for the negotiating teams on all sides relating to both respective issues to feel comfortable that, this time around, this is the true beginning of the end. The political machinations driving both matters forward are occurring (naturally) behind closed doors – away from the prying eyes of the press and the public. For all we know, both or either one of the conflicts may be well advanced towards a resolution. From what has simply been reported thus far however, little has materially changed – at least for now. Even when stripping aside the important point that even if these issues were to disappear, the bigger fundamental challenges facing financial markets would remain, the very many sticking points to arrive at an end in the Trade War or Brexit means that turbulence inevitably lies ahead, whatever the outcome. Asian action: The price action in markets, as it evolved throughout global trade, apparently reflects this notion. When the news broke about a possible step forward in negotiations between the Chinese and Americans, China’s equities flew, erasing a one per cent loss to close day one per cent higher. The Yuan – a better barometer– pared its losses to trade back at the 6.95 handle, and the Australian Dollar rallied above 0.7200 and the New Zealand Dollar paid a visit above 0.6750. The Nikkei, which had been down by 3-and-a-half per cent on less than one per cent breadth, rallied to contain losses to – a still considerable – 2 per cent, courtesy, in part, to a fall in the Yen to 114.00 resistance. European follow-through: Futures markets also turned to price in the relief-pop across US and European equities, and as news filtered through about the potential Brexit-deal during European trade, traders hit the buy button. The DAX, which would have certainly fed on the prospect of reduced tensions between the US and China, added 1.30 per cent, and the Eurostoxx 50 gained 0.96 per cent for the day. The FTSE100, it must be said, only managed to register a flat finish for the session; but this was largely due to the rally in the Pound. The GBP/USD rallied above the 1.30 handle briefly and the EUR/USD pushed above 1.1250, forcing the USD to recede from its 18-month highs – a dynamic that also saw commodities generally turn higher for a period. Wall Street fizzle: Flash forward to this moment (or really, to the moment at which this is being written): US equities are entering the final hour of trade having erased the gains attained in early trade. As has been described, the attractive headlines about the Trade War and Brexit have proven not enough to change the fundamental landscape, for now. The VIX remains hovering just below the 20-level, and a general sense of risk aversion has pushed the yield on 10 Year US Treasuries back to 3.14 per cent. Another day of losses for oil, that has seen the price of Brent Crude plunge to $US65.14, has also been blamed for the poor showing for US stocks. In a choppy end to the session caused by below average volume, the Dow Jones is down around 0.5 per cent, the S&P500 is down 0.2 per cent, while an early tech-bounce has (thus far) supported a flat day for the NASDAQ. Australia today: SPI futures have followed US indices down at the back end of the North American session, indicating that now the ASX200 is expecting a more-or-less flat open. It was another wipe out for the local market yesterday, with the Australian share market closing 1.8 per cent lower, led by losses in the healthcare and information technology sector. A handful of companies going ex-dividend, including heavy weight Westpac, certainly exacerbated he ASX200’s fall, however a breadth of 10 per cent shows this was a widespread sell-off. Australian trade could prove to be eventful today following Wall Street’s lead. The economic calendar is robust: locally, Wage Price Index data is released, while abroad, Chinese Fixed Asset Investment and Industrial Production data is printed. The Australian Dollar is exposed to downside in the event these three releases underwhelm – 0.7150 is a realistic level of support to watch for – and the ASX200 appears vulnerable to break below a key level at 5820, if Wall Street’s selling follows through.

Written by Kyle Rodda - IG Australia Week starts soft: Global equities are down to start the new week. The stories driving the overnight moves are slightly different, but the themes remain the same: the dual risks of higher global interest rates and the prospect of slower global growth has put the bears (at least momentarily) back in control. It can feel repetitive to keep having to reel-off this story. Slower growth, higher rates, slower growth, higher rates – the message keeps echoing throughout markets, giving market participants a sensation of vertigo. Although it must feel trite, the inescapability of the slower growth and higher rates mantra speaks of the gravity of each concern. The fact is, markets are a smidgeon away from being half-way through November, and for most major-global stock indices, the recent ructions in equity marks means that the year has delivered nothing in return. Fears of peak growth: Now of course, to reduce the return on equities to the gains and losses delivered from January 1 to now is far too simplistic. For the many who have been in the market longer than that, or for those who have timed their run well, the year has provided ample opportunities to attain a fruitful profit. The point is however that whatever the market has been able to bequeath to the individual trader or investor, overall, equities are looking increasingly like they have hit their peak for this cycle. This is far from assured naturally and speaks only of a developing consensus – mere perception, quite possibly -- amongst market participants. However, considering how long investors had to wait for these condition, the many distractions that have enervated market activity in the second half of this year has led many to the belief that an opportunity has been squandered. Wall Street: It’s this frustration that underpinned market sentiment overnight. Big tech was once again the biggest loser on global stock markets, with the NASDAQ down by over 2 per cent, and the broader S&P500 down 1.13 per cent, at time of writing. The sell-off in the tech giants has pushed the P/E ratio across the NASDAQ, below 40/1 once again. Volumes have picked up throughout the day in US trade, but they have been hindered by the absence of bond-traders in the market due to the US Veteran’s Day holiday. That has deprived traders of the ability to assess the information contained within US Treasury yields – likely adding to the negative tone of US trade. Despite activity in rates and bond markets being subdued (if not totally missing), the US Dollar has flexed its muscles, touching a near-18 month high and looking primed to burst higher from here. Currencies: Much of the strength of the US Dollar, it must be said, is emanating from a much weaker Euro and Pound. Geopolitics and its economic ramifications (typically) dictated trade in European markets yesterday, pushing the DAX down 1.77 per cent, and dragging the FTSE (which did find some very limited support from a weaker currency and a bounce in oil prices) 0.74 per cent lower. The state -of -affairs of the European economy still appears ugly: there was a flaring of anxieties regarding the Italian fiscal crisis yesterday, which lead to a widening of bond spreads across the region; while the hope that a Brexit deal will be delivered by the end of the month is waning. It was these two narratives that drove EUR/USD below support at 1.1310, to presently trade just below 1.1250; and dragged the GBP/USD deep into the 1.28 handle, once more. Asia: The stronger US Dollar coupled with the “weaker global growth” narrative has seen the Aussie Dollar shed about half-a-per-cent, likely in sympathy with the offshore-yuan, which has plunged back into the 6.96-handle. This comes despite a solid day’s trade throughout the Asian region: although far from the strongest day we’ve seen from Asia’s equity indices lately, the CSI300 managed to add 1.19 per cent for the day, the ASX200 managed to close 0.33 per cent higher and above key-resistance at 5930, and the Nikkei and Hang Seng finished the day up 0.1 per cent on very thin volumes. Sentiment was probably given a boost by the massive “Single’s Day” in China – that generated approximately $US31b worth of sales in the space of 24 hours yesterday – however, the benefit was short-lived, with European and US traders from the far greater fundamental challenges facing the Asian region. ASX200: SPI futures are indicating a 57-point plunge for the ASX200 this morning, weighed-down by the weak lead from Wall Street, combined with the jump in implied volatility courtesy of the concerns surrounding global growth. The materials and health care sectors led the market higher yesterday, offsetting the fall in the financial sector caused by ANZ trading ex-dividend, in a day that saw breadth at a solid 60 per cent. Softer commodity prices and potential bearishness in Chinese equities present as the challenges for Australian shares in the day ahead. Copper prices have been dumped 1.6 per cent overnight, gold has fallen victim to the stronger greenback to challenge support at $US1200 per ounce, and oil has dipped by 1.4 per cent in Brent Crude terms – boding all in all poorly for the materials and energy sector in the day ahead. Oil update: Another oil update is certainly required this morning, after the sensitive politics of the black-stuff became inflamed overnight. It didn’t take long for it to happen: with all this talk coming out of OPEC of supply and production cuts in 2019 over the weekend – the result of which was enough to break oil’s 10 day losing streak yesterday – US President Trump waded into the issue via Twitter last night, tweeting “ Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!” The comments from the US President – made only a matter of hours ago – has dumped the price of Brent Crude to a new 7-month low, and the price of WTI to a 10-month low, as traders seemingly increase bets that the US may boost oil production to offset reduced supply from OPEC+ if they were to occur.

Written by Kyle Rodda - IG Australia Volatility lower; risks remain: Financial markets face far fewer risk events this week, but as has been repeatedly observed in recent months, that does not preclude the possibility of ample volatility. If anything, with so much global economic and political uncertainty at present, the absence of news can make already murky circumstances appear murkier. Traders are still jumpy and rather trigger happy, though implied volatility has been downgraded over the last week, primarily due to the passing some highly significant risk events. Last week's US mid-term elections delivered the outcome markets were expecting -- which in and of itself is perhaps the best outcome of all. While the FOMC stuck to their guns and kept market participants on notice: more than a major stock market correction is required to shift this Fed from its rate hiking path. A familiar story: The ability to price in – at the very least into US equity markets – the result of what was last week's two most significant events has undoubtedly been welcomed by punters. Each event cast a different light on the state of markets, with neither inspiring a great deal of bullishness. It was a sense of cautious relief, it must be said, that nothing too extreme came out of them. Ultimately, the Fed's meeting – which is far and away the more fundamentally important force in markets – provided little to the Bulls to be excited about: it reinforced the internal contradiction (pun intended) present in financial markets currently: strong economic fundamentals are finally feeding into wages and price pressures, meaning the Fed must hike rates, quite possibly at the expense of the upward momentum in stock markets. North American session: Wall Street dipped based on this on Friday. The increasingly familiar dynamic played out again: the prospect of higher interest rates gets priced into rates markets, and subsequently into US Treasury yields, weighing down equity markets, which spark a risk-off flight into US Treasuries, bidding-up that assets' price. The yield on benchmark 10 Year US Treasuries fell over 5 points on the day, as the growth laden NASDAQ fell 1.65 per cent, leading the S&P500 and Dow Jones down 0.92 per cent and 0.77 per cent respectively. The US Dollar climbed on the risk off play – as did (modestly) the Japanese Yen and Swiss Franc – driving gold prices down to $US1209 per ounce and pushing riskier assets like the Australian Dollar back-down to the 0.7226 mark. US data this week: The week ahead presents the possibility that this variety of market activity will manifest, even if only in brief patches, once again this week. As alluded to, economic data and event risk is much lighter, however some key releases of relevance to Fed policy leap from the calendar. Most significantly, US CPI data will be published on Thursday early morning (AEDT), prefacing a speech to be delivered by US Federal Reserve Chairperson Jerome Powell hours later, along with US Retail Sales figures the day after that. Inflation risk has entered the equation in a real way for market participants for the first time in years. While the US data releases this week could print and pass-by with very little reaction, considering the nervousness in financial markets at present, an awareness and preparation for possible spikes in volatility may be prudent. Europe: The end to Wall Street's week followed on from declines in European indices, which fell predominately for the same reasons as their US counterparts. The start of the week will be no less un-friendly than end of the last for European markets, after news, post the trading week's close, that UK Prime Minister Theresa May's latest Brexit proposal has been slapped down once again by the European Union – prompting (allegedly) that four more members of Prime Minister May's cabinet will soon resign. The developments open further downside in the EUR and GBP, which had already plunged further into the 1.13 and 1.29 handle even before this information was known. Oil: Arguably the most significant and news worthy price action occurred in oil markets towards the end of trade last week, as fears around slower global growth coupled with growing concerns of a supply glut pushed the price of WTI to $60.00 and the price of Brent Crude to $70.00. The tenth successive day of falls in the price of oil mark the longest daily losing streak for the black stuff in history, leading OPEC+ to call fall production cuts within oil producing countries. The situation could prove a political hot topic in the months to come: Western leaders (particularly US President Donald Trump) have maintained their vocal desire for lower prices, while the members of OPEC continue to struggle to organise a coherent view of what oil output ought to be given the current global economic and geopolitical back drop. ASX200: SPI futures are at time of writing indicating the ASX200 will recede further from the key 5930 support/resistance level and dip 37 points at today's open. This comes following a thin day's trade for the Australian market on Friday, which saw the ASX200 close 0.5 per cent lower on volumes once again below the 100-day average. Trade across the Asian region didn't deliver much for the Bulls: a weaker Yen failed to translate into gains for the Nikkei, dropping over 1 per cent instead; and Chinese indices dropped by nearly one-and-a-half per cent, and the Yuan slid through 6.95 on occasions, due to reduced optimism about a trade deal eventuating between the US and China. The ASX200 heavyweights appear set to face familiar headwinds today: auction clearance rates were again poor over the weekend, adding to fears about the potential effect the property market slowdown will have on the big banks; sluggish activity in Chinese equities and industrial commodities markets in general have amplified fears regarding global growth and its impact on the materials sector; and a lull in risk appetite has stifled the enthusiasm for growth stocks, diminishing the attractiveness of the local health care darlings. These separate narratives aren't new to market participants, and as always could quickly flip based on the vagaries of the market; but nevertheless, it appears they are for now enough to put the ASX200 on the back foot to start the week.

Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 12 Nov 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends this week Index Bloomberg Code Effective Date Summary Dividend Amount RTY GRC US 14/11/2018 Special Div 200 RTY TSBK US 15/11/2018 Special Div 10 RTY CFFN US 15/11/2018 Special Div 39 RTY RILY US 15/11/2018 Special Div 8 RTY CNS US 16/11/2018 Special Div 250 RTY SBSI US 20/11/2018 Special Div 2 How do dividend adjustments work? As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements. This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Written by Kyle Rodda - IG Australia The tone of overnight trade: All eyes back on the fundamentals – that’s the attitude now. The post US mid-term election rally stalled overnight, as investors turn their attention to this morning’s US Federal Reserve meeting. The Fed have kept interest rates on hold – that much was already baked into the price. Market activity to close the week will primarily be dictated now by how market participants interpret the language in the Fed’s accompanying policy statement. It’s been considered rather neutral thus far, and for equity markets, that’s not necessarily a positive result. Almost inexplicably, the US Dollar has rallied upon the release, despite very little new information being revealed in the statement. The argument for that may be that given October’s stock market volatility, a more dovish Fed was expected – true to form, this Powel-led Fed is not for turning, apparently sticking to the central bank’s existing outlook. Global price action: The conservative-bent to last night’s trade meant that equity markets traded more-or-less flat to lower. Asia provided a strong enough lead to the Europeans, however our region was last to the party in this week’s relief rally, so that meant little to European traders. Europe’s equities were reasonably mixed – generally down on the day. Stable and less risky assets therefore caught a bid, driving global bond prices higher. Bloomberg’s Commodity Index edged quite modestly higher, though both gold and copper traded rather directionless for most of the overnight session. The big mover in the commodity space was oil once again, with the black stuff continuing its tumble. WTI Crude has ticked into the $60.00 per barrel mark and Brent Crude has fallen to the $70.00 per barrel level, as traders adopt the position that there will remain a short-term surplus of oil in global markets. Wall Street session: At time of writing, Wall Street is entering its final moments of trade and the Fed’s monetary policy statement hasn’t inspired terribly much bullishness. Volumes are up on Wall Street, which is in stark contrast to European indices, that saw markedly below average volumes during their trading session. Activity in US Treasury markets is strong, with traders apparently judging that the Fed’s position is still one of firm, gradual rate hikes. The yield on interest rate sensitive US 2 Year Treasury note has ticked higher to a new post-GFC of 2.965 per cent, but the yield on US 10 Year Treasury Bond has remained hobbled by the outcome of the mid-week US mid-term election outcome, trading at 3.235 per cent. The spread between those two assets has thus narrowed once more to approximately 26 points. Currency markets: Across broader currency markets, the stronger greenback has exerted its influence: The Dollar Index began a rally overnight, and post-Fed has posted daily gains of 0.5 per cent. The USD/JPY is knocking on the 114.00 handle’s door, while the other popular risk off pair, the USD/CHF, fell to 0.9945. The USD/CAD has rallied, by way of a combination of a stronger greenback, lower oil prices and developing news of another breakdown in trade relations between the US and Canada. The EUR/USD has fallen deeper into 1.13 and the GBP/USD has dipped back to float within the 1.30 (perhaps in part due to the release of UK GDP data tonight). Regarding the latter two pairs, they came under pressure overnight after the European Union warned that the Italian budget deficit is running the risk exceeding the bloc’s limit of 3 per cent. That sent bond spreads wider and placed additional weight on European equities, although the weaker Pound apparently provided a minor leg up for the FTSE100, which finished the session in the green. The Aussie battler: The Australian Dollar hasn’t escaped King Dollar’s might this morning, falling to 0.7270 (or thereabouts). The very illustrative spread between US 2 Year Treasuries and the Australian Commonwealth Government Bond equivalent has expanded to 90 basis points. A spread that wide has in recent times precipitated a tumble in the AUD/USD, however it must be remarked that the Aussie battler isn’t trading quite so much on fundamental themes in the market. Improved global growth optimism and heightened risk appetite this week has supported commodity-bloc currencies, but the best explanation for the local units’ rally is an unwinding of short positions in the market. Although this is only a short-term phenomenon, and the fundamentals will likely reassert themselves, the AUD/USD’s break of its trend channel supports the notion that upside to 0.7310, even possibly 0.7450, exists. RBA Monetary Policy Statement: The Reserve Bank of Australia’s quarterly Monetary Policy Statement could be one determinant of this move. The document, released at 11.30AM this morning, will be perused by traders for hints regarding the outlook for the Australian economy, and forward guidance from the RBA about its rate hike outlook. It must be assumed that little-less than the rosy picture painted by the RBA about the economy should be expected. This is especially true given the statement accompanying Tuesday’s monetary policy meeting upgraded the central bank’s employment, growth and inflation forecasts. As always, the fine print, hidden meanings and other semantics will dominate the analysis of the document, with interest given to the RBA’s view on the strength of Australian households. Arguably, it’s the combination of high household debt, falling house prices and its impact on future consumption and inflation that is keeping interest hikes on ice, so any indication about these matters could prove significant. ASX200 today: SPI futures are indicating today that the sputtering end to Wall Street trade will manifest in a 13-point drop for the ASX200. Yesterday’s trading session was a fruitful one for Australian investors: the local index climbed over half-a-per-cent for the day, led by an 18-point contribution to the index by the financial sector. In positive signs for risk appetite, growth sectors – in the form of health care stocks and IT stocks – topped the sectoral map. The ASX200 closed trade at 5928, just shy of a very key resistance level at about 5930. The failure to break above this mark is telling, but not surprising – and will likely prove a formidable barrier in the future: doing so would be a clear indicator of an (on balance) bullish control of the market, after the bears took the reins during October’s correction.

Written by Kyle Rodda - IG Australia The fallout: The US mid-terms have passed, and while there were signs throughout yesterday's trade that the vote would throw up a few curly situations, the outcome fell broadly in line with market expectations. The VIX has dropped and US equities, paced by the NASDAQ, have subsequently rallied, primarily on the knowledge that everything went according to plan -- proving the notion that the biggest drag in markets all-in-all is uncertainty. There are enumerable possibilities, all with various implications for traders, opened-up by yesterday's result, and one assumes that they'll be digested calmly by market participants in the times ahead. Ultimately, however, one major risk has been navigated through without much bloodshed, allowing traders to return their attention to arguably the more significant, fundamental issues at hand. Gridlock: The term that perhaps has been hurled around most since it was confirmed that the Republicans would hold the US Senate and the Democrats would nick the House of Representatives is "gridlock". In the so-called "age of bipartisanship", a split in power within congress all but assures the adversarial tone of the late-Obama era returns. In a representative democracy, in principle, that need not be cause for concern, but it does imply greater inertia in legislative action. That means Tax Cuts 2.0 (as they've been dubbed) are all but dead, buried and cremated, and that a push for fiscal restraint by the Democrats could complicate issues around budget policy and the national debt ceiling in the future. US bond markets: The possible dynamic has shown up in prices already. An analysis of the US Treasury yield curve reveals this. The fact yesterday's results ensure a possibly stagnant congress has been interpreted as a continuation of the status quo in the short term. The yield on interest rate sensitive US 2 Year Treasuries has ticked higher to 2.94 per cent over night on expectations that the current growth formula will go unchanged – and lead to a continuation of the US Federal Reserve's rate-tightening regime. Conversely, the yield on fiscal policy (read: debt and deficit) sensitive US 10 Treasuries has dipped slightly to 3.19 per cent, on the belief that a debt blow-out from Trump's planned tax cuts and infrastructure spending program will not go ahead. Currency markets: The consequence of this shift in expectations regarding US fiscal policy is the US Dollar has sold-off overnight. It appears the interplay of forces is the ideal recipe for a slower rise in the greenback: global growth remains supported in the short-term, benefitting riskier currencies, but lower long-term yields are making the USD relatively less attractive. The knock-on effect has seen the EUR and Pound rally above 1.1450 and 1.3140, supported by strong German industrial output figures last night; and commodity-bloc currencies such as our own Australian Dollar has definitively broken its downward trend to trade at 0.7280. The balance between a weaker greenback but greater risk appetite has kept the USD/JPY flat at 1.1340, while gold has also remained steady at $US1226 per ounce. What for the trade-war? The implications for the other major global macro-risk from yesterday's vote, the US-China trade war, has thus proven a touch unclear. China's equity markets closed lower for the day, the Yuan whipsawed, and prices in growth proxy commodities -- such as copper --fell, seemingly on the uncertainty of what a greater representation of Democrats in Congress means for US foreign policy. In principle, the philosophically liberal-internationalist Democrat party could lobby for greater multilateral engagement with China and other world powers, but in this new age of populism, old assumptions may no longer prove reliable. Futures markets are projecting a better day for the Asian region, however a flicker of greater volatility in Asian markets should be expected leading into the highly anticipated G20 summit at the end of the month. ASX200: SPI futures are indicating a 28-point jump at the open for the ASX200 this morning, as the local market looks to extend its solid gains this week. The day yesterday ended in a 0.4 per cent gain for Australian shares, on reasonably solid breadth of 64 per cent. Volume was below average owing to the major event risk of US mid-term elections once again, however a rotation away from defensive sectors and into growth stocks and cyclicals supported the narrative that the outcome of yesterday’s vote is positive for the equity bull market. The ASX200 now sits on the cusp of technically reversing the short-term trend brought about by October’s massive stock market correction, with a meaningful hold of around 5930 today the level to watch. Today’s major events: Amid all the news and analysis around US mid-terms, a quick refocusing on the week’s other risk-events will emerge in markets today. Of significance today: the RBNZ met this morning – in what is probably the key event for the Asian region – and kept interest rates on hold as expected. The tone struck by the RBNZ has thus far been judged as rather dovish, legging the Kiwi Dollar’s run higher above the 0.6800 handle. Turning attention to more pressing global event-risk, it comes no bigger than tonight’s meeting of the US Federal Reserve. The Fed won’t move rates, that much is known. The attention will be directed instead towards the Fed’s commentary about its flagged December interest rate hike, plus its views on further rate hikes into 2019.

Written by Kyle Rodda - IG Australia America votes: Now we play the waiting game, it seems. The US electorate have set off to the polls to vote in their mid-term elections, and the world now awaits their decision. Financial markets aren’t exempt from the interlude, trading on very thin volumes, as traders opt to stick to the sidelines until a result is revealed. There appears a very general unwillingness to jump-in to markets ahead of the crowd on this event, presumably owing to the incredible surprises public votes have thrown-up in the past. A collective “let’s just wait and see” approach has been adopted by market participants, who will surely jump back into trading in a flurry once an outcome to the US mid-terms is known. As it stands, a reclaiming of the House of Representatives by the Democrats, and a hold of the Senate by Republicans is the bookies’ tip – a deviation from this outcome is where some degree of volatility may emerge. ASX200: SPI futures are presently indicating a slim 8-point dip at the open for the ASX200, following a day where the Australian share market rose by almost 1 per cent. Volume was nearly half of the 100-day Average-Volume-At-Time yesterday, courtesy of not just looming US mid-term elections, but also the Melbourne Cup public holiday in Melbourne. The lull provided opportunity for the bargain-buyers to jump into the market and try to pick-up a few good deals. The thin trading accentuated the bid-higher of the ASX200, resulting in a day’s trade of 70 per cent breadth. The day’s rally was certainly little to crow-home about: the thin volume exaggerated the upward move and took the ASX200 index merely to the top of a sideways trading range (between 5805 and 5875) that the market has occupied since the start of the month. RBA: The event of most significance during Asian trade yesterday (outside the horse race, presumably) was the RBA’s monetary policy meeting. No move and few surprises were what punters expected, and the price action in markets reflected that – the AUD/USD barely budged, trading between 0.7205 and 0.7215 after the release. There was some interesting detail in the accompanying policy statement however, that illustrated the gradually shifting perspective of the RBA on the local economy: the unemployment forecast was revised down to 4.75 per cent by 2020; the inflation forecast was pinned-down to 2.25 per cent by some point in 2019; and the central bank’s assessment on credit growth acknowledged it had now “eased”. Asia: Across the broader Asian region, a continuation of the week’s themes played-out. Like the ASX, thin activity propped up the Nikkei and Hang Seng, with the latter experiencing volumes a relatively significant 17 per cent below average. Chinese indices witness more-or-less normal trading and it showed in the results: the CSI300 (for one) was down -0.6 per cent for the day, primarily due to traders exiting their long positions in Chinese stocks again, after the excitement about possible progress between the US and China on trade negotiations fizzled. Futures markets are projecting a flat to weaker start to Asian session today; however, as the results of US mid-terms filter through throughout the day, expect outsized reactions in Asian equities if some surprises eventuate. Wall Street session: As of this week, Wall Street closes at 8.00AM (AEDT). At time of writing, the lacklustre trading and thin volumes that has characterized markets the world over this week is generally holding true for US stocks, too. A fine green layer of paint is covering equity indices today, with the Dow Jones, S&P500 and NASDAQ all slightly higher for the session, following a down-session in European shares earlier in the day. A bounce in US tech stocks has underpinned the move, with the NASDAQ experiencing very close to normal trading activity throughout the North American session. US Treasury Yields have furtively ticked higher overnight, taking the yield on benchmark 10 Year US Treasuries to 3.22 per cent, and the yield on the US 2 Year note to a new post-GFC high of 2.92 per cent. US Treasuries and Currencies: The price action in US bonds will be worth watching once mid-terms are done-and-dusted, especially given that the next major risk event this week will be the meeting of the FOMC on Friday morning (AEDT). Equity markets have often sold-off based on a spike in bond yields in the recent past, and if the Fed on Friday espouse a hawkish view for rate hikes in 2019, the repricing of US interest rate expectations could spark some sort of sell-off in US Treasuries and global equity markets. As it applies to the US Dollar, currency markets have also proven stagnant ahead of US mid-terms. The greenback is weaker, but that appears largely due to a (very) modest bid higher of the Pound and Euro on the back of Brexit optimism. Despite the uncertainty of the US elections, the Yen remains weaker and gold has dipped to $US1226 per ounce. Oil: The most significant price action over the past 24 hours has been the continued fall in oil prices. The price of the black stuff plunged further last night -- to the low$US62 and $US72 per barrel mark in WTI and Brent Crude, respectively -- as fears of undersupply, courtesy of fresh US sanctions on Iran, were quelled. News that the White House had provided temporary exemptions to some countries to continue importing Iranian oil, coupled with a pledge from Russia to aid the Iranians move their oil stockpiles onto global markets, have been the major drivers of the sell-off. One must also surely assume the Saudi's are boosting their output to stave-off more bad press after the murder journalist Jamal Khashoggi. Nevertheless, the fall in oil prices has weighed on USD/CAD and dragged the overall Bloomberg commodity index down for the day.

Written by Kyle Rodda - IG Australia I'm mad as hell and I am not going to take this anymore! It was this sentiment in November 2016 that raised political-renegade and anti-establishment Republican Presidential candidate Donald Trump from rank-outsider and laughing-stock to President of the most of powerful country in the world. No one seemed to see it coming, and as electoral college votes were slowly counted on Election Day almost exactly 2 year ago, the world sat in awe as what was considered a near impossible feat only 18 months prior came to shocking fruition. America, we were told, was about to become great again. Almost two years to the day has passed, and with arguably the most significant US mid-term elections in recent memory to be decided by the American voter over the course of the next 24-48 hours, the question becomes: will the American polity deliver another shock to the world? If there's one thing that 2016 reminded financial markets participants, it is that the map is not the terrain. Pollsters, pundits and market traders may try to price in the probabilities of a series of outcomes, but all the information that makes up our complex political reality remains too difficult to access and understand. A humbleness is always required when forming assumptions on what truths the democratic process may reveal: a modest acknowledgement that though the world may look clear and complete to our own eye, a total comprehension of the various and unique realities occupied by the several hundred million of individuals dictating the historical process remains beyond the reach of a single mind. In saying this, it does not mean an honest enquiry should not be undertaken to induce a possible explanation for the events of the past, and subsequently infer what this may mean for events in the future. It's telling that the quote included in the opening sentence of this commentary comes from the classic-American film, Network, produced all the way back in 1976. In the film's famous monologue, its protagonist -- a ranting T.V. anchor turned prime-time cultural evangelist named Howard Beale -- delivers a deranged and scathing assessment of modern American life: "Everybody knows things are bad. It's a depression. Everybody's out of work or losing their job...and there's nobody out there who seems to know what to do, and there is no end to it". The rant finally ends with Beale imploring his viewership to go to their windows and scream "I'm mad as hell and I am not doing to take this anymore!" Though the cultural context of the film was vastly different to that of 2016 America, the voting members of the American public at the year’s Presidential election proved they felt the same. After 9 years of what must have felt like empty promises from the political elite about an economic recovery that never trickled down to the middle class, America's silent majority finally cracked and spewed forth into mainstream society. They were sick of society's rich getting richer thanks to policies that didn't seem to be designed to help them; and they were tired of the fact that the members of the (supposed) elite class were shipping off their jobs -- to workers in some foreign nation, no less, and all in the name of saving a buck at their expense. It was these set of circumstances -- which have been grossly simplified here, of course -- that galvanised a significant sub-section of American society to scream at the ballot box in November 2016 "I'm mad as hell and I'm not going to take this anymore". Though in our reality it was not a psychotic T.V. anchor who proved the mouthpiece of the people, but a New York businessman, turned reality TV star, turned social media provocateur, who promised them that he could return to them what was rightfully theirs’ -- and in doing so, Make America Great Again. This social upheaval turned the global political order upside down. The once inexorable forces of globalisation, political liberalism, and expanding economic interconnectedness were all the sudden turned on its head. The enraged and forgotten people of American society were set to reclaim their destiny. But as the world awaits the latest expression of the God-given and inviolable right of the US voter to exercise their choice on who will compose their chambers of congress, the question is: are Americans, as they were in 2016, still mad as hell? It may be cynical, but in a representative democracy like the US, voters will vote for those who can promise to improve their quality of life and economic fortunes. In the lead-up to the 2016 US election, the fledgling US economic recovery had seemingly fizzled, with little sign of any benefit to the middle class. The economy was beginning to flatline, the jobs being created were low skilled and undesirable, wages and living standards were stalling or going backwards in real terms, and the stock market was trading sideways. US voters felt poorer, their opportunities appeared dim, and the future didn't look like it would provide anything better. Move forward to November 2018 and it feels as though the world (and the American voter) is in a very different place. The US economy is roaring, growing at 3.5 per cent according to the last reading -- a pace strong enough to keep the US labour market at full capacity and the unemployment rate to 3.7 per cent. Inflation remains stable despite the ever-tightening labour market, but as of Friday night's Non-Farm Payroll figures, wages growth is above 3 per cent per year for the first time since the GFC. The stock market, despite experiencing two major corrections this year, has also hit record highs twice in 2018 and consumer sentiment is still trending upward towards 15-year highs. Love him or loathe him, US President Trump has played a major role in bringing about this sense of economic euphoria. Politicians often over-state their influence and importance to the fortunes of the economy. The US economy was trending in the direction it currently finds itself in for several years, with the extreme monetary policy enacted by the US Federal Reserve likely its greatest driver. However, massive (and probably unnecessary) late-cycle fiscal stimulus from the Trump administration has sent the US economy into warp speed; while his chest-beating and patriotic fervour has ostensibly unleashed investors’ animal spirits. The question is now though, whether voters will attribute their relatively better lot in life to US President Trump, and award him at the polls. Undoubtedly, other issues come into consideration for the very diverse American electorate when voting Republican or Democrat. Irrespective of the very many and meritorious issues motivating the US electorate, logic does suggest that if the popular narrative is true -- that President Trump was elected based on social and economic dissatisfaction, and that he himself is responsible for turning this around -- some kudos at the ballot box could be forthcoming. Betting markets at first glance aren't supporting this notion: the bookies have the democrats winning back the House of Representatives relatively comfortably, and the Senate looks set to be held by the Republicans. Such an outcome, although far from an endorsement of US President, would not be a calamity for him. It's well known that an incumbent President generally loses seats in congress come their first mid-term elections, as the sheen comes-off "the new guy" following the realisation that he (or presumably she, when the day arrives) can't meet every expectation they set as a candidate. (Source: The Conversation) With this all considered: what could this all mean for financial markets? First, the major caveat must be that the major forces behind economic activity will almost certainly remain the same: the US economic cycle will continue to unfold, and the US Federal Reserve will likely persist with its rate hiking cycle. Amid the political noise, when it is all said and done, the economy will do what the economy intends to do, meaning the flow on impacts to financial markets, particularly regarding the risk to equity markets of higher global interest rates, will keep broadly unchanged. In saying this, there are several areas where marginal changes may be witnessed. Primarily, the best outcome for financial markets is often the expected one -- the one already "priced in" -- so a Democratic house combined with a Republican senate might be the ideal scenario here. Looking further into the many nuances though, several elements of the Trump doctrine and policy platform may come under fire consequent to the retaking of some power from the Republicans by the Democrats. The biggest issue up for grabs must be the trade war and broader US-China relations. The past week has seen a softening stance from the White House towards China, which has talked up the imminence of a deal between the two warring nations. An extra dash of Democrat blue in congress reintroduces the globalists to the equation, who will likely prove much more sympathetic to the notion of making peace with the Chinese. President Trump will maintain his executive powers, implying that he can continue to slap-on his tariffs on national security grounds if he sees fit. However, with a more divided congress, horse trading becomes a bigger thing, meaning concessions demanded by Democrats could temper Trump's hawkishness. A de-escalation in the Trade War would be considered good for Chinese and therefore global growth. The possibility of static or reduced tariffs would assay come anxieties regarding slower Chinese growth and would possibly mark a definitive turn-around in China's equity bear-market. The Yuan would also appreciate, leading to a short-term pop higher in the Australian Dollar, supported by a probable jump in commodity prices all the way from iron ore, to the classic barometer of economic growth prospects: copper. The Japanese Yen, gold prices and even the US Dollar would fall on the back of higher risk appetite, although the greenback would likely sustain its trend higher in the medium to long term by way of virtue of the US Fed's interest rate hikes. The Nikkei and DAX, which have been the heaviest hit of developed market indices in this trade war, would probably experience an uplift, courtesy of reduced anxieties about industrial tariffs -- especially on automobiles -- and softer Chinese growth. Similar gains would be experienced on the Dow Jones, and to a lesser extent the S&P500, which would benefit from a rally in industrial stocks. The ASX200 would participate in the global bounce in growth optimism, led by gains in commodity prices and subsequently the materials sector. Persistent concerns about the strength of the big banks however— due to domestic challenges regarding higher global funding costs and the softer Australian property market – would still smother optimism. The other hot issue of financial market import coming out of the US mid-terms will be US President Trump's fiscal policy. Such as with the trade-war, greater checks and balances on the President from increased influence by the Democrats on the White House would force some fiscal restraint. The twin deficits building because of Trump's fiscal profligacy would be curbed, easing pressure on bond yields towards the back end of the curve. Economic growth might well slow down somewhat as stimulus is removed, taking some of the heat out of the US economy; but price pressures would settle somewhat because of a more stable economy, removing some of the impetus for the US Fed to hike hastily. The outlook for earnings growth in US equity markets would probably weaken as fiscal stimulus waned - though it must be remarked this would have happened to some extent anyway considering Trump's corporate tax cuts have already been absorbed by shareholders. Ultimately, although inflation risk would be reduced, significant enough price growth would almost certainly remain. The US Federal Reserve's interest rate hikes would stay atop of the list as the biggest risk to share market performance, as higher rates stretch the valuations on growth stocks in sectors like US tech further, undermining the upside to equities indices such as the NASDAQ. A possible benefit, though, would be the counterbalance from the Democrats’ influence in congress on the often-unpredictable President Trump, but that may come in the form of improved sentiment alone. Overall and in the end: as has already been stated, but bares mentioning once more, speculating on the political, economic and financial market outcomes of the democratic process is fraught with danger, and must be approached with humbleness. It's nigh on impossible to tell with complete certainty what the US mid-term elections will hurl at the world, let alone financial markets. The Trump election shocked the world in 2016, as the American polity stood-up to make their dissatisfaction known to the global community. Whether such resentment can be mobilised again and cause another historical upset, only time will tell. One thing is for certain though, and that this mid-term election is a referendum on President Trump's legitimacy, and will have tangible impacts on global politics, economics and financial markets in the months and years ahead.

Written by Kyle Rodda - IG Australia A historic week ahead? One does get the sense that some of the biggest risks plaguing financial markets -- over the course of several months, if not years -- may be coming to something resembling a definitive end. This isn't to suggest that extreme bouts of volatility, like those experienced throughout the month of October, have been put behind us; but that we are at least reaching a critical juncture for some of the biggest macro-economic challenges facing market participants. There's a cliché often quoted in markets, and that is that the only thing worse than bad news is uncertainty. Though the potential for heightened risk and volatility remains ever present amid a constantly shifting fundamental landscape, perhaps a closure to some of the bigger challenges hanging over global markets may prove enough (at the very least) to unshackle sentiment and support renewed bullishness amongst investors and traders. US event risk: Just in the United Stated alone, several events pencilled into the financial market calendar this week jump-out as possible flash points for some of the big global economic issues. US mid-term elections on Tuesday give a gauge on the much-speculated-about mood of the American electorate and provide insight into what capacity US President Donald Trump will possess to exercise his policy platform in the future. The FOMC Meeting on Thursday will clarify whether the global share market correction experienced last month may derail the Fed's plans to hike interest rates again in December – and then a further three times in 2019. And the introduction of US sanctions on Iran on Monday (US time) will provide a firmer understanding of to what extent the removal of Iran from global markets will have on whipsawing oil prices. European and Asian event risk: Looking beyond the trials and tribulations of financial markets in the United States, promising signs of major breakthroughs regarding Brexit and the US-China war have emerged. News reports over the weekend have warmed the idea that a Brexit deal could be negotiated, by some time before November 21. The reports suggested that Prime Minister Therese May is inching toward a deal that would allow the UK to remain in the European customs union -- possibly alleviating many of the deal-stalling concerns relating to the Irish border. Regarding the US-China trade-war, markets were bolstered by leaked reports -- since contradicted by some members of the White House -- that US President Trump, following his "long and very good” conversation with Chinese President Xi Jinping, had instructed his cabinet to draft a trade-deal with China NFPs and US fundamentals: The prospect of resolutions to several of the world's major economic and geopolitical issues supported investor sentiment on Friday but proved inadequate in sustaining the week's share market turnaround in the face of the week's most significant economic release: US Non-Farm Pay rolls. The data reaffirmed that the US economy is still booming, printing a better than expected jobs-added-number of 250,000 (versus a forecast 190,000) -- a figure strong enough to maintain the unemployment rate at 3.7 per cent despite a climb in the participation rate. As is always highlighted, with the US economy having long been at nominally full employment, it was the wage growth number that preoccupied market participants: in what amounts to the strongest growth in wages since the GFC, the data revealed that workers earnings had climbed on an annualised basis by 3.1 percent. The Fed and US rates: The strong US labour market numbers were a stark reminder to market participants that with the US economy running so hot, the subsequent signs of a build in price pressures may turn interest rate considerations from the US Federal Reserve from a matter of choice, to one of absolute necessity. Interest rate markets immediately reflected this reality, driving bets of a December rate hike from the Fed back around 80 per cent. The dynamic bid the US Dollar higher, and prompted a self-off in US Treasuries, pushing the yield on Benchmark US Treasuries 8 points higher to 3.21 per cent. US equity markets were dragged lower by way of virtue of this dynamic, led by the NASDAQ – which added to the losses sustained after Apple Inc. results contained a profit guidance downgrade – to close 1.04 per cent lower. Global currency action: The reminder that US interest rates may hike in a steeper trajectory than expected pushed the EUR and Pound lower, which dropped below 1.14 and 1.30 respectively – before those currencies rebounded because of greater Brexit optimism. The solid gains made by the AUD/USD, which had itself climbed during Asian trade above 0.7240 on the back of the greater hopes of an imminent US-China trade deal, were unwound, dragging the A-Dollar back below 0.7200. The CAD fell in tandem with our local unit, though some of the losses with regards to the latter came consequent to the considerable fall in the price of oil to $US72.00 per barrel (in Brent Crude terms). The Japanese Yen also declined, as did the Swiss Franc, proving the conviction behind the move into the Greenback. While the only currency that truly maintained its rally against the US Dollar was the Chinese Yuan, with that currency holding to 6.89 level on the belief that China's policy makers have what it takes to support and stabilise a slower Chinese economy. The greater confidence in China’s markets also galvanized a rally in emerging markets assets: the MSCI Emerging Market index leapt to its highest level in 30-days. ASX200: SPI futures are now indicating a 5-point drop at the open for the ASX200, following a Friday that brought a mixed day for the ASX200, as well as the Asian region. Confidence that China has the fortitude to stimulate its way through slower economic growth, coupled with the prospect that a US-China trade deal can be reached, drove the CSI300 over 3 per cent higher, and the materials sector on the local share market one per cent higher. The materials space was primarily responsible for the ASX200's 0.1 per cent gain, only marginally offsetting the 0.38 per cent bank-led fall in the financials sector. It will be a dichotomy that may dictate trade once more today and into the early stages of the weak, after auction clearance rates demonstrated further signs of weakness in the domestic property market. The potential softness in bank stocks, combined with several RBA-related event risks, and the still uncertain global backdrop, may test the positive price action witnessed in the ASX200 this week, which fought gallantly to close last week's trade above 5930 support/resistance, and display tentative signs of a recovery from October's market correction.

Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 5 Nov 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends this week Index Bloomberg Code Effective Date Summary Dividend Amount RTY COLB US 6/11/2018 Special Div 14 RTY HFWA US 6/11/2018 Special Div 10 RTY MPX US 8/10/2018 Special Div 10 RTY NHTC US 9/11/2018 Special Div 18 SPX ROL US 8/11/2018 Special Div 14 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.

Written by Kyle Rodda - IG Australia Market sentiment: The final session of the week is upon us, and though a Friday can throw-up any number of shock events, the week has been a relatively good one for equity market bulls. Of course, this is primarily being led by a stable equity market in the US, but that strength has filtered through global equities to generate positive activity. Naturally, the ASX200 has benefitted from this dynamic, delivering an opportunity of circa 215 points for traders, based off last week’s lows. The risks to markets are still very elevated, but a dip in volatility below a 20 reading on the VIX has investors calmer than they were this time last week. Choppy trade and violent turns in sentiment could arise at any moment, and there is still some way to go to convincingly reverse October’s ugly sell-off. However, for the many who prefer to look on the bright side of life, signs of a turnaround are here. Overnight: SPI futures are presently indicating a very modest 3-point dip for the ASX200, on the back of an overnight session where risk appetite was high. Sentiment was boosted by positive Tweets (a statesman like medium for political discourse nowadays, of course) from US President Donald Trump relating to the US-China trade war. The news, coupled with weaker than forecast ISM Manufacturing data, led the USD to abandon its bid higher, pushing the EUR above 1.14 and the Aussie Dollar above 0.7200, as the yield on US 10 Year Treasuries slipped to 3.14 per cent. The strong sentiment was boosted by solid US earnings, building upon the cheer engendered by news in the Asian session that China plans to ramp up its economic stimulus efforts. While fears of a spike in oil prices waned once more, on news that OPEC output climbed by the most since 2016. European trade: Winding back the clock marginally further, European markets registered a more tepid day of trading. The DAX was up 0.18 percent while the FTSE finished a sliver higher than flat. Corporate news was lighter relative to the US, but the calendar was filled by numerous economic data and macro events. The biggest was the meeting of the Bank of England, who kept rates on hold and flagged that despite their rosy view on the British economy, their monetary policy settings will probably remain still for the near future. Irrespective, the pound continued to climb, aided by the weaker USD, but primarily on the basis that a Brexit deal will soon eventuate. European trade establishes a significant set-up for its final day of trade, ahead of a slew of PMI prints across the continent. ASX200 Yesterday: Reflecting upon yesterday's session for the Australian shares, the modest 0.2 per cent gain belies some of the significant stories moving the market. Trade Balance was gang busters, showing a trade surplus of over $3.0b, courtesy of a climb in iron ore prices generated by the recent round of Chinese economic stimulus. The miners naturally benefitted from the results, which added to already strong daily gains thanks to the announcement of a special dividend and share buyback from BHP. Even in light of the strong day for the materials space, it was the continued swings in the banks that truly dictated trade, after NAB posted results that were judged to not quite as bad as expected. The NAB closed the day higher as a result but was the only of the Big 4 to do so, as investors balance the positive news of signs of successful restructures by the banks, against the broader challenges of slowing credit growth and a cooling property market. US tech: A play into big-tech is what is leading Wall Street higher – a conspicuous risk given the tone of the recent market correction. The NASDAQ is the biggest winner of the three oft-watched US equity indices, registering gains of over 1 per cent. It would appear investors see a level of value in the US technology giants, even considering their proven vulnerability to shifts in interest rates expectations. It’s always a risk to bundle every US-tech company together and assume their fortunes are eternally correlated. The internet monoliths, Facebook and Twitter, deliver a vastly different value proposition than that of a Microsoft, Amazon or Apple – the latter whose earnings generally disappointed this morning. News on any one of the tech giants becomes of relevance to the index trader, but for the value-searcher, separating the substantial fundamentals from the fluff is a necessity. US equity market risks: The reasoning behind highlighting the (for many) well-worn distinction between the big tech stocks is that, on balance, risk is skewed to the downside across that industry. The US tech industry remains bolstered by money following momentum and flow in the pursuit of the next market unicorn. It’s what in large part keeps the market running higher despite a mix of valuations and tepid market fundamentals. The mega-cap staples in the US technology space can’t be ignored, and as market participants digest Apple results, it should be reminded that the biggest of these companies still appear investor essentials for many. Nevertheless, when reviewing the depth of the NASDAQ and its influence on US equity market strength, lowly dividend yields and relatively stretched valuations mean the performance of US indices overall are very liable to the sort of shocks witness in October. US Non-Farm Payrolls: The bounce in equities this week in mind, tonight's US Non-Farm Payrolls is of tremendous significance. Once again -- and as has been so for years -- the key number in tonight's release is the wage growth component, which is forecast to reveal annualised wages growth of over 3 per cent. If realised, it will prove a testament to the roaring power of the current US economy, already posting growth of 3.5 percent and unemployment at 3.7 per cent. Though for Main Street this is a refutably a good thing, a wage growth figure at forecast or above will be un-welcomed by investors, who will need to promptly re-reprice the higher likelihood of an aggressive Fed. This week's play into US equities has been underpinned by a significant drop in bond yields. If markets are forced to factor in an aggressive Fed once more, a replay of October's marked sell-off may return to equity markets.

Written by Kyle Rodda - IG Australia More information, greater confidence: Markets have been awash with data over the last 24 hours – and traders love it. It’s a behavioural quirk in financial markets: whether good, bad, or otherwise, an inundation of information paints a full and colourful picture of the world and satisfies that innate human desire for (an illusion) of control and certainty. The phenomenon echoes lessons that were reinforced upon the world all the way back in 2008 by one of that years’ seminal cultural events. No, not the zenith of the Global Financial Crisis, but Christopher Nolan’s The Dark Knight and Heath Ledger’s inimitable portrayal of The Joker. In a scene that epitomizes the philosophy of the uber-anarchist Joker, the character ruminates during a monologue: “Nobody panics when things go according to plan. Even when the plan is horrifying… nobody panics. Because it’s all part of the plan.” Fundamentals unchanged: Why bring this up? Outside taking pause to remember a time before the ills of the GFC ailed the global economy, it sums-up quite well the attitude of market participants in times of turmoil. Yesterday saw the release of a swathe of economic and financial data, which assessed on balance, delivered unremarkable and mixed results. None of it fundamentally changed the outlook for the financial world, but the fact that it filled in some blanks and confirmed a few existing biases meant that everything, overall was judged to be ok. Herein lies the problem for now: the issues that ignited October’s sell-off have yet to disappear, meaning that markets remain just as liable to the extreme bouts of panic and volatility that last month delivered us. Adjustments still underway: The biggest problem here is that when assessing the balance of buyers and sellers, and their overall behaviour, not much has changed. The market was led higher yesterday by a drive into tech-stocks and other growth/momentum sectors – apparently based on a so-so earnings update from Facebook, and an anticipation for upcoming Apple results. If there is one thing that can be taken away from the market commentary in the last 2 weeks, the financial market pros out there – the big money managers, the institutional players, the stock brokers, and the like – believe it’s time to shift away from growth investing into value investing. Assuming they are to be trusted, the players controlling the ultimate fortunes of the market are shifting funds away from areas that have propped markets up this week. Same behaviour driving week’s recovery: Thus: here comes the fissure at the centre of it all: if traders are still chasing momentum flow in growth sectors, and the fundamental outlook for broader financial markets hasn’t changed yet, then October’s shake-out probably has further to run. Now, several factors will surely insulate punters from such extreme bouts of volatility. Oft-cited share buy backs will kick-off in a significant way now, plus seasonality suggests markets are entering a fruitful time of year. Moreover, earnings are still strong even if the medium-term outlook has changed, and economic growth (in the US, but to a lesser extent other geographies) is powering along. However, these factors paper over the cracks – and the truly structural factors – which means while financial calamity isn’t expected any time soon, greater adjustments (that is: more corrective action) in financial markets may well loom. Risk one: higher rates: The two biggest factors remain the prospect of higher global interest rates, and the possibility that markets have already reached peak growth. Regarding the former, it is conspicuous and questionable that traders have reduced their bets of a rate hike from the US Federal Reserve in December and lowered their expectations of the number of hikes in 2019. It appears a classic conflation by market participants that weakness on Wall Street necessitates weakness on main street. Though fortunes can quickly change, economic data continues to affirm that the US economy is in a strong position and price pressures are building – which will require a firmer hand and tighter policy from the US Federal reserve. US bond yields have fallen, and the USD has rallied of late, inviting investors back into equity markets. Last night’s trading session saw bond yields tick higher again, implying that the risks of rising rates haven’t been fully discounted, and sustained volatility on this basis persists. Risk two: slower growth: Secondary to tightening global monetary conditions, the other factor that precipitated October’s market rout remains – and was, in fact, reinforced yesterday. The prospect of weaker growth ex-US economy, due to the trade-war as much as any other cyclical causes, looms large on the horizon. Chinese PMI data yesterday undershot forecasts once more, with the Manufacturing component to that release inching closer to a sub-50 “contractionary” print, pushing the off-shore Yuan ever closer to 7.00; while the BOJ during its meeting yesterday downgraded it growth and inflation forecasts. The fears across Asia added to the nervousness catalysed by this week’s soft European growth numbers – although it must be said that the perception of European growth did receive a boost last night when it was reported that a Brexit deal may arrive as soon as November 21. Nevertheless, if the market correction October was in a big way foundered upon shakier global growth prospects, little revealed this week so far should be interpreted as diminishing that risk in the short-term. Today for the ASX200: SPI futures are indicating that, to start the new month, the ASX200 will participate in the relief rally sweeping markets and add 26 points at the open. Despite sluggishness throughout the day, the Australian market jumped just before the end of yesterday's session, courtesy of a buy-up in bank stocks following ANZ's better than expected results. A full turn around isn't yet underway for the ASX200, but the seeds are there to potentially break the corrective pattern hobbling the index -- with a break and hold above 5930 a definitive sign of this. Just like the rest of global equities, the risks and challenges remain, but yesterday's weak CPI print at least affirms that RBA policy will probably remain supportive of asset markets. The next two days of trade will be significant for the Australian market's nascent recovery, as NAB reports today, and macro watchers eye local retail sales figures tomorrow, and the more significant US Non-Farm Payrolls release on Friday night.

Written by Kyle Rodda - IG Australia ASX200 yesterday: It was a tale of two halves for the ASX200 yesterday, dipping at the open before roaring back to close the day’s trade 1.3 per cent higher. The dour beginnings came on the back of reports from Bloomberg – now well known – that the Trump Administration would be seeking to slap tariffs on (in effect) all Chinese imports into the US, if a deal couldn’t be achieved between US President Donald Trump and Chinese President Xi Jinping at next month’s G20 Summit. In a testament to the jumpiness of financial markets the world over currently, the tone changed in global markets upon the release of news that, in an interview with Fox News, US President Trump believed there was a “great deal” in the works between the US and China. Sentiment in Asian trade: A highly ambiguous statement. Nevertheless, market participants – clinging onto every shred of hope – took the comments, bound them to their sense of optimism, and ran Asian equity indices generally higher. Breadth on the ASX200 was at a noteworthy 75 per cent, though on volumes slightly below last week’s average, with the major momentum/growth sectors topping the sectoral map. The financials, as is always required, did most of the heavy lifting, adding 30 points to the index, in part in preparation for upcoming company reports from the Big 4. The Australian market has now pulled itself out of oversold levels, to break-trend on the RSI, and in doing so, establishing the foundations for a challenge of a cluster of resistance levels between 5780 and 5880. Corrective bias remains: No doubt, it was a praise-worthy performance from the ASX200, but Australian investors are far from out of the woods yet. Putting aside the major global drivers dictating the fate of equity markets the world over, the simple price action on the ASX200 index doesn’t yet indicate an end to the recent bearish streak. If anything, at least as it currently presents, the technical indicators play into it. The push into oversold levels necessitates a recovery in the ASX, as bargain hunting buyers galvanize a bounce higher. There’s some way to go before a reversal in the recent short-term trend lower can be definitively considered finished. A clean break through 5930 and a solid hold above 5780 would be the categorical sign required before this can be stated. Until then, abandoning a bearish perception of the ASX may well be premature. ASX200 drivers: As if often stated, the overall activity in the ASX200 is determined by an oligopoly of banks, a slew of mining companies, a couple of supermarkets and a much-loved biotechnology firm. The banks have received a leg-up thus far this week, as investors ignore regulatory risk and a property to slowdown to buy in ahead of a series of bank earning’s reports. The miners are being slayed by increased concerns about the impacts of tariffs on global growth, though increased fiscal stimulus from the Chinese and its knock-on effects to iron ore prices could be their salvation. Woolworths and Wesfarmers are performing solidly, though not well enough to carry the entire market higher. While a diminishing appetite for growth/momentum stocks has led to losses of over 5 per cent for market darling CSL over the past 3 months. Global macro and share market trends: Reviewing the fundamental macro forces required to stimulate the market perhaps reinforces the notion that the ASX200 still has some correcting to do. Although equity markets have experienced a relatively strong start to the week, the risks that catalysed the recent correction in segments of the market have not disappeared. Much of the reversal can be attributed to a belief amongst investors that the recent share market volatility will force the US Federal Reserve to soften its hawkishness and increase US interest rates at a slower pace. US Treasury markets reflect this, with the yield on the rate-sensitive US Treasury note falling from +2.90 per cent to as low as 2.81 per cent this week, as traders decrease their bets on December Fed-hike to 70 per cent. Indeed, it remains a possibility that a “Powell-put” under the US (and therefore global) share market may emerge, but the remarkably strong fundamentals in the US economy still imply a need for the Fed to hike interest rates – a dynamic that, if it materialized, will sustain volatility and further equity market adjustment. Overnight in Europe and America: To lower the eyes and turn focus to the day ahead, SPI futures are presently indicating a 9-point drop at the open for the ASX200. Futures markets have pared losses late in US trade, following a late session run on Wall Street that has seen the Dow Jones climb an impressive 1.86 per cent, the S&P500 rally 1.26 per cent, and the NASDAQ jump 1.56 per cent – though the latter may find itself legged in afterhours trade as investors digest Facebook results. The rally in the North American session followed-on from a soft day in European shares, which were mired by news of a potential ratings downgrade of UK debt by S&P, along with mixed economic data releases across the Eurozone. The USD climbed because of this imbalance between European and American sentiment, pushing the EUR below 1.1350, the Pound into the 1.27 handle, and gold prices to US$1223 per ounce. Australian CPI data: The trading week hots-up from today onwards, in preparation for several important fundamental data releases. Domestically, none will come more significant than today’s Australian CPI print, from which market participants are forecasting a quarterly price growth figure of 0.5 per cent. That number, if realized, won’t be enough to crack the bottom of the RBA’s inflation target band of 2-3 per cent, and will, in effect, affirm the central bank’s soft inflation outlook and dovish rate bias. As always, a figure of extreme variance to either side of market consensus could shift the Australian Dollar and interest rate markets. Traders remained wedded to the idea that the RBA won’t hike interest rates until early 2020: an extreme upside surprise in today’s CPI could see this adjust and spark a run higher in the AUD/USD towards trend channels resistance at 0.7200 – though this outcome is highly unlikely.

Written by Kyle Rodda - IG Australia Asia and Europe’ Monday: Markets were generally experiencing a much-desired bounce for the better part of Monday, enabled by a day light on market moving information and data. The confirmed election of populist Brazilian leader Jair Bolsonaro boosted emerging market indices. News that German Chancellor Angela Merkel would be stepping down as leader of the governing CDU party, combined with a ratings downgrade of by Italian debt S&P, sent minor ripples throughout Europe, pricking some nerves about the state of the European Union and its economy. But the lack of event risk, dearth of corporate reports, and limited external news managed to keep negative sentiment in Asian and European trade relatively mooted, leading to a mixed day for Asian shares, and a generally solid-one for Europe’s. Trade War escalation in US trade: True to form however, the cautious optimism of market bulls has been kicked-down again late in Wall Street trade, as news filtered through the wires that the Trump Administration intends to slap additional tariffs on Chinese imports if talks between US President Donald Trump and Chinese President Xi Jinping at next month’s G20 fall by the wayside. Early price reactions to the news were of course negative, proving enough to wipe the session’s early gains from the Dow Jones, NASDAQ and the S&P500, while turning the tide of positivity in futures markets into a state of vigilance. Upon their close, US stocks have dropped in the realms of one-percent, setting a tone to the week’s trade very much in line with last week’s. The Trumpian approach: It’s hard to pick the rationale of the Trump Administration and its hard-headed approach to China. In the hysteria to point-out President Trump’s characteristic buffoonery, it is often lost that several legitimate concerns exist regarding China and its behaviour as a global economic citizen. Some sort of response to anti-competitive trade practices and the like from China is perhaps overdue, but the question is whether the Trump Administration’s approach is one designed to really achieve results. The Chinese despise backing down to a foreign power, wishing – as is widely stated about Chinese culture – “to keep face”. Waving a big stick at the Chinese is sure to only make them more stubborn and delay any material change. US mid-terms: Perhaps the approach can be viewed cynically as a populist-play ahead of US mid-terms to fire-up the American public – and more specifically, Trump’s core constituency. Votes are cast for Congress in slightly over a week, and it is shaping up as a test of Trump’s legitimacy. Talks of a Democratic “blue wave” washing over the US Senate and House of Representatives would surely have the White House concerned -- an outcome that, if witnessed, would surely shift Trump’s power-base and policy platform. It’s something the Chinese will be monitoring closely: a Republican thumping in the mid-terms could be seen as a vote of no-confidence in the White House, and potentially by extension, a vote of no-confidence in President Trump’s belligerent approach to foreign policy. Risk-off on a protracted trade-war: Nevertheless, a protracted trade-war, based on the balance of evidence, seems likely – a fact last night’s developments dutifully reminded market participants. Backing-up some stark guidance from US industrial giants last week about the profit-eroding impacts of the trade war, the effects on equity markets of the possible introduction of new and bigger tariffs will be lingering. Haven assets furthered their bid higher on this basis, adding to their short-term spike: the yield on benchmark US 10 Year Treasuries fell again to 3.07 per cent, pushing the US Dollar higher across the board. Naturally, the stronger greenback and heightened risks to global growth has pushed the AUD/USD lower, to trade back towards the recently penetrated support level of 0.7040. China can’t take a trick: Last night’s new trade-war salvo can’t be good news for Chinese equity indices today, especially after China’s stocks were the great underperformers during yesterday’s Asian session. Though there was no overt news to precipitate it, Chinese indices took another bath in trade yesterday, tumbling 3.05 per cent (if using the CSI300 as the benchmark). Despite quite attractive valuations and policy makers full bore attempts to support stock markets, the power of sellers has proven too overwhelming for China’s equities. While the fundamentals are surely not as bad as price action suggests, very little impetus apparently exists for investors to jump-back into Chinese stocks right now. Adding to the bear base, the technicals suggest that (on the daily charts) that the market isn’t yet entirely oversold, meaning a plunge below recent lows at 2980, down toward support at 2900, is a possibility. ASX today: SPI futures are indicating that the ASX200 is in for a considerable dump at market open of around 78 points. There was an element of hope amongst investors yesterday that the strong activity in Australian shares was the turning point bulls had been waiting for: the momentum/growth plays in the health care space lead the ASX higher, while the sectoral map showed gains in every sector on market-breadth of 69 per cent. To the assumed vexation of the bulls, last night’s trade war developments are poised to erase yesterday’s bounce, reaffirming the bearish tone to trade on the Australian share market. And (arguably) justifiably too: the ASX200 remains oversold, implying bounces are necessary on the path of this trend lower – the dynamic of which is being perpetuated by a set of bearish fundamentals, that have not yet changed.

Written by Kyle Rodda, IG Australia Global price action: The global equity sell-off continued during Wall Street's final trading session for the week, putting an end to a horrid 5 days for markets. True to form, it was the NASDAQ that led the losses in US trade, clocking a loss of 2.07 per cent, while the S&P500 shed 1.73 per cent itself. Volatility remained elevated and underscored the intense selling, maintaining a 24 reading throughout the session, prompting a flight to safety from investors. The dynamic pushed the yield on US 10 Year Treasuries to 3.07 per cent – their lowest rate in close to a month – driving the DXY temporarily above 96.80, the risk-off USD/JPY below trend line support, and gold prices briefly beyond resistance at $US1240. The action followed on from a European and Asian session in which equity markets fared little better. Chinese equities wallowed once more, exacerbated by fears of financial instability in the face of a depreciating Yuan, after the PBOC’s currency fix pushed the USD/CNH above 6.97 for the first time in several years. The AUD/USD fell in sympathy with the Yuan, breaking through support at 0.7040, only to drift higher into the European session. The Pound and Euro came under pressure due to the US Dollar's strength, but stayed within the 1.28 and 1.13 handle, while European stocks crept towards their worst month in three years. Bearish sentiment: The bears appear to well and truly have control of this market, spooked by the prospect of higher US rates and "peak earnings" amongst American corporates. Concerns around the latter were driven home on Friday, shortly before the beginning of the Asian session, when earnings updates from (Google parent-company) Alphabet and Amazon disappointed market participants. The reasons behind each company's relatively poor performance were unique but hammered home the view that despite most of earnings reports beating expectations this reporting season, the market is reaching, or has already reached, peak earnings in this cycle. Wall Street versus US economy: This question throws up interesting and contentious debates: one, whether share market performance is a leading or lagging indicator of economic health; another, to what extent a share market's fortunes are tied to the "real" economy. Friday's North American session cast an interesting light on the issue, perhaps providing evidence for the view that that the overall share market is a weak, lagging indicator of the economy's health: the US's GDP release beat forecasts (3.5 per cent vs. 3.2 per cent) and reaffirmed the view that the US economy is still roaring. The data suggests that while many investors are certainly suffering, the activity in US equity markets could be possibly better explained as a necessary correction in asset prices, which have been artificially inflated for many years by cheap money. Market correction, not economic recession: A common fear in times in which the market is experiencing (an apparent) correction is to assume that it reflects the state of the underlying economy. While that is sometimes true, history suggests that this need not always be the case. It's understandable as to why conventional wisdom suggests this is so: the monumental disaster that was the GFC has suffused the zeitgeist, conceiving the erroneous idea that every period of stock market disquiet portends a potential financial or economic calamity. It's always impossible to predict whether market volatility is indeed something indicative of underlying problems attached to the real economy, but the balance of evidence – supported by US GDP figures – suggests that this time around, the likelihood is very low. Stronger US economy, weaker share market? In fact, the more likely scenario is that the fundamental strength in the US economy is indirectly bringing about their share market’s sell-off. As is well known and widely discussed, the major structural factor behind Wall Street's tumble is the US Federal Reserve's insistence it will continue to raise interest rates to lean on a booming US economy. Of course, the effects of the trade war on global growth and corporate earnings, coupled with regional concerns as diverse as Chinese growth, Brexit, and Italy's fiscal crisis play a part; however, the primary driver in financial market activity, as it almost always is, is the decision making of the US Federal Reserve. Ironically, the stronger than expected growth figures out of the US supports the need for higher interest rates, probably enervating the strength in US shares. Here's the rub: Given this, herein lies the problem going forward: a flight safety into bond markets the past week has pushed US Treasury yields down, allaying some of the pressure on equity markets. By necessity though, in the long-run, bond yields must increase as interest rates climb: a situation that will need to occur as strong growth, like that conveyed in Friday's US GDP numbers, leads to upward pressure on prices. Hence, the bad news and fundamental conundrum is this: the better the US economy, the higher US interest will go, and the greater the downside risk and volatility in share markets. Ultimately, this all means that there is a strong possibility that, at worst, this sell-off has further to run, or at best, perhaps periods of snap-and-sharp market down turns will become the new norm. ASX today: Bringing it closer to home, SPI futures are pointing to a 17-point drop for the ASX200, following a Friday in which the index managed to close flat. It was a see-sawing day for Australian shares, which gained in early trade, tumbled for the lion's share of the day, and then inexplicably recovered in the final 15 minutes of the session to end the day a dead-rubber. The bounce came courtesy of strong buying for the index's major large caps in the financial, mining and healthcare sectors, keeping the market out of technical correction. Despite late run, the ASX still appears exposed to and poised for further downside, ahead of a week high on local and international event risk.

Elevated volatility and choppy trade: Volatility is still elevated. It's one moment up and one moment down. Price action and sentiment is shifting all in the space of a single session. The extreme vacillations in price and sentiment are wrung by the twisting fortunes of the global economy's two major forces: the Chinese and US economies. Day-to-day, markets are playing out like a game of pong, with one side rising only to strike the ball in the opposite direction to send the other diving lower. Once again, a sharp rally in China's equities just prior to its lunch break yesterday fizzled throughout the day, to the chagrin of nonplussed European and North American equity traders. The remainder of Thursday's session since has seen a sea of red, as the bears one again have-their-way with the market. Risk-off (again): Several causes have been used to rationalise last night's drop in US equities, ranging from fears regarding poor earnings and soft US housing data last night. Nothing major has thus far leapt out as a catalyst however, seeming more like a continuation of the very choppy trend we've watched play out for weeks. Havens maintained their trend higher amidst the risk-off sentiment, pushing US Treasuries (and bond markets in general) higher. The USD has rallied on this basis, diving into the 1.13 handle against the EUR and the 1.28 handle versus the GBP. While Gold prices have remained steady, as traders maintain their hedge against fiat currency risk. Currency markets: The Australian Dollar has naturally suffered from the stronger greenback, to be squashed toward the 0.7050-mark. The Kiwi has endured a similar fortune, though the other of the Big 3 commodity bloc currency, the CAD, rallied after he Bank of Canada hiked interest rates overnight. The ultimate growth-versus-risky proxy, the AUD/JPY, has plunged to around 79.30, epitomising the prevailing fears regarding global growth and equity market bearishness. And of greatest global significance, the USD/CNH continued its apparently inexorable run toward the 7.00 handle, breaking through 6.95 to trade close to year-to-date highs. ECB meeting: Rates and currency markets will remain in focus over the next 24 hours, in preparation for the ECB's monetary policy meeting. The ECB won't materially change policy at this meeting: stimulus will stay on, and rate settings will remain negative. What will be watched for however, is comments on the unfolding political-economic issues regarding Brexit and the Italian fiscal problem, and more importantly, the central bank's plans to implement its Quantitative Tightening (QT) program. The expectation is currently that the ECB will flag the beginning of the end to this program in December this year, all the while reassuring markets that interest rates will stay where they are -- effectively at 0 per cent -- until well into 2019. The slow-end of easy money: The deepest cause of the volatility experienced in global financial markets is the tighter liquidity conditions, aided just as much by the ECB as the US Federal Reserve. A profound reaction to any mention by the ECB of its QT intentions isn't greatly expect tonight, however it's practical implications in the medium-to-long term sow the seeds of the sort of volatility heaped upon markets over the last several weeks. Tonight's ECB meeting is being treated as potentially another reading of the last rites to the easy money era. The realisation amongst markets participants is that (finally, after a decade) the ability to gorge on free money is over, tipping the risk/reward ledger out of the favour of long booming global equity markets. North American wipes 2018 gains: The problem is, with the necessity to tighten global monetary policy in the face of better global growth and higher inflation risks, the global economy is being threatened on several fronts from a breakdown in international geopolitical and economic ties. The day-to-day commentary on Wall Street is centred on this dynamic, and it played out again in last night's major equity sell-off. Growth/momentum stocks in US tech caused the NASDAQ to sustain the greatest losses across US indices overnight, but fears about slower earnings growth from weaker economic fundamentals also pushed the S&P500 and the Dow Jones in the realms of 2 and 3 per cent lower. The next 48 hours become increasingly significant as the losses in North America mount: tech giants -- those who have pushed this market higher-and-higher -- Microsoft (who this morning reported record profits in the first quarter) Amazon and Alphabet are report earnings, with the reaction to them potentially deciding the view on what the futures holds for US equity markets. Bearishness for ASX200: SPI futures portend a very challenging day for the ASX200, with markets pricing in a 94-point drop at today's open. Zooming out to the bigger picture as it currently stands, there are few glimmers of hope for Aussie equity bulls now. The major drivers of upside are all struggling: the banks are battling potential regulatory crack downs and a slowing local property market; major healthcare stocks, with their stretched valuations and low yields, have lost the bid of momentum investors; and the miners are battling fluctuating commodity prices amid concerns regarding the trade-war and global growth. Opportunities always exist for the savvy reader and investor, of course, but extending the rationale enunciated and looking at the technicals as they gradually unfold, signs of a bearish trend in the ASX200 are progressively emerging. Written by Kyle Rodda - IG Australia

Flight to safety: There's been a general flight to safety in global markets over the past 24 hours, adding to the bearish sentiment that's been mounting for several weeks. The risks remain the same and there wasn't an event to precipitate yesterday's sell-off. It apparently began in the Asian session, after Chinese equities pared the gains it had added over the previous two trading sessions, then swept through European and North American markets as the day unfolded. Haven assets have caught a bid, the most pertinent of which are US Treasuries and gold (which tested $US1232 resistance once more), while the Yen has experience a broad-based boost from the unwinding of the carry trade, to test the support of a significant medium-term trend line. US Treasuries: Arguably, the most illuminating asset during overnight trade were US Treasuries, and the activity of its yield. Of course, that should come as no surprises, given the dominant theme in markets is the US Federal Reserve's rate hiking ambitions. The tussle in markets regarding heightened global growth risks and the impacts of higher global rates is manifesting on the hour across the US yield curve. The yields on interest rate sensitive 2 Year Treasury Note jumped to near-decade-long highs during Asian trade yesterday, seemingly inciting a minor panic amongst investors. The shift subsequently looks to have hastened the liquidating of equity positions, driving funds back into bonds, pushing yields down first at the back end of the curve, before driving the front end down with it, as havens have been sought. Asian equities: The edginess amongst investors played out most acutely in Chinese equity indices, which let go of much of the optimism engendered by policy makers' recent assurances of State-backed support for financial markets. The relatively blue-chip CSI300 dropped 2.66 per cent for the day, capping off an Asian session in which the Nikkei shed a comparable amount, the Hang Seng lost over 3 per cent, and the ASX200 dropped over 1 per cent. The downward trend continues for China's markets, which despite exhibiting stronger fundamentals (on paper) than what markets are conveying, can't managed to hold onto a sustained rally. It points to a market that may well believe that the worst impacts of the trade-war are still to play out – that is, that the trade war will transform China's mild economic slowdown into something graver. ASX200: The action on China's markets accelerated the momentum of selling on the ASX200 in yesterday's trading session, however it must be said bearish sentiment had already been pervading the local share market by the time China’s markets opened. SPI Futures have undergone a noteworthy reversal early this morning, indicating currently a 13-point jump at the open today. The shift in price can be attributed to a late run on Wall Street, which has seen US indices bounce off the day's lows to contain the session's losses to about half-a-per-cent. What Wall Street’s lead reveals about what lies ahead for the ASX today is opaque; but considering that yesterday’s activity saw losses across every sector, perhaps simply a general retracement is in store today. Europe: Europe took the weak Asian lead yesterday and added to it the continent's own idiosyncratic risks. The result was a 1.24 per cent fall in the FTSE 100 and a 2.17 per cent fall in the DAX. Combined with fears about global growth, higher global interest rates, and stalling Brexit negotiations, was another deterioration in the relationship between the Italian Government and European Union bureaucrats, after Brussels threatened Italy with hefty fines if it did not revise its controversial budget in the next 3 weeks. The spread between German Bunds and Italian BTPs expanded to around 320 basis-points once again, as markets priced in a greater chance of an Italian credit default. Despite this, the Pound and the Euro kept flat for the day, by virtue of a slightly weaker USD, which lost some of its haven bid to gold on the back of investors cutting exposure to fiat currencies. Wall Street: At Wall Street's close, the major US indices have all closed effectively 0.5 per cent lower for the day. Another poor session undoubtedly, making this the twelfth time in fourteen days that the S&P500 has registered a loss – however it must be remarked that the result comes after US equites fell by as much as 2 per cent intraday. The overriding theme again for US markets was the building angst regarding the various risks that posed to earnings growth in 2019, especially after Caterpillar flagged a suggested a crimp to its profits from the expected impacts of the US-China trade war. How this narrative holds will hold increasing weight in the final days of this week, as markets anticipate earnings release from the likes of Microsoft, Amazon, and Alphabet. Saudis and Oil: Oil prices experienced some of the highest levels of volatility overnight, as the sinister politics of the black stuff played out in price action. Brent Crude prices dropped by over 4 per cent, breaking its dance with the $US80 per barrel level. A degree of the tumble in prices comes as fears mount about the sustainability of global economic growth. However, the major catalyst for the very acute fall came as Saudi Arabia pledged yesterday to boost oil production, in the face of growing pressure from the global community regarding its (all but proven) murder of dissident journalist Jamal Khashoggi. If last night's move is indeed a turn of trend, time will tell; though it isn't a stretch now to suggest that the Saudi's may look to push oil prices down as an act of recompense to the global community for their heinous behaviour.

ASX: SPI futures are indicating an 11-point drop at the open, on the back of a day that saw the ASX200 close just shy of 0.6 per cent. The local session could be characterised as being somewhat lacklustre: the lion's share of the day's losses came shortly after the open, volume was below average, and market breadth finished at 26 per cent. Most sectors finished the day in the red, but naturally it was a pullback in bank stocks that contributed greatest to the markets falls. The materials space made a very humble play higher in afternoon trade it must be said, courtesy of a tick higher in iron ore prices, to sit near the top sectoral map by close. But at just shy 0.1 per cent, the day's recovery wasn't anywhere near sufficient to salvage the day for the ASX200. Financial sector: As it presently stands: where goes bank stocks so goes the ASX200. Not a revolutionary idea of course, given financials' weighting in the Australian index. However, with buying impetus missing across the ASX currently, combined with overall bearish sentiment, the effects of the bank-trade are much more pronounced. Having popped higher from oversold levels last week, the financial sector pulled back in this week's opening stanza by 0.76 per cent, accounting for about 14 points of the ASX200's total losses. The down trend appears still intact for the financial sector, auguring poorly, as one ought to infer, for the Australian stock market. Domestic risks: The fortunes of the big banks mirror many of the issues afflicting the Australian economy now. The weekend's Wentworth by-election outcome, which has delivered Australia another hung-parliament, is one; another is the possible regulatory crack following the Financial Services Royal Commission, coupled with the likely election of a hard-line Labor opposition come the next election. The most compelling explanation for the banks' weakness (at least yesterday) was another poor auction-clearance figure on Saturday. The local property market looks in a very shabby state as it stands, exacerbating concerns regarding the feeble position of Australian households and consumption in the broader economy. House prices and households: Granted cooling house prices have predominantly afflicted the Sydney and Melbourne markets, and prices remain elevated relative to historical standards. Amid higher global borrowing costs and by some measures unprecedented indebtedness, soft credit conditions in the Australian economy is a risk to the property market and households alike. Ultimately, the concern is whether with income growth slowing, savings dwindling and interest rates bottoming, the loss of the "wealth effect" will stifle demand in the economy even more. On balance, prevailing wisdom suggests that gradually improving economic fundamentals will cushion the ill effects of a property slowdown. However, the fragile state of the Australian consumer means the broader economy is increasingly vulnerable to external shocks. China: Of course, the biggest and most pertinent of possible external shocks to the Australian economy is the health of the Chinese economy. Trade on China's financial markets yesterday proved the power and willingness of its policy makers do whatever it takes to stabilise its markets and economy, particularly in the face of the escalating US-China trade war. Though it's never easy to say, volumes at 136 per cent of CSI300's Average-Volume-At-Time suggest that possible and massive intervention by Chinese policy makers was at play. This isn't to say that the entire flow of funds into equity markets came from (effectively) the state's pockets, more that whatever liquidity injected into them certainly stoked investors animal spirits. Overnight: China's powerful stance yesterday may in time be considered much akin to ECB President Mario Draghi's "whatever it takes" moment. The follow through in Chinese equities will be closely observed today, to witness what lasting impact the actions have. Overnight though, the carry over effect into the European and North American session diminished throughout the day, muted by other, more regional concerns. The Italian fiscal crisis took a temporary back seat and supported the narrowing of European sovereign bond spreads. However whipsawing sentiment regarding the likely outcome of Brexit led to another dip in the Pound below 1.30 and in the Euro below 1.15. The macro-fears weighed on European stock indices, dragging the majors by up to as much as -0.5 per cent. US session: The US Dollar caught a bid on last night’s macro-dynamic as traders modestly increased buying of US Treasuries. Gold dipped as a result, while in other commodities, oil climbed on supply concerns amid heightened tensions between Saudi Arabia and the West, and Dr. Copper was flat. Fundamental data was very light, with positioning underway leading into the massive ECB meeting and US GDP prints in coming days. North American equities saw an inversion of Friday’s theme: growth/momentum stocks, such as the FANGs, were generally higher, while the industrials-laden Dow Jones pulled back 0.50 per cent. The meaty part of earnings season is about to get underway in the next 24-48 hours – and may well dictate the theme in US equity markets adopt for the next several weeks.

Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 22 Oct 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. No special dividends this week You can see the special dividends listed below. Unfortunately we do not have granular insight on the effect on the index for the index in question, however the below maybe helpful for some. Please note the dates below are the stock adjustments in the underlying individual instrument, whilst the index div adjustments are taken out the day before on the IG platform at the cash close. Index Bloomberg Code Effective Date Summary Dividend Amount AS51 APO AU 19/10/2018 Special Div 42.8571 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.

Market sentiment: Markets put in a mixed day on Friday. The results for global equities were generally poor, but absent were any violent swings in market activity. Individual regions traded -off apparently their own idiosyncratic drivers, characteristic of the diverse web of risks plaguing investors. Chinese indices were the stand-out, climbing more than 2.5 per cent, collectively, while European shares were generally lower, and US stocks were mixed. The mood is still edgy and dour for equities overall, with the weight of an extending list of risks stifling appetitive for riskier assets. There is a growing sense now that the many and considerable challenges facing market participants are here to stay; the matter hence becomes what level of willingness do market participants possess to stomach these and push equity markets higher. Risks-elevated: Uncertainty and instability isn't something novel for traders -- it's reigned for the last decade, as is well known. Yet it's proven now that there doesn't necessarily exist the confidence that, with the world's most powerful central banks turning off the liquidity taps, markets have the strength to sustain themselves. To be perfectly fair, 12 months ago, an all-out trade-war, the seeds for huge US twin deficits, a new Italian fiscal crisis, a Chinese economic slowdown, and major regional instability in the Middle East wasn't seriously expected. Without such interferences, perhaps the global economy would have been on stronger footing. It's pointless to speculate, however one can safely assume at this stage of the economic cycle, fundamentals should be presenting as much firmer. Economic fundamentals: The way in which this dynamic of higher risk and lower confidence plays out in Australian markets will be curious, as the final stages of the calendar year unfold. The US economy is booming and that will anchor the global growth story until the Fed's interest rate hikes begin to lean on the US economy. For us down under though, it's of lesser relevance than what transpired in the Chinese economy. The massive data dump delivered on Friday out of China was on balance underwhelming: headline growth was lower, while the other tier-2 data releases didn't salvage much. The Australian economy is ticking along relatively nicely it must be said, but our economic fortunes will stay wedded to China's almost undoubtedly, with the effectiveness of Chinese policymakers attempts to stimulate their economy the key variable. China: As far as markets go, equity indices seemed to benefit from the latest salvo by some of China's top economic officials about tackling any economic slowdown. In effect, policymakers came-out on Friday and implored market participants that they would ensure that a floor was placed under the recent sell-off across Chinese shares, in the interest of capital safety and financial stability. According to the slew of top-regulators who delivered the message, the massive tumble (30 per cent year-to-date) in Chinese stocks isn't reflective of the nation’s fundamentals, so support, it is argued, can justifiably be provided to align financial markets to the economy. Europe: Although this story did underline a late rally in Chinese shares on Friday, the benefits diminished, if not disappeared, in the grand scheme of things, by the time the European session got underway. Fizzled Brexit negotiations were parsed, but weren't a significant sticking point for European traders, who were apparently more relieved about a modest easing of tensions between European bureaucrats and the Italian government about that countries fiscal problems – even despite a rating cut to Italian debt. The EUR and Pound ticked slightly higher and JPY dipped as anxiety around European political stability and China's growth moderated slightly, while US Treasuries declined throughout the day leading into the North American open, losing its haven bid, edging the yield on the 10 Year note to 3.19 per cent. Wall Street: US stocks delivered little in the way of upside, slowed by activity in tech stocks again. Earnings season hasn't delivered the lift so far to US equities as hoped, stifled instead by the effects higher discount rates are having on stretched valuations in growth/momentum stocks. The Dow Jones did close 0.26 per cent higher – led by strong trade in consumer staples stocks and other defensives, along with financials, which gained on higher bond yields – however the more comprehensive S&P500 was flat. Worries that earnings growth leading into 2019 will be dampened drove the mood in US markets, with the key litmus test for this hypothesis possibly coming this week, as traders prepare for earnings reports from the likes of Alphabet, Microsoft and Amazon. ASX: SPI futures are indicating a 12-point drop for the ASX200 against this backdrop, ahead of a day which should be of interest given the possible impacts of a hung parliament in Canberra. In the recent past, when confronted with leadership challenges and the like, it’s proven a drag on the A-Dollar and the ASX200. The banks have borne the greatest brunt, probably due to the regulatory crack down and the perceived unfriendly stance towards property and share investors by the Labor opposition – though it must be said but this risk has already been priced in by investors. Friday’s trade saw the bank witness a continued pop higher from its oversold levels, keeping the ASX200 trading flat for the sustained. Slightly higher commodity prices may aid the Australian share market in the day ahead, however with little real impetus for rally today, perhaps a grind more-or-less sideways can be expected to start the week.

Risk-off (again): Just when it looked like it was safe to jump back into financial markets, it was risk-off again overnight, as market participants dwelled once more on the myriad of risks facing them. There’s nothing entirely new in what has developed during the European and North American session: the same confluence of factors that has weighed on sentiment in markets have simply reared their head again. It’s probably what makes this situation all the graver, if not at the very least, highly gnawing. The anxiety riddling markets regarding the impacts of trade-protectionism, and the beginning of the end of the easy money era, can’t seem to be rationalized, inflating the magnitude of that issue – apparently inexorably. Fear is feeding on fear, making markets more attuned to the roar of the bears. Haven buying: As has been the case throughout the turbulent journey markets have traversed in the last week, it pays not to catastrophize; but the longer the weak sentiment lasts the more difficult it will probably prove to shake. As a trader, no matter the weather, opportunities abound for those willing to tackle them. It was havens again that attracted a bid higher last night, with gold (as old-reliable) catching the upswing. Carry trades were broadly unwound and kicked-down the likes of the AUD/USD to the 0.7100 handle, a dynamic causing the Japanese Yen to tick higher. 10 Year US Treasury yields maintained the line at 3.17 per cent, amid opposing pressure of haven buying and the carry-through of higher rate expectations, bringing the USD back into haven-vogue. Europe: European economics and geo-politics threw up some more major worries overnight, drawn out from the EU economic summit in Brussels. Markets over the extent of the week have priced-out an imminent Brexit resolution, pushing the Pound further into 1.30 handle and the Euro into the 1.14 handle. The greatest risk being priced in by markets however is renewed concern regarding Italy’s fiscal position – and Rome’s perceived belligerence towards Brussels’ bureaucrats. The EU slapped down Rome’s budgetary position, effectively labelling it untenable for both that country and the Union. European sovereign bond spreads widened more so in the last 24 hours, the greatest impact naturally being found in the spread between German Bunds and Italian BTPS, which expanded to almost 330 basis points – the widest margin since 2013. Global equities: The day on Wall Street, backing that up of Europe’s, has been a difficult one for investors, unaided by a session (of what’s being judged) of soft earnings reports. Two days of lukewarm company reports shouldn’t shift the dial of equity markets, but the hope that strong corporate profits would be the saviour from otherwise dour sentiment hasn’t yet eventuated. It’s forced market-bulls to doubt their conviction and fed the bears greater fodder to sell stocks. Consistent with recent themes, US big-tech and the NASDAQ (down 2.08 per cent) have generally led the sell-off on Wall Street over reluctance to go long growth companies, punctuating the shaky European session where the likes of the FTSE100 dipped 0.39 per cent, and the DAX shed 0.97 per cent – the latter in part due to a poor earnings report from market giant SAP. ASX yesterday: The lead garnered last night augurs poorly for the ASX200, reflected in an expected 66-point drop for the index according to SPI futures. The shame is that some semblance (or as close as can be found in these circumstances) of equilibrium appeared to return the Australian market yesterday. The tone throughout Asia trade, notwithstanding the struggles of Chinese markets, improved throughout the session, supported perhaps by the reported drop in the domestic unemployment rate, pushing the tepid Wall Street lead aside and allowing the index to recover early losses to close trade effectively flat for the day. Volume thinned as the session wore on to be sure, but breadth recovered to just shy of 50 per cent, revealing a willingness in market participants to acquire and spread some exposure across Aussie equities. ASX today: For all the contentment that yesterday engendered, in means little in the face of another day of likely heavy losses. The call in these instances is to assume the ASX200's (modestly sized) tech space, along with the health care sector, will lead losses. In saying that, the selling today risks being rather broad based, with a sell-off in oil prices and a wider dip in commodity prices a potential drag on the energy and materials sectors. The risks abound at this stage, but the major flashpoint will probably come mid-day when a massive data dump, containing GDP data, Fixed Asset Investment numbers and more, is released out of China. It provides a potential queue for investors to form a judgement on the Chinese growth story, and may prove to exacerbate or soothe investors’ fears regarding global growth. China: The bearishness in China is possibly the severest predicament of all – one that can only become worse today given the sweeping of bearishness through global equity markets. Depending on the index, Chinese equities have tumbled now by 30 per cent off this year’s highs, further entrenching a technical bear market. China’s equities overall look very oversold, with average PE ratios on the blue-chip heavy CSI300 circa 10:1, and presenting on the technicals just above an absolutely oversold reading. Simply, China’s equities can’t find a buyer, fundamentally due to potential fall-out of the US-China trade war. Undoubtedly, there are more complex and murky issues going on under the bonnet of the Chinese economic vehicle – the seemingly controlled devaluation of the Yuan by the PBOC apparently one – but a sell-off like this in spite of not that bad fundamentals suggests that investors can’t move passed the unknown whipped up the unfolding US-China trade war.

Fed minutes: The week’s blockbuster event dropped over night: the release of the FOMC’s Monetary Policy Minutes. Equity markets have staged a tentative turnaround globally this week, but it has all been occurring in the shadows of what could be gleaned from last night’s Fed minutes release. When all is weighed up, the document reaffirmed the Fed’s hawkishness, revealing in-depth discussions ranging from cutting the word “accommodative” from the central bank’s language, to debating the possible need to hike rates above the “neutral rate”. A spike in volatility in financial markets wasn’t forthcoming on the back of the release, most likely because traders have been analysing it in a far different context to the one in which it was written: the meeting precipitated the recent equity market rout, and therefore appreciate circumstances have duly changed. US markets: However, the detail in last night’s minutes establishes the new environment within which future Fed policy discussion will take place – both for the Fed itself and amongst market participants. Reaction’s to the Fed minutes were relatively dull overnight, seemingly due to a reluctance from traders to jump-the-gun. Benchmark US 10 Year Treasury yields climbed modestly to 3.17 per cent and the US Dollar has taken advantage of a weaker bid on the Pound and Euro to climb slightly. Wall Street has suffered somewhat, erasing earlier gains on earning’s optimism to trade more-or-less flat-to-down for the day. The trade dynamic gives a curious impression for equity indices, a struggle between an apparent binary: a battle of forces, if you will, between optimism regarding solid earnings growth and pessimism regarding the impact of higher global rates. ASX yesterday: SPI futures have absorbed the lead on Wall Street and translated it (currently) to a 13-point drop at the open for the ASX200. No cause for alarm naturally, following a day where the Australian share market put-in a broad-based rally, to bust back within the upward trend channel it abandoned during last week’s equity sell-off. The ASX200 was registering an oversold reading on the RSI leading into yesterday, and a basic breadth reading of 74 per cent yesterday across the index recognized the sell-off was a tad overdone. The growth stock heavy health care sector ran with the lead of US big tech, to top the markets winners; while the only sectoral laggard for the day was the materials space – though that can somewhat be discounted by the unlucky timing of news from BHP regarding that company’s production downgrades. ASX day ahead: The day ahead will probably be a grind for the ASX200 given a weak Wall Street lead, but a hold within its trend channel, the bottom of which is around 5890, should be considered a win for the bulls. As always, the core strength in the market was underpinned by a bounce in the banks yesterday, a theme that may well continue today given the boost in global bond yields, but will likely fizzle in the weeks and months ahead. Activity around the Asian region was also settled, with Chinese equities for one catching a small bid on rumours that a further cut to China’s banks reserve-ratio-requirement may be imminent. The general relief-rally provided the fuel for a pop in the MSCI All-Asia Index, pulling that index away from its near-18-month lows. Aussie employment: The major event risk for Aussie markets today will be domestic employment data, out of which the ABS is forecast to print a steady unemployment rate of 5.3 per cent and an employment change figure of 15.2k. Only the most extreme outcome to this release will shift the dial in financial markets, especially that of interest rate markets, which continue to price in no-move from the RBA until early-2020. A sprinkle of volatility could be seen in the AUD/USD, as that pair hugs support just above 0.7100, but as always, will probably take a stronger lead from activity in the greenback. The spread between US 2 Year Treasuries and 2 Year Australian Government Bonds has narrowed of late, supporting the AUD/USD – however a repricing of interest rate expectations for the US Fed could widen this spread once again, potentially pushing Aussie Dollar back towards previous lows at 0.7040. Europe: Taking a glance at other risks entering the end of the week, European markets continue to remain a source of uncertainty. European bureaucrats have gathered for a multi-day summit in Brussels, to discuss the many seemingly intractable issues facing the continent. A Brexit deal this week is becoming a diminishing prospect and is showing up in pricing across the region’s financial markets. Adding to the tension is a slight spike in anxiety relating to the Italian fiscal situation, stoking fears of greater animosity between Europe’s leaders and a general instability the European Union’s political structure. Credit spreads have widened in sovereign bond markets as a result, weighing on the Euro and Pound (which also receded on the back of weaker CPI figures overnight), sapping strength from the major European equity indices consequently. Oil: Oil markets deserve a mention, given the human-tragedy that is defining much of the volatility found in the price of the black-stuff now. Fundamentals first: US Crude Oil Inventories surprised to the upside overnight, sending the price of Brent Crude to the $US80.00 per barrel mark. The real developments in all markets this week centre, however, on the alleged murder of journalist Jamal Khashoggi by the Saudi Arabian regime. Putting aside (the far more important) humanitarian implications of this situation, speculation has increased that the Saudi’s will exploit the leverage they possess in the form of their massive oil reserves to suffocate scrutiny on the subject by members of the global community. The details of the matter are far too nuanced to do justice to here, but the approach taken by global leaders to the Saudis and the subsequent Saudi response could prove one of the major determinants of oil price volatility moving forward.

Wall Street: It's still early days, but investors appear to have regained their nerve overnight. The Asian session was tepid, to be sure, however a rally in European and US equities reveal a market that has found its appetite for equities again. As the existing narrative would imply, much of this was underpinned by a fresh appetite for rate-sensitive US big tech stocks, which according to the NASDAQ, rallied almost 3 per cent overnight, leading both the Dow Jones and S&P in the realms of 2 per cent higher. Implied volatility fell, but remains relatively high at around 18, so of course it would be foolish to claim the recent sell-off is authoritatively through. In stating this, commentary has shifted away somewhat from risks from rates and tariffs, to anticipating the fruits of what is expected to be a bumper reporting season – particularly after the likes of Goldman Sachs and Morgan Stanley posted impressive results early this morning. Europe: Likely owing to being largely oversold to begin with, the strong activity in European equities come despite a mixed-news day for the region. Like much of the global-share-market following last week’s equity rout, valuations and dividend yields within European indices have become more attractive this week, apparently enough to attract buyers into European share markets, even against doubts regarding the strength of the region’s upcoming reporting season. UK data provided some impetus for the bulls last night, after labour market figures showed that the unemployment rate held at 4.0 per cent and average earning climbed by an above forecast 2.7 per cent. The GBP/USD pushed-up just below the 1.32 handle on the news, however rate markets were more-or-less steady, as traders ostensibly tie their BOE rate-hike bets to the outcome of souring Brexit negotiations. Macro-backdrop: The boost to investor sentiment has infused equity traders with glimmers of confidence, though the greater appetite for risk hasn’t necessarily flowed through to other asset classes. Yields on US Treasuries were flat the last 24 hours, and despite climbing back above the 112-handle against the Yen, the US Dollar has failed to catch a major bid. Risk proxies like the AUD and NZD are a skerrick higher, with the Aussie Dollar floating about 0.7140, but gold is still finding haven buying, holding above a support line at $US1224. Moreover, proving that last night’s rally isn’t on the firm basis of greater confidence in global growth prospects, the Bloomberg Commodity Index edged 0.1 per cent lower, even considering a sustained increase in oil prices amid fears of lower supply because of a potential rift between the US and Saudi Arabia. ASX: The strong overnight lead has SPI futures pointing a 28-point jump for the ASX200 at this morning's open, following a day in which the Australian share market popped modestly higher from its oversold levels. The pop was reflected primarily in the activity in bank stocks, which rallied-off its own oversold reading, to collectively climb 0.55 per cent for the session. It was the materials space though that led the index higher, courtesy of a 1.4 per cent rally, despite the limited price gains in commodity prices yesterday. The day's trade establishes an interesting dynamic for the ASX200 today: the index fought unsuccessfully throughout trade to re-enter last week's broken trend channel. Futures markets has this transpiring at the open - a positive sign for the Aussie market. Regional data: Despite leading to limited price action across the region, Asia was littered with fundamental data yesterday. It was kicked-off early morning our time, upon the release of key New Zealand CPI data, which revealed stronger than expected consumer price growth of 1.9 per cent annualized for that economy. The algo-traders seemed to kick-in post the event, pushing the NZD/USD to the significant 0.6600 handle, before human rationality took over the pair lower, primarily on the knowledge that the data wouldn’t change materially the RBNZ’s interest rate views. Chinese CPI data was also printed yesterday, revealing an-expectation figure of 2.5 per cent – up from the previous 2.3 per cent. Once again however, although inflation is proving to be running a little hotter in China, trader’s judged that the news wouldn’t shift the dial for policymakers and promptly moved on. RBA’s Minutes: Of domestic significance, the RBA released the minutes from their recent meeting, with very little novel information to glean: “members continued to agree that the next move in the cash rate was more likely to be an increase than a decrease. However, since progress on unemployment and inflation was likely to be gradual, they also agreed there was no strong case for a near-term adjustment in monetary policy”. The reaction in market was one of the more muted from an RBA release, registering barely a reaction across financial markets. There were some interesting points discussed from a purely academic perspective in the document – some substance for the economics-nerds – especially relating to hot global asset prices, but nothing in the way of potential policy approaches from the central bank. FOMC Minutes and Reporting Season: Approaching the half-way mark for the trading-week, investors prepare for its pointier end. The major event will transpire tomorrow morning local time, in the form of the FOMC Minutes from the US Federal Reserve’s last monetary policy meeting. Of course, most of panic and volatility in global markets has come because of the Fed’s hawkishness in recent times, so market participants will peruse the details of tomorrow’s minutes for insights that confirm or deny fears about higher global rates. The broader market will also engross itself further in US reporting season, with Netflix (for one) posting what is being considered currently a better than forecast set of numbers, by way of virtue of a smashing of subscription growth estimates.