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MaxIG

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Blog Entries posted by MaxIG

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

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

    Risk two: slower growth: Secondary to tightening global monetary conditions, the other factor that precipitated October’s market rout remains – and was, in fact, reinforced yesterday. The prospect of weaker growth ex-US economy, due to the trade-war as much as any other cyclical causes, looms large on the horizon. Chinese PMI data yesterday undershot forecasts once more, with the Manufacturing component to that release inching closer to a sub-50 “contractionary” print, pushing the off-shore Yuan ever closer to 7.00; while the BOJ during its meeting yesterday downgraded it growth and inflation forecasts.
    The fears across Asia added to the nervousness catalysed by this week’s soft European growth numbers – although it must be said that the perception of European growth did receive a boost last night when it was reported that a Brexit deal may arrive as soon as November 21. Nevertheless, if the market correction October was in a big way foundered upon shakier global growth prospects, little revealed this week so far should be interpreted as diminishing that risk in the short-term.
    Today for the ASX200: SPI futures are indicating that, to start the new month, the ASX200 will participate in the relief rally sweeping markets and add 26 points at the open. Despite sluggishness throughout the day, the Australian market jumped just before the end of yesterday's session, courtesy of a buy-up in bank stocks following ANZ's better than expected results. A full turn around isn't yet underway for the ASX200, but the seeds are there to potentially break the corrective pattern hobbling the index -- with a break and hold above 5930 a definitive sign of this. Just like the rest of global equities, the risks and challenges remain, but yesterday's weak CPI print at least affirms that RBA policy will probably remain supportive of asset markets. The next two days of trade will be significant for the Australian market's nascent recovery, as NAB reports today, and macro watchers eye local retail sales figures tomorrow, and the more significant US Non-Farm Payrolls release on Friday night.
     
  3. MaxIG
    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.

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

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

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

  6. MaxIG
    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
  7. MaxIG
    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.

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

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

    Overnight: China's powerful stance yesterday may in time be considered much akin to ECB President Mario Draghi's "whatever it takes" moment. The follow through in Chinese equities will be closely observed today, to witness what lasting impact the actions have. Overnight though, the carry over effect into the European and North American session diminished throughout the day, muted by other, more regional concerns. The Italian fiscal crisis took a temporary back seat and supported the narrowing of European sovereign bond spreads. However whipsawing sentiment regarding the likely outcome of Brexit led to another dip in the Pound below 1.30 and in the Euro below 1.15. The macro-fears weighed on European stock indices, dragging the majors by up to as much as -0.5 per cent.
    US session: The US Dollar caught a bid on last night’s macro-dynamic as traders modestly increased buying of US Treasuries. Gold dipped as a result, while in other commodities, oil climbed on supply concerns amid heightened tensions between Saudi Arabia and the West, and Dr. Copper was flat. Fundamental data was very light, with positioning underway leading into the massive ECB meeting and US GDP prints in coming days. North American equities saw an inversion of Friday’s theme: growth/momentum stocks, such as the FANGs, were generally higher, while the industrials-laden Dow Jones pulled back 0.50 per cent. The meaty part of earnings season is about to get underway in the next 24-48 hours – and may well dictate the theme in US equity markets adopt for the next several weeks.
  9. MaxIG
    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.
     
  10. MaxIG
    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.

  11. MaxIG
    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.

  12. MaxIG
    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.
  13. MaxIG
    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.
  14. MaxIG
    Dead cat bounce in Asia? The ASX200 really couldn’t catch a bid yesterday. Most concerningly, it happened within a back drop of slightly higher volumes, showing that the sellers truly washed out the bulls throughout the day’s trade. The Asian region kicked-off the week sluggishly in general, unable and unwilling to run with the lead provided by Wall Street on Friday evening. The action in Asia prompted calls of a dead-cat bounce across global equities, something that has since been proven premature, based on the mixed day witnesses overnight in the European and US session. There just appears such a general reluctance for investors to search for value in the Asian region, despite the cold-hard numbers implying that pockets of it exists. Of course, P/E ratios and yields never tell the full story, and often lag actual changes in earning’s forecasts. Yet still, it does feel surprising, if not concerning, that the pockets of value that exist aren’t being seized by investors.
    Where are the buyers? It’s none-truer than on the ASX200, ahead of a day in which SPI futures are implying a 1-point jump at the open. The Australian share-market is presenting as a trifle oversold, with the daily-RSI stuck at multi-year lows, but downside momentum slowing-down only gradually. An absence of growth investors has stripped the Aussie shares of much of their bid, in-line with investor behaviour across most equity markets in the face of rising global rates, but again, the curious point – one that sets the ASX200 somewhat apart at present – is the missing search for underling value. In principle, it shouldn’t be too difficult to find: the sell-off across the local market has pushed yields just-shy of 4.50 per cent, while the project 1-year P/E ratio for the overall index is just above 14:1. It could be that a VIX above 20 is too higher to attract buyers at this stage – it will be an important litmus test for the market as to whether the ASX200 catches a bid when this unwinds.

    ASX Downside: To be fair, there are some considerable headwinds for Australian investors that may preclude them from behaving in the same fashion as their US or even European counterparts. The banks look ugly now – less so the hard numbers, but more from the superficial perspective that their brands have been (justifiably) diminished by the effects of the Financial Services Royal Commission. The best-yielders on the Australian share market are comprised in a big-way by the banks, so a lack of yield chasers in the market could come based on a sizeable reluctance to buy banks, even at apparently cheap prices. Following a day for the ASX200 that only saw the energy space catch-a-lift, entirely due to a since faded bounce in oil prices, buying impetus could be difficult to come by in the day ahead for the index, as support around 5800 returns to trader’s sights.
    RBA Minutes: It won’t change much the trading dynamic for Australian shares, but some useful insights regarding the Aussie-macro backdrop will be handed to us in the form of RBA Monetary Policy Minutes today. The interest generally will be directed towards any idea into the confluence of factors stifling the Australian households: financial stability will be one, a lack of wage growth another, so will high levels of private debt amid falling property prices, along with increasing retail interest rates, and (to a lesser extent) how global risks will affect the local economy. Despite the abundance of information, for traders, the dial probably won’t shift in rates market expectations that an RBA hike won’t come until 2020; nor in the AUD/USD, which will probably find support at 0.7100 even in the event of the most dovish tone to the minutes.

    China: Zooming out the microscopic lens for a moment: Australian financial markets are being served no favours by what is transpiring in Chinese markets. It was another rough day for China-bulls, who were legged by a fresh bout of selling after news broke that US President Trump – while riffing in an interview with CBS – may consider a fresh round of tariffs on the Middle Kingdom’s economy. Counter-arguments based on fundamentals aside, there seems to few willing to bet on a strong Chinese growth story at presetn. The comprehensive Shanghai Composite hit lows not registered since November 2014, while the narrower, blue-chip laden CSI300 languished around 2015 lows. This week will be illuminating for investors regarding whether the growth-outlook is indeed this poor for China, with CPI data day (for one) kicking-off a slew of Chinese fundamental data releases.

    Chinese growth, global growth: Perhaps it is so that the actions of Chinese policy makers are raising concerns about the country’s dubious growth prospects. Markets seem to interpret any policy intervention from the government or PBOC as a minor concession that things in the economy aren’t so great. The logic makes sense: there is the view that China’s economy is a touch opaque, and that Chinese data is prone to some level of manipulation. The offshore Yuan is manifesting signs of this scepticism, as the PBOC apparently conforms to the markets desire to devalue the Yuan, to potentially the key psychological barrier of 7.00. How far Chinese, and broader Asian indices, may fall before bottoming out is becoming an increasingly interesting question, as sentiment overrides the highly attractive valuations to keep the bears in control.

    Overnight: The underwhelming display in the Asian session translated into mixed European and US trade overnight. There was little depth of fundamental data, and though Brexit negotiations and fears of deteriorating ties between the global community and Saudi Arabia persisted, it wasn’t enough to incite panic in market participants. US Retail Sales disappointed slightly, but trade was defined more by a general lack of confidence in US investors: US Treasuries ticked higher and the USD dropped –benefitting gold again, driving its price temporarily above $US1230. A rotation away from growth stocks – that is, the tech-giants – continued by way of virtue of fears surround trade-wars and higher global rates, driving the NASDAQ lower, and  the Dow Jones and S&P500 weren’t able to catch and hold onto their early-bid, selling-off in late trade as investors struggled to grasp whether generally higher growth-risks will manifest in the upcoming earnings season.
  15. MaxIG
    Written by Kyle Rodda - IG Australia
    Overnight bounce: A bounce in equities has finally arrived, unwinding some of the week’s heavy losses. As it currently stands, the NASDAQ – ground zero for much of the recent market correction – is leading the pack, up 1-and-a-half per cent for the day, followed by the S&P, which is up 0.8 per cent, and the Dow Jones, which is up 0.65 per cent. Volumes are down generally speaking, so the recovery today lacks bite – though the Thanksgiving holiday in the US may somewhat be behind this, meaning an apparent lack of conviction in this relief rally could be explained away. Meaningful price action in other areas of the market that gives a solid read on the current psychology of traders is absent: US Treasuries have been comparatively inactive, with yields remaining contained across the curve, and the US Dollar is slightly lower, without demonstrating remarkable activity itself.

    Risk assets: Certain assets have benefitted from the lull in panic-selling. To preface: the VIX has receded to a reading of 20, from highs around 23 yesterday. In currency land, the Australian Dollar and New Zealand Dollar, as risk proxies, have ticked higher to 0.7265 and 0.6795. Obviously, the reduced anxiety amongst traders has meant the converse is true for haven currencies like the Japanese Yen, which is trading above 113 today. The Euro and Pound remain in the 1.13 and 1.27 handle respectively, most unmoved by the day’s sentiment. While credit spreads, which have blown out recently as risk-sentiment evaporated, have finally come-in. To counter the notion of complete risk-off: Gold has caught a bid, to trade at $US1227, or thereabouts, with its rally attributable largely to a modestly weaker greenback.
    Global indices: But overall, risk appetite has been ever so slightly whetted, even if it is only temporary. European equity indices were well into the green, aided by a skerrick of positivity generated by good news relating to the Italian budget crisis. The DAX was up 1.61 per cent and the FTSE added1.47 per cent, shaking-off the mixed lead from Asia, which saw the Hang Seng up 0.51 per cent and the CSI300 up 0.25 per cent, but the Nikkei down 0.35 per cent and the ASX200 down 0.51 per cent. A bounce in commodity prices has fed into and supported the solid sentiment in equities, especially as it relates to oil, which rallied off its lows to trade just below $US54 in WTI terms and hold within the mid-$US63 handle in Brent Crude terms.
    Slow news day: If this all sounds dry, it’s because that in the context of the volatility experienced in the past week – if not almost 2-months – it very much is. Little has catalysed the overnight bounce. The major themes are still hovering about, and the questions implied by them have barely been answered. The big data release overnight – in fact, it’s probably the biggest for the week – was US Core Durable Goods numbers, and they disappointed. That release, very marginally, added to the chorus of pundits suggesting that the US Federal Reserve’s hiking path may be a little flatter than recently thought. As far as what can be inferred from the data, the US economy is cooling off, implying the “data dependent” Fed will lack the reason to aggressively hike interest rates.
    Fed-watch: A lot of these matters relating to the Fed will be clarified when a slew of board members speak next week. The markets attitude though is simpler to read: Fed Funds futures have reduced their bets on the number of rate hikes from that central bank to 2 and a bit from here. December’s telegraphed hike is being priced again at a 75 per cent chance, but after, if traders are a good barometer, rates in 2019 are looking very flat. A more dovish Fed, in the absence of developments in other issues like the Trade War or Brexit, is what is aiding the staunching of risk-off sentiment. It opens the risk now that markets could be all too wrong, and a spike in volatility will arrive if traders were to once again adjust expectations.

    A softer outlook: But with the volatility we’ve seen in markets, corporate earnings petering out, and economic growth cooling, the assumption of a more reserved Fed isn’t outlandish. It perhaps reflects the broader risks in the markets and economy too: the Trade War is ongoing, Brexit is falling apart, China is slowing, oil is tumbling, and Italy’s fiscal situation could blow up any day. Given such a landscape, an inevitable pull back by the Fed, timed with lower activity in financial markets, is very understandable – the game of chicken being played by markets and the Fed may have been won by the former. It could all turn on a dime very quickly of course, but as it stands now, the current environment is leading market participants to the conclusion that a period of soft growth, lower earnings growth and a more neutral Fed is upon us.
    ASX200: So: as it all related to the Australian share market in the here and now: our bounce today, according to SPI futures, will begin with an approximately 25 point jump at the open. Yesterday’s performance was naturally poor, but some solace can be taken in the fact the market bounced off the 5600-support level. The edging higher throughout the day’s trade was helped by a solid run from CSL, which rallied after Morningstar upgraded that company’s stock to “buy”. The banks also experienced some buying; however, breadth was very low, revealing the lack of conviction in yesterday’s modest upward swing. Today ought to see a broad pick-up, in sympathy with Wall Street’s trade: meaningful technical levels within reach on the daily chart are hard to find, but maybe the barometer is how closely a track towards the 5700 can be established.

     
  16. MaxIG
    Written by Kyle Rodda - IG Australia
    Inverted Yield Curves: There’ll probably be a lot of talk about “inverted yield curves” and “recessions” today. For some, reading such headlines will come as a shock. Perhaps even a cause of anxiety. It’s wise to understand why such commentary has emerged – and what that may imply. The price action in US Treasuries has been quite dramatic in the past 24-hours: the (what ought to be) familiar themes regarding a looming global economic slow-down, and the prospect of softer future US inflation has seen traders cut their predictions of future rates hikes from the US Fed. The short-end of the yield curve – the end which is more exposed to the near-term actions of the Fed – has held up well; but it’s the middle-to-end of the curve – the part controlled very much by traders’ expectations about future growth and inflation – that is experiencing the greatest duress.

    What it all means: In short: traders are anticipating an imminent end to the Fed’s hiking cycle, and they are now trying to approximate when the Fed may cut rates again.  This is where the talk of recession starts to pop-up. As is easy enough to grasp, the Fed would need to cut rates in the event that the economy requires stimulatory support from monetary policy. Such circumstances would emerge if the economy began to slip into something resembling a recession. Hence, when yields at some point in the curve invert, it’s a reflection of traders collectively estimating that in the near-enough future, interest rates will be lower than what they are (around about) now, because the economy will enter into a period of significant weakness to require a rate cut from the Fed.
    No reason to panic (yet): It sounds quite ominous when the mechanics are explained. It’s doubly as bad when one considers the last time the US went into recession, it was the GFC. We all have memories of how dire that stage of history was. However, any fears elicited by talks of recession and everything that comes with it must be moderated by some counterbalancing arguments. Indeed, an inverted yield curve has portended the last 9 out 11 US recessions, but the time-lag between yield-curve-inversion and a recession should be noted. After an inversion of the US 2 Year Treasury note and the 10 Year Treasury note (the spread on these two assets being the most popular barometer for the phenomenon) it’s not for another 12-18 months that a recession is realized.

    US growth is solid (for now): So: while financial markets will be whipped into a frenzy about what is going on – especially as safe-haven assets like US bonds are gobbled-up as risk appetite wanes – the effects on the “real” economy are unlikely to manifest in the all-too immediate future. And justifiably so: global growth is waning, and it is not as synchronized as it was in 2017, but at least in the US, economic indicators remain relatively strong. The labour market, which is in focus this week with Non-Farm Payrolls figures released on Friday, is still very tight, leading to gradual wages growth; quarter-on-quarter GDP is still around 3-and-a-half per cent; and although business conditions are cooling, Monday’s release of US Manufacturing PMI still posted a much better than forecast result.
    What triggered the panic: It begs the question what precipitated this bearishness overnight. In financial markets, an underlying dynamic – such as that which has been experienced in the last 24 hours – may well be present, but it requires a catalyst to ignite it into full motion. Last night’s jitters, in a macro-sense, were brought- about by a slew of disappointing news. The post-G20 rally has been faded, as traders question the longevity and substance behind the so-called deal between the US-China, after several top White House advisers failed to substantiate what outcomes have been agreed upon between the two trade-waring nations. The trade related pessimism was exacerbated by renewed concerns regarding Brexit, and the apparent inevitability of an economically disruptive “hard-Brexit” outcome.
    Risk-off, havens-on: A rush to safety, and a subsequent liquidating of positions in riskier assets, has occurred. Touching again on US Treasuries: the yield on the benchmark 10 Year note has plunged to 2.91 per cent, and on the 2 Year note it has dipped to 2.80 per cent, taking the spread there to a narrow 11 points. Equities have been slaughtered, unwinding a considerable amount of last week’s gains: the Dow Jones is off 2.73 per cent, the S&P500 is off 2.3 per cent, and the NASDAQ is off 3.3 per cent (with an hour remaining in trade). The USD has climbed on its haven appeal, as has the Japanese Yen, which is back into the 112-handle, though gold has also rallied, despite the stronger greenback, to $US1238 per ounce. While in other commodities, copper is down 1.8 per cent, and oil is flat (this, leading into Thursday’s OPEC meeting).
    Australia today: SPI futures are predicting another punishing day for the ASX200, with that contract at time of writing indicating a 52-point fall for the local index. The heavy hitting financials and materials sectors will probably struggle today: the former due to this tumble in bond yields, the latter as traders unwind the growth optimism piqued by the weekend’s G20 meeting. In line with overseas markets, defensive sectors could be the play today, though a day similar to yesterday which saw 10 out of 11 sectors in the red on 17.5 per cent breadth shouldn’t be discounted.
    It’s GDP day today, and that should be watched closely, especially after the RBA at its meeting yesterday talked up the growth prospects of the Australian economy. Whatever the result the numbers produce – forecasts are for annualized growth at 3.3 per cent – it will unlikely shift Australian equities. The interest will be on the Australian Dollar and interest rate markets – the A-Dollar fell below 0.7350 again last night as risk-proxies were dumped – however the likelihood rates traders will bring forward their RBA-hike expectations in from 2020 is rather slim.

  17. MaxIG
    Growth fears ease; risk taking subdued: Risk appetite wasn't terribly high overnight. But in saying this, the persistent, vexatious concerns regarding the global growth outlook has continued to abate. Markets have become used to modifications in the growth outlook manifesting in a powering of risk-on behaviour. Given the economic backdrop, the reasons for this are pretty intuitive. Just as far as last night's trade, though, this relationship didn’t hold quite so strongly. There were clear signs that market participants were tempering some of their worst fears about global growth. However, risk-assets didn't respond in the way that they have in the recent past. Not that this should be looked into too much; it's just been a curious truth that's lead to a touch of head scratching last night.
    More good news than bad: It would be wrong to suggest it was a bad day for equity markets. More, that given some of the news in the market, and the cross-asset price action, a stronger move higher might have been expected. The macro-development that captured most attention was news of "new progress" in the US-China trade-war, that boosted hopes of a breakthrough in upcoming trade-negotiations in Washington. In a muted response, Wall Street has edged a trifle higher last night, with the S&P hovering around the 2870 mark. European indices performed a little better, following some strong Services PMI numbers, while Asian indices probably led the pack in the last 24-hours.
    Bonds tell the story (again): Evidence that market participants are re-pricing their global-growth-concerns, in part due to the trade-war developments, manifested in the bond market. A move inverse to that which markets saw last week, government bonds have retraced their gains, as traders reassess the immediacy of what is a widely accepted slowdown in the global economy. It's been the middle of the curve that has demonstrated most movement, with the US 10 Year Treasury note making a foray back above 2.50 per cent; while the equivalent German Bund is making a run out of negative yield. In fact, part of this move in bond markets could explain some of the flatness in equities overnight, as the swift jump in discount rates diminish equities' relative appeal.

    Yield fluctuations show in currencies: The slightly, and probably transitory, revision to global growth has naturally manifested in the currency market. The Australian Dollar and Kiwi Dollar performed strongly yesterday, while the Japanese Yen and US Dollar fell. The quick normalisation in bond yields supported the Euro, which continues to hold onto the 1.12 handle in the face of geopolitical risks and a concerning trend in the continent's growth. Gold prices also dipped on the normalising yield environment, and sits someway of its highs, though its losses were contained by the weaker greenback. The Pound also leapt higher, but as always, that was due as much to Brexit speculation, as it was to any other macroeconomic driver.
    Overall: a day of mixed signals: Really, if anything ought to be inferred from market behaviour yesterday, it's that it was a day of mixed signals. Upside in global equities is practically expected, as earnings forecasts stabilise, P/E ratios remain in a normal range, and monetary policy settings stay accommodative. Certain indicators of the "real economy" are favourable too: the gold-to-silver ratio keeps climbing, credit spreads are falling, while industrial metals keep trending higher. However, some cautionary signals remain: the VIX looks unnaturally suppressed, the "smart money" isn't supporting these news highs, and yield curves are completely bent of shape still. The path of least resistance for equities is higher, however the climb there could still be treacherous.
    ASX to open lower, following solid day: Never to be left behind on a global trend, the ASX200 ought to open a little lower today. The good fortune was flowing for the index yesterday, as the trade-war developments, the Federal Budget fallout, and another big lift in iron ore prices fuelled the market to multi-month highs. The materials stocks naturally lead the ASX higher, but the effects of the night prior's budget was plain to see: industrial stocks, the Real Estate sector, and utilities all fed off the news of fiscal stimulus. The eyes were on consumer discretionary space, given the support to households in the budget. It traded slightly higher, though most of the budget's news had already been baked-in.

    Retail Sales beats, easing local concerns: The good-news story, in a domestic sense, for Australian markets came in the form of Retail Sales data yesterday. It exceeded expectations considerably, printing month-on-month growth of 0.8 per cent, against a 0.3 per cent estimate. The fine print was interesting: on the month, Australian’s spent their discretionary income on eating-out, generally forewent spending on attire, and spent a tiny-bit more on department store spending and household goods. Overall, markets reacted bullishly to the data: the Australian Dollar rallied to trend line resistance at 0.7130-ish, and bond yields jumped as traders repriced the number of expected rate-cuts from the RBA before the end of 2019 to 32 basis-points.
    Written by Kyle Rodda - IG Australia
  18. MaxIG
    A night loaded with information: The pointy end of the week is under-way, and if only relatively speaking, markets are moving on the back of several key stories. Naturally, the centrepiece of this is Wall Street; and there’s been a timely mix of corporate data, economic developments, central bank meetings, and politics for market participants to digest. The intra-day battle of these narratives has caused some modest, but interesting enough, price action in financial markets overnight; with Apple’s earnings beat, weak ISM Manufacturing PMI data, a more neutral US Federal Reserve, and sputtering trade-talks between the US and China combining to twist market sentiment in interesting ways.
    The Fed centre of market attention: Proving itself once more to be the gravitational centre of the financial universe, the US Fed meeting has had the greatest hold over market participants overnight. The Fed delivered the news that many traders had been expecting: it doesn’t possess the “dovish” disposition that interest rate markets are implying. While the Fed did effectively downgrade its inflation forecasts, and dropped the interest on excess reserves to 2.35 per cent, Fed Chair Jerome Powell went to lengths to implore in his press conference that the Fed remains truly patient. That is: interest rates could move either higher or lower from where they are now.
    Markets sell-off on Powell’s neutral tone: After somewhat of a tussle, intraday price action suggests a market that has bought into Fed Chair Powell’s words. Having eked out another small gain to its all-time highs, touching 2954 in early North American trade, the S&P500 has sold of post-Fed meeting, to have shed in the realm of 0.7 per cent in the final two hours of the Wall Street session. Predictably, the US Dollar has rallied as traders unwind some of their bets on interest rate cuts from the Fed this year, leading to a lift in US Treasury yields at the front end of the US yield curve.

    Weak US economic data compounded sell-off: As it stands right now – and this reflects the knee **** nature of the price response – markets have an implied probability of 19 basis points of cuts from the Fed by year end. It’s worth noting, that although the Fed was the primary concern for markets last night, econo-watchers were taken aback by some poor US economic data early in the session’s trade, and probably compounded the impacts of the Fed’s “neutral surprise”. US ISM Manufacturing PMI numbers were released, and showed a significant miss: it printed at 52.8, versus expectations of 55.0 – the lowest print of this measure in 2-and-half years.
    US earnings lose some of their shine: The Fed, and to a lesser extent the ISM PMI numbers, have taken the steam out of what has been an otherwise solid earnings season. For one, US futures had been priming market participants for a bullish day on the market yesterday, after market bellwether Apple Inc exceeded expectations in their earnings Overall, US earnings have been positive, at least in relation to what has been priced in by the market leading into reporting season. But the little retracement in US equities last night betrays how much this market still relies on cheap money, and favourable discount rates, to sustain itself.
    ASX to follow Wall Street: Taking Wall Street’s lead: the ASX200 ought to shed 30 points this morning. The ASX is in the throes of its own earnings season; and thus far, it too has provided investors plentiful information. But for the index trader, this reporting season centres around the banks, and how their earnings drive bullishness of bearishness in the overall ASX200. And so far, after the ANZ reported yesterday, the impact has proven the former. Likely owing to a bit of “buy the rumour sell the fact” activity, the financials sector lifted the overall ASX200 yesterday, adding 30 points to the index.

    The banks in the bigger picture: For macro watchers and traders, despite the short-term lift in bank shares yesterday, the question regarding the banks pertains to whether what was revealed could spark a turnaround in trend in their share prices. The answer to this, which will be further illuminated when NAB reports today, isn’t compelling: in the big picture, the banks have traded lower for several years in-line with credit growth and property prices — two things the ANZ in its half-year results said it expects to be a challenge for the bank, and by extension the Australian economy, going forward.
    Written by Kyle Roddda - IG Australia
  19. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 3 June 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video. 

    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
    cash neutral adjustment on your account. Special Divs are highlighted in orange.
              Special Dividends         Index Bloomberg Code Effective Date Summary Dividend Amount UKX TW/ LN 6/06/2019 Special Div 10.7 MEXBOL ASURB MM 4/06/2019 Special Div 254 RYT PBIP US 6/06/2019 Special Div 45 RYT TPCO US 11/06/2019 Special Div 150           How do dividend adjustments work? 
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 
  20. MaxIG
    Aussie growth underwhelms: Australian GDP data was the highlight of the economic calendar yesterday. All-in-all, the data was of minimal impact, though it did for make big headlines: the growth rate came-in at 1.8 per cent on an annualized basis, as expected – the slowest rate of economic growth since the GFC. A poor print undoubtedly, but one that had been priced into the market well in advance. Hence, markets were little moved upon the release. The ASX200 hardly budged. The Australian Dollar lifted very slightly, and temporarily tussled with the 0.7000 handle. And interest rate markets increased very marginally the probabilities of more RBA cuts by year-end.
    Where the weakness is: The data was more of interest for economists and other pedants. And there were some interesting takeaways from the release. As is well known, one of the major headwinds for domestic growth is private consumption, which continued to show signs of slowing. The savings ratio also lifted, as consumers seemingly opted to defer spending and pocket their modest pay rises. More than just demand side concerns, there was also a noteworthy drag on growth from the supply side. Dwelling investment also contracted in the last year, in line with what has been a well-publicised slowdown in construction activity, and sustained falls in the property market.
    Where growth is coming from: The GDP data wasn’t without its silver linings, of course. A series of factors leapt-out as the primary drivers of growth in the Australian economy in the past 12 months. It was largely improvements in the nation’s terms of trade, courtesy of the major multi-month rally in iron ore, followed by big government spending measures, mostly in form of the NDIS and other health services, that proved the greatest contributors to growth. Though welcomed, to be sure, the areas of Australia’s economy sustaining growth speaks of a country currently working below its capacity, and in need of some sort of a boost.
    Why the RBA is cutting rates: It’s this dynamic that explains, and perhaps even vindicates, the RBA’s decision to lower interest rates on Tuesday. Domestic economic conditions are weak (and likely softening), and requires a little policy support, from central bankers and government alike, to stimulate ongoing employment and GDP growth. Based on such a logic, the pricing-in of interest rate cuts into the back end of the year appear highly rational. And this seems especially so when considering that (as was alluded to by the RBA on Tuesday afternoon), international economic growth is likely to slow, if not falter, due to the pernicious consequences of an escalating global trade-war.

    Risk-appetite lifts overnight: Which leads to the overnight price action in North America, and to a somewhat lesser extent, Europe. Risk appetite has been piqued by news that US President Donald Trump stated his belief that Mexico wants a trade-deal to happen, as well as comments from Trump trade-advisor Peter Navarro that the tariffs on Mexico may not have to go ahead. The headlines (and really, for now that’s all they are) stoked a rally in US equity indices; catalysed a fall in the VIX; lead to a narrowing of corporate credit spreads; and provided room for a bounce in the US Dollar,
    Sentiment improves, fundamentals haven’t: The question becomes now whether we’ve put-in a new low in global equities, or whether this is just a little fake-out. There is lingering suspicion that it may be closer to the latter, given the fact that although friendly words are being passed between the Americans and Mexicans, nothing has truly changed yet. Even more to the point, the Americans and Chinese have in no way thawed their present animosity towards one another. It suggests that although market sentiment has clearly improved in the last few days, the fundamentals haven’t changed. They could, by all means: but signs of that aren’t here yet.
    The better measures of fundamentals: Probably the more pertinent facts here, too, is US stocks’ rally is very “defensive” in nature, and has been ignited mostly by an ostensibly dovish pivot from the Fed. Despite all the confidence that markets have reached a fresh turning point, US Treasuries are still rallying, especially at the front end of the curve. It suggests that the market is assuming the Fed will cut aggressively, and soon, to try to engineer a “soft-landing” for the US economy. The sectors in the S&P500 that have outperformed overnight are safe, yield-generating stocks – not those typically tied to greatest optimism about fundamental economic growth.

    Written by Kyle Rodda - IG Australia
  21. MaxIG
    US Retail Sales capped-off last week: The climax of last week’s trade was Friday night’s US Retail Sales data release. As is well known, sentiment in the market centres around concern for the state of the global economy. As the biggest component, of the world’s biggest economy, US consumption data was hotly awaited to test the thesis that the global economy is winding down for another cycle. As it turns out: right now, those fears are very slightly exaggerated, if the US Retail Sales data was anything to go-by. Core Retail Sales came-in bang on expectations at 0.5%, taking the annualized figure to around 3.2 per cent.
    Fed-cut expectations unwound slightly: Solid-enough US Retail Sales data numbers tempered some of the enthusiasm for rate cuts from the US Fed. To be clear: imminent US rate cuts are still in the market. In fact, 25 basis-points of cuts remain implied for July’s Fed-meeting. However, as it pertains to this week’s meeting, as well as the aggressiveness of future policy intervention from the Fed, traders unwound some of their rate-cut bets in the market. US Treasury yields climbed as a consequence on Friday, stifling the rally in global sovereign debt, with the yield on 2 Year US Treasuries, in particular, jumping by as much as 7 points.
    Bond yields climb, and stocks dip: The marginal pricing-out of Fed-intervention in the US economy was a negative for US stocks during Friday’s trade. Seemingly, this was particularly true for high-multiple stocks in the S&P500, like US-tech, which lead the overall market lower. As is widely known, US equities’ strong performance year-to-date has been largely attributable to a progressive increase in rate-cut expectations from the Fed. Though the overall trend remains intact – that is, rate-cuts are coming from the Fed in the near-enough future – Friday’s US Retail Sales numbers somewhat curbed the excitement for imminent, easier monetary policy-conditions, and its consequent benefit for US risk assets.
    US Dollar rallies across the board: A shift higher in US rates markets catalysed a spike in the US Dollar. The Dollar Index climbed 0.64 per cent on Friday, underpinned primarily by a tumble in the EUR/USD, which fell into the low 112.00 handle following the release. The Sterling also felt the pinch, plunging into the 1.25 handle for the first time since December last year, unaided by the ongoing uncertainty associated with the UK’s ruling Tory party’s leadership contest. While the Japanese Yen, as the final piece of the global currency market’s big-quartet, also softened against the Greenback – though it’s still finding buyers amidst continued global economic uncertainty.

    Australian Dollar tests new lows: This dynamic in global currency markets weighed heavily on the Australian Dollar, in particular. The AUD/USD touched a new-low on Friday, trading at levels not experienced since January’s notorious FX-market “flash-crash”. The all-important yield differentials between US Treasuries and Australian Commonwealth Government bonds crept wider, with the spread between the comparable 2-year bonds expanding to 85 points. The local unit now hangs precariously above a level of price-support in the market around 0.6865, which has been tested on 4 separate occasions in the last month. It sets-up a big week for the currency, ahead of the release of tomorrow’ RBA minutes release, and Thursday’s Fed-meeting.
    Chinese data disappoints: Of course, the Australian Dollar remain sensitive to the global growth outlook, on top of these two events – especially as it pertains to the Chinese economic narrative. Traders were handed a touch of information on the subject Friday, with the release of the Middle Kingdom’s monthly data-dump. What was revealed was, at best, a mixed picture: Fixed Asset Investment numbers missed, as did Industrial Production data; but Retail Sales beat, and joblessness held steady. For markets, the data was vapid – not good enough to ameliorate the economic outlook, but not bad enough to warrant more economic stimulus – resulting in a dip in Chinese indices.

     
  22. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 5th October 2020. 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 Dividends
            Index
    Bloomberg Code
    Effective Date
    Summary
    Dividend Amount
    NKY
    VEA AU
    05/10/2020
    Special Div
    5.94
  23. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 12th Oct 2020. 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 Dividends
    Index
    Bloomberg Code
    Effective Date
    Summary
    Dividend Amount
    HSI
    386 HK
    14/10/2020
    Special Div
    7
    HSCEI
    386 HK
    14/10/2020
    Special Div
    7
    RTY
    BCC US
    14/10/2020
    Special Div
    160
               
               
    How do dividend adjustments work? 
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  24. MaxIG
    Expected index adjustments 
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 9-Nov 2020. 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 Dividends
            Index
    Bloomberg Code
    Effective Date
    Summary
    Dividend Amount
    UKX
    SBRY LN
    12/11/2020
    Special Div
    7.3
    RTY
    WINA US
    09/11/2020
    Special Div
    300
    RTY
    AMSF US
    09/11/2020
    Special Div
    350
    FBMKLCI
    SDPL MK
    16/11/2020
    Special Div
    1.45
    SPX
    ROL US
    09/11/2020
    Special Div
    13
    How do dividend adjustments work? 
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
      Entry Actions  Report Entry  
  25. MaxIG

    Dividend Adjustments
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 19th April 2021. 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 Dividends
            Index
    Bloomberg Code
    Effective Date
    Summary
    Dividend Amount
    STI
    WIL SP
    23/04/2021
    Special Div
    6.5
    SIMSCI
    WIL SP
    23/04/2021
    Special Div
    6.5
    CAC
    STLA FP
    19/04/2021
    Special Div
    32
    RTY
    RMBI US
    20/04/2021
    Special Div
    50
    RTY
    CVLY US
    26/04/2021
    Special Div
    2
     
                      How do dividend adjustments work? 
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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