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KirbyIG

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  1. A night of mixed trade: Overnight trade might be considered an elegant microcosm for the affairs of financial markets right now. The news flow shifted from mixed, to bearish, to bullish, then back to mixed again. The story began with a US Retail Sales data-beat, that cast doubts on the Fed’s need to cut interest rates. That doubt was compounded by more soft-ish bank earnings in the US. The mood then turned decidedly nervous on headlines US President Trump stated his willingness to increasing tariffs on China if he wanted. Before sentiment was salvaged by a speech from Fed Chair Jerome Powell during which he re-affirmed his openness to lowering rates. Risk-taking dulled in the market: The ultimate result on Wall Street being a slight play out of riskier assets and into safe-haven assets. The S&P500 receded from its all-time highs to fade back towards the key-psychological level of 3000. Long-term US rates climbed as markets priced-in a marginally better outlook for US consumption. That gave a boost to the US Dollar, which drove the AUD towards the 0.7000 level once again, and pushed gold prices back to the $US1400 mark. The lead sets up the Asian session for a soft-start, with SPI Futures suggesting the ASX200 ought to extend its three-days of declines and dip around 4-points at the open. ASX200 drifting lower: The ASX suffered from the same listlessness yesterday that had characterized the night prior’s trade on Wall Street. Somewhat like what was experienced last week: market participants remain effectively still and vigilant ahead of greater event risk at the back end of the week. A play into the safety of government bonds pushed long term interest rates down, with price action in stocks reflecting the difference in income-yield dynamics. The utilities sector climbed, while the Real Estate sector lead the sectoral map. Despite the fall in interest rates, the Australian Dollar remained well supported during the local session, primarily due to a climb in industrial commodities. RBA confirms it’s on standby: The minutes from the RBA’s most recent meeting were released during yesterday’s local session, and while they offered little disruption to market activity, they did provide insight into the current state-of-mind of the central bank. Global growth risks, and global central bankers’ policy re-actions to them, were greatly examined; as were the current drags on households and domestic consumption. But the key takeaway was this: the RBA will continue to cut interest rates “if needed” to stimulate the Australian economy, and support the ongoing process of absorbing the stubborn “spare capacity” in the labour market that’s currently undermining the outlook for domestic growth and inflation. The RBA’s clear canvas: The RBA seems to expect that this will be a relatively long and slow process. Such an attitude isn’t a surprise, by any means. Monetary policy is a slow burning fuel when it comes to stimulating the economy. Even still, the moderation, cautiousness and broadness in the RBA’s language betrayed an uncertainty not just in the economic outlook, but also the potential direction for monetary policy. It reaffirms an interesting dynamic whereby the RBA is standing guard for a potential deterioration in local and global economic fundamentals, amid a lingering sense of doubt about whether policymakers across the globe can extend this business-cycle. RBA ambiguity brings market opportunity: Market action around yesterday’s RBA Minutes reflected the ambiguity betrayed within the document. Market participants weren’t preparing for anything more; the RBA was only ever going to expound on what had already been communicated in its meeting press-release a fortnight ago. Further to that, all the benefits and impact to financial markets from the information received had all but been priced-in by this month’s actual cut. Moving forward, however, the open-endedness of the RBA’s present policy outlook raises the stakes for markets. The next cut, implied for December, could just as easily be brought-forward or deferred, setting up ample ground for volatility. Global inflation under the microscope: The global macro-theme to keep an eye on in the day ahead is inflation data. A skerrick of it was released yesterday, after New Zealand inflation CPI met expectations, but re-affirmed the need for rate cuts from the RBNZ. It’ll be Canada and the UK’s turn this evening, with each of those economy’s rate outlook in focus. Inflation for both countries is expected to be sluggish – following the disinflation trend brought about by a slowing global economy. If the data inflation misses today, it adds the Bank of England and Bank of Canada to the list of central banks that may need to ease rates soon. Written by Kyle Rodda-IG Australia
  2. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 15th July 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. Dates can be affected by public holidays. Special Divs are highlighted in red. Special Dividends Index Bloomberg Code Effective Date Summary Dividend Amount RTY CBRL US 18/07/2019 Special Div 300 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.
  3. US stocks register new milestone: The S&P500 registered fresh all-time highs, and touched the 3000-mark for the first time in its history, after Fed Chair Jerome Powell, during his testimony before US Congress overnight, provided implicit assurances that the Fed is open to cutting interest rates at the end of this month. Chair Powell cited weakness in the global economy and trade-conflicts as being the primary reasons for this shift in his view – though he did stress that the fundamental outlook for the US economy is strong. Chair Powell’s testimony plays firmly into the “insurance-cut narrative” prevailing in markets currently, with a Fed-cut at the end of this month all-but-certain. A Fed cut all but assured: Importantly, FOMC Minutes, which were also released during last night’s trade, backed-up what Powell said during his testimony. So as far as market participants are concerned, the risks that last night’s trade clearly posed have proven positive for market sentiment. The VIX has receded as financial markets price-out marginally the risk that Friday’s solid US jobs data may have brought-about a change in Fed rhetoric. As-a-result, interest rate sensitive US 2-Year Treasury yields have plunged, shedding 8 basis-points in last night’s trade, sending the Greenback lower across the board, and sparking another rally in gold prices, which climbed 1-and-a-half per cent overnight. The central question remains: With the US stock market at all-time highs, and an interest rate cut from the Fed this month considered a foregone conclusion, the markets’ thinking probably becomes slightly longer-term in its framing. And for market purists, this is probably welcomed, and means a greater emphasis on market fundamentals. And the core question hasn’t changed. Yes, cheap money needs a home, so boosts in liquidity brought about lower rates will flow into equity-markets. But if the economic outlook is as dim as is being suggested, and if US earnings growth does indeed contract as expected this earning’s season, how long can new stock-market records really be sustained? ASX200 sustains uptrend: The bulls reclaimed control over the ASX200 yesterday, pushing the benchmark index temporarily back above the 6700-mark. Reassuringly, it was a day of high activity, too, with volumes above average, following a couple of days slackened market action. It’s a telling dynamic: despite no shortage of local and global risks, the Australian stock market continues to enjoy a well-supported uptrend. And though some valuation metrics, such as the price-to-sales ratio, are looking a little stretched, forecasts for solid enough earnings growth, plus the chase for attractive yields, is seemingly proving good enough reason for investors to keep putting money to work in Australian stocks. Chinese economic data sapped confidence: It must be said: the ASX200’s rally was faded throughout intra-day trade yesterday. There were a few reasons behind this, but the most significant was the considerable miss in Chinese PPI numbers, which revealed producer price inflation in China has flatlined in the last 12 months. The news raised fresh concerns for the state of the Middle Kingdom’s economy – and in particular, the country’s business sector, which is apparently suffering from a sub-par demand environment and likely margin-compression. Of course, the weaker than expected inflation data rippled through Australian markets: the ASX200 retraced half-a-per cent in the hours after the data’s release. Australian consumers still nervy: Market participants were delivered some sobering news about the domestic economy yesterday, too. Westpac’s Consumer Sentiment report was released, and conveyed a marked deterioration in consumer confidence within the Australian economy. It didn’t rock the stock market at all, nor did it change the market’s outlook for future RBA monetary policy. However, it was a stark reminder of the malaise plaguing Aussie households at the moment. Even in light of interest rate cuts, tax-cuts, the relaxation of mortgage lending standard, and a stock market reaching decade-long highs, consumers are on the whole uneasy, and remain wary about the future. (Source: Westpac Banking Corporation) Powell and US CPI to capture limelight: The second leg of Powell’s speech will dominate market action tonight, along with the release of equally significant US CPI data. Fundamentally, the rationale the Fed has been able to adopt to justify shifting to a dovish policy bias recently is that disinflation in the US economy is no longer “transitory”. It’s an argument that the market is buying – even if it is being exploited by policymakers to slightly obscure the complex interplay of factors driving the Fed’s thinking at-the-moment. Nevertheless, market participants will be looking for another sluggish inflation number tonight, to keep US CPI at the roughly 2.00 per cent rate at which it currently presides. Written by Kyle Rodda-IG Australia
  4. KirbyIG

    APAC brief - 9 Jul

    Flow exits equities: Global stocks fell on Monday. The losses were very broad based, as equity traders caught up on the information that had already, effectively, been baked into rates markets. The ASX200 was one of the worst performing major share indices: it shed 1.17 per cent, with market breadth a lowly 17.5 per cent. Wall Street has performed stronger overnight, with the S&P500 giving up half-a-per cent. That’s lead SPI Futures to climb roughly 10 points, suggesting a bounce for the ASX today. The AUD, as a pro-risk currency, is down at the expense of a stronger USD. The stronger greenback has also hastened gold’s pullback. Markets banking the easy returns: The trading week began defined by an overall sense of cautiousness, if not concern. Trading activity was low, so the moves out of risk assets last night were hardly vigorous. But there was certainly a slow receding of (some) optimism, as traders of rate-cut expectations by the world’s largest central banks. To be clear: this is a marginal move, characterized by revising of the global rate outlook, rather than a total reversal of it. Nevertheless, the new expectations had to be discounted, and that culminated in a modest dulling of the bullish sentiment that’s driven stock markets to their recent highs. Markets adjust to new Fed expectations: There’s been a reflexive element to that dynamic too, well encompassed by the flattening US yield curve. Diminished expectations of an aggressive 50-basis-point cut from the US Fed this month has led to a greater lift in short-term interest rates than that of long-term rates. This price action has been fuelled by the belief that less accommodative monetary policy conditions will impact the longer-term US, and therefore global, economic outlook. Furthermore, the narrowing of this spread between short-term and long-term rates has raised the prospect of relatively tighter financial conditions, with the marginal drop in liquidity reducing the appeal of risk-assets. A negative feedback loop: In these situations, markets slip out of the goldilocks zone – the place in which, up until recently, global markets had been occupying, and relishing. Like any social phenomenon, the effects are self-perpetuating: fundamentals look okay-enough, so markets bet on less stimulatory policy conditions, which leads to tighter financial conditions, which diminishes the outlook for markets, which eventually weighs down on the “real economy”, which finally leads markets to increase bets again of stimulatory policy. If these bets are in turn supported by policymakers rhetoric, then markets can return to that “goldilocks zone” – to begin the cycle over again. A revision of timing, rather than reversal of fortunes: Right now, markets are in the part of this little cycle whereby expectations about the aggressiveness and immediacy of interest rate cuts are being pared, and likely deferred. This is probably not a trend-change – at least, the information doesn’t currently exist to suggest that this is what’s unfolding. Instead, markets are experiencing a moderation, and that’s prompted a little drawdown as market dynamics are revised. Fortunately, this is a situation that won’t linger by itself for long: tonight, markets get to update the narrative to some extent. Tonight, Fed Chair Jerome Powell speaks, kicking-off several days of communications from Fed speakers to the market. Fed speakers to fill in the blanks and gaps: Aside from US CPI numbers, and barring any nasty surprises in the US-China trade-war, or maybe in the US-Iran stand-off, the litany of Fed-speakers, plus FOMC Minutes, will pose the biggest risks this week. And given what markets are baking in about Fed-policy, risk could be asymmetrically skewed further to the downside. Financial markets have full priced-in a rate cut from the Fed at the end of the month; and recent Fed-talk has implied a “double-cut” at the Bank’s July 31st is probably unnecessary. Hence, the greatest risk is if the Fed suggests that perhaps a cut this month may not be necessary at all. Stocks balancing act ahead of US reporting season: Considering the trajectory of the global economic cycle, interest rate cuts from the likes of the Fed, the ECB and BOJ remains a matter of when and not if. That being the case, markets ought to, in time, return to the trends and themes dominating trade prior to Friday’s NFPs release. The core question will become, though, whether stocks (in the US in particular) can regain the same momentum they’d recently built-up. Afterall, US reporting season is next week, and if US corporates start showing the effects of the global economic slow-down, it may well truncate the life of this record bull market. Written by Kyle Rodda-IG Australia
  5. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 8th July 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. Dates can be affected by public holidays. Special Divs are highlighted in red. 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.
  6. Market sentiment: The prevailing wisdom in the market was challenged on Friday night, and it resulted in a small shift in fundamentals. US Non-Farm payrolls were released, and despite the overarching bearishness towards the US economic outlook currently, managed to exceed expectations. Granted, the unemployment rate ticked higher and wages growth fell. But the jobs change figure revealed a much better than expected 224,000 jobs were added to the US economy last month. The results naturally weren’t enough to bring-about a wholesale revision of US economic fundamentals. However, it’s forced markets to question whether the need for rate cuts this month from the Fed is truly justified. Interest rates: Interest rate markets are still implying that the Fed will cut interest rates this month by 25 basis points. The assumption here appears to be that all this talk from Fed-speakers about “insurance cuts” isn’t for nothing. What’s been removed from the market, courtesy of Friday’s solid jobs numbers, is the marginal pricing-in of a 50-basis-point cut from the Fed this month. The odds of that occurring plunged during Friday night’s trade, going from a roughly 30 per cent chance, to effectively zero. It’s a bittersweet reality check for markets: things in the US economy aren’t that bad. Government bonds: Global sovereign bond markets experienced a spurt of selling consequent to the reshuffling in short-term rates markets. The yield on the benchmark US 10 Year Treasury note spiked nearly 10 basis points, rallying from about 1.95 per cent to just short of 2.04 per cent during North American trade. The movements in US government debt flowed into other “risk-free” bonds, boosting their yields. 10 Year German Bund yields fell away from parity with European overnight rates, to be trading presently at -0.36 per cent; while 10 Year UK Gilts climbed 6 points, to trade only slightly below the Bank of England’s overnight rate of 0.75 per cent. FX markets: The relative outperformance in US interest rates over their foreign counterparts brought about a big rally in the US Dollar. Friday’s was a session in which the G10 currency landscape more-or-less revolved around the US Dollar, and repositioning for this month’s US Fed meeting. The Euro took a hit subsequently, trading back into the low 1.12 handle, and the GBP came close to testing life at the 1.24 level. Other safe haven currencies, such as the Yen and Swiss Franc, dipped, though the intensity of the selling wasn’t quite the same. And as it relates to the Australian Dollar: it’s fallen back toward 0.6970 this morning. Commodities: Gold prices were also whacked lower too, as the lift in global bond yields diminished the swelling pool of negative yielding debt across the globe. It fell back below the $US1400 mark, with the fundamental trend in the yellow metals price thrown into question for the first time in months. In other commodities: oil prices rallied on the improved fundamental growth outlook generated by the strong US jobs report. While unrelated to that event: iron prices took a bath on Friday, after it was reported that Chinese mills had requested an enquiry, to China’s regulators, into the cause of that commodity’s recent rally. Stocks: The greatest doubt in financial markets, as-a-result of the stronger than expected US labour market numbers, has been reserved for global equities. Recall: the greatest driver of stock market strength lately has been the prospect of cheaper money flowing through the system courtesy of US Fed rate cuts. The repricing of marginally less accommodative monetary policy conditions, beginning this month, from the Fed, took the steam out of US equities on Friday. On a day thinned by the hangover from the Independence Day holiday, the S&P500 retraced 0.2 per cent by the sessions close – admittedly recovering ground throughout the day as the initial jobs-shock wore-off. ASX: Wall Street’s soft close has the ASX200 set-up for a soft-start today, with SPI Futures suggesting that index ought to open 12 points lower this morning. It’s only a modest blow, given the market rallied another half-a-per-cent on Friday to add to its 11-and-a-half year highs. Real Estate stocks, and to a lesser extent the banks, outperformed on Friday, after APRA announced that it would be easing lending standards for the local housing market. Overall, the ASX is looking technically overbought here on the Daily RSI, registering a reading of 71 right now. However, market momentum, and the overall trend, remains pointed to the upside. Written by Kyle Rodda-IG Australia
  7. A lacklustre night of market action: The Independence Day holiday in the US kept trading activity relatively thin. The ASX200 clocked another new-high, breaking the 6700-level for the first time since November 2007, led by a big, broad-based bounce in the shares bank’s stocks. Equity markets across the global generally eked-out gains for the day, while bond yield were reasonably steady. The Yen and Swiss Franc were the slight outperformers in the G10 currency space, while commodity currencies slipped, presumably as risky positions were closed-off for the day-off. With this as the market’s overnight lead, SPI futures are indicating that the ASX200 ought to open around 5 points higher this morning. Local Retail Sales met with a shrug: Australian Retail Sales data for May was the highlight of yesterday’s trade, but it amounted to little more than a little fizzle as it applies to market action. Both the monthly and annualized figure disappointed expectations: sales expand by a modest 0.1 per cent for the month, and only 2.4 per cent for the year. Consumption sensitive sectors on the ASX barely moved, while the AUD briefly whipped about, but actually floated higher after the release. It would seem here, the data offered little new information, in light of Tuesday’s RBA cuts: the print, as soft as it was, hasn’t fundamentally changed rate expectations. The week reaches its climax: US Non-Farm payrolls data marks the climax to the week’s trade – and could spark some fireworks, given trade is expected to be thinner tonight, due to the hangover from the US Independence Day holiday. Economist estimates are suggesting a solid, though not spectacular, month of June for the US labour market: 160,000 jobs are forecast to have been added, which ought to maintain the US unemployment rate at its half-a-century low of 3.6 per cent. Most significantly for econo-buffs and Fed watchers: wage growth is also expected to have picked-up, to a rate of 3.2 per cent on a year-on-year basis. The last NFPs before the next Fed meeting: The significance of this US Non-Farm Release can’t be underestimated. This is the last US labour market health-check for market participants before the next US Federal Reserve meeting on July 31st. It’s an extraordinary thing to conceive, but even despite what is an incredibly robust jobs market, the Fed is expected to cut interest rates by 25-basis-points (perhaps even 50) at this meeting. And it’s due to the fact markets are being discreetly told that the US economy requires an “insurance cut”, in order to manage the projected slowdown in the US and global economy, and the unfolding consequences of the US-China trade-war. A good Greenspan, or a bad Greenspan? Is this much of a rationale for a rate cut, considering the Fed’s mandate? The answer is ambiguous and open for debate. But what is becoming clear is the Fed’s strategy and core motive: they are trying to engineer what might be called a “Greenspan-’95-manoeuvre”, in order to avoid a “Greenspan-’05-mistake”. That is: pre-emptively cut interest rates in the middle of an intended hiking cycle to stabilize financial markets and the US economy, like the Fed did in 1995; instead of pushing forward with rate hikes and precipitating a deterioration in financial conditions (and subsequently the “real economy”), like the Fed did in the mid-noughties. The hope for a soft landing; the desire for liquidity: The comparison to current circumstances isn’t perfectly comparable; but financial markets are betting-on the sort of soft landing in the US economy that the Greenspan-led-Fed achieved in 1995/96. It must be said: history and hindsight suggest that this move ultimately amounted to a big kick-of-the-can down the road and probably fuelled, in part, the late-90’s Dot-Com boom; and (arguably) sowed the seeds for the Global Financial crisis, beyond that. But despite this grizzly history, financial markets are notoriously “short-term-ist” in this age of cheap money and moral hazard; and care little for sensible long-term policymaking. Markets want liquidity, and want more of it, more-or-less, now. The best-case for the bulls: Broadly, this is how tonight’s US Non-Farm Payrolls data ought to be viewed. The best-case outcome for market bulls is a slight miss in the jobs-gained number, perhaps a dip in wages growth, and maybe even a small climb in the unemployment rate. This would be seen as the impetus for an “insurance cut” from the Fed, and open the likelihood of easier financial conditions. If the market reacts by increasing the chances of a 50-basis point cut from the Fed, then the S&P500 likely rallies; the USD falls with Treasury yields, lifting the AUD; and gold prices begin a foray to fresh multi-year highs. Written by Kyle Rodda-IG Australia
  8. Another record-reaching session: US stocks have notched-up another record high, as the S&P500 closes in on the 3000-mark. The ASX200 yesterday came close to its own psychological milestone, nearing the 6700-level. The highs came on a light-day’s trade on Wall Street, however, with US markets trading-in a shorted session in ahead of the Independence Day holiday. Currency markets were more volatile, with commodity currencies climbing courtesy of several positive trade balance data out of New Zealand, Canada and Australia. And the US Dollar dipped, following the release of soft ADP employment data, and a Tweet from US President Trump accusing Europe and China of currency manipulation. Signs of slowing growth: Having passed the weekend’s G20 meeting, market participants seem to be looking at the global economic outlook with clearer-eyes. Calmly and sensibly – risk assets are still climbing and the VIX is trading lower – traders are pricing in a lower growth and inflation world, seemingly as much due to cyclical factors, as it is to the trade-war. In commodity markets: oil prices are shifting lower, as are industrial metals. And in fixed income: the yield on benchmark US 10-Year Treasuries hit a new multi-year low yesterday of 1.95 per cent; while US 5-Year Breakevens are suggesting an implied rate of inflation around 1.50 per cent. Building Approvals and Trade Balance data beats: The Australian economic data released yesterday belied these concerns. Australian Building Approvals figures, along with Trade Balance numbers were printed, and beat expectations. Building approvals expanded 0.7%, against a forecast of 0.0%; and the trade plus expanded to $5.75b, supported by a healthy lift in both imports and exports last month. The market reaction to the positive news was limited, however. The ASX lifted slightly, led by a boost in the industrials and REITS. But the Australian Dollar barely budged, with markets seemingly forming the judgement that the data does little shift neither the nation’s economic fundamentals, nor the RBA’s likely interest rate outlook. Retail Sales highlights today’s calendar: Local Retail Sales data headlines today’s data docket, and it’s a print that takes on slightly greater significance given the outcome of Tuesday’s RBA meeting. The Reserve Bank made special mention of consumption being a potential drag on the Australian economy, and the “main domestic uncertainty”, as softening property prices and lower wages growth stifle spending. The data today isn’t expected to be spectacular, but its forecast to be a better month-on-month print to that which came last month: economists consensus estimates are for 0.2 per cent growth, up from a -0.1 per cent contraction. What today’s Retail Sales data means: The RBA, according to the press-release accompanying its decision on Tuesday, expects a “pick-up in growth of household disposal income” to improve retail spending over-time. It’s an allusion to the fact lower debt repayments for households, in light of recent interest rate cuts, ought to free up consumers’ capacity to spend in the future. Today’s data pertains to the month of May, so it will probably not reflect the (assumed) lift in consumer activity that should accompany rate-cuts. Nevertheless, it will provide a base-line for how the RBA’s recent actions impact future retail sales data, as lower-rates flow through the economy. The broader challenges to consumption growth: The real question, in the bigger picture, is what propensity do Australian consumers have to spend? Indeed, disposal income, on the aggregate, ought to increase because of recent rate cuts. But we remain in a low-wage growth environment – something that an only an unemployment-rate around 4.5 per cent, according to the RBA, will remedy; and property prices, through stabilizing recently, are still looking sluggish. Furthermore, household debt remains very high, and recent GDP data has showed Australians are displaying a tendency to defer spending, and use extra income to pay this down. Given this dynamic, it may not be a surprise consumer confidence remains flat. Retail Sales data’s market implications: For market participants, the health of consumer discretionary sector, as well as, of course, the AUD, remain in focus in light of the recent spate of soft Retail Sales data. Regarding the former, that sector is demonstrating signs of general price consolidation, as the benefits of lower interest rates become fully-discounted, and weak domestic consumptions weighs on earnings growth. The Australian Dollar will be more sensitive in the short-term to any consumption figures: the market is divided about whether a rate cut ought to occur before December. Poor Retail Sales data will bring forward expectations of another cut, which would weigh further on the AUD. Written by Kyle Rodda-IG Australia
  9. Stocks wander, bonds rally, oil tumbles: Equity markets edged higher overnight, however activity was generally thin, as fresh news and data proved lacking. Market behaviour suggests global growth concerns have returned to prominence: bond yields fell across the globe, with the yield on the benchmark US 10 Year Treasury note falling below 2 per cent again. Defensive sectors generally outperformed on Wall Street. Oil tumbled, while gold staged a bounce. And the USD was a little weaker, though it was somewhat supported by mixed trading in the Euro, which sold-down on news that Christine Lagarde would be the next head of the European Central Bank. The RBA’s optimistic cut: The RBA met yesterday and cut interest rates to a new record-low of 1.00%. It was what the market participants had been expecting. However, as the sheen of the initial announcement wore off, the detail in the RBA’s accompanying statement was probably a touch “less dovish” than what was expected. The ASX200, led by a tumble in bank shares, sold-off as the meeting’s details were digested, erasing much of the day’s gains. The dynamic also lead to a minor lift in the Australian Dollar, as traders very slightly their pared bets on the imminence of the RBA’s next cut. The pros and cons: Characteristically, a cautiously optimistic tone was adopted by the RBA in their press release. They continued to run their line that the Australian economy is in a positive enough position, but a rate cut is required to support the absorption of “spare capacity” in the labour market. The RBA also talked-up, in light of this, the economy’s inflation prospects, suggesting that it would return to target next year. To be clear, the RBA weren’t all sunshine and rainbows about Australia’s economy. There are “downside risks”: the outlook for the global economy is uncertain; while low income growth and falling property-prices continue to weigh on domestic consumption. Where to from here for the RBA? The overall takeaway from the meeting: “the Board will continue to monitor developments in the labour market closely and adjust monetary policy if needed”. For financial markets, this is quite an open-ended statement. As-a-result, somewhat unlike the last 4 or 5 months where cuts were considered imminent, and very much a foregone conclusion, circumstances are a lot more data-dependent now. Market pricing suggests the RBA will stay on hold here, before eventually cutting again around December. It makes growth, labour market, and inflation data more impactful now, as traders judge whether expectations are accurate, or whether the next cut ought to be brought-forward, or deferred. RBA-Chat and Building Approvals: The day ahead for Australian traders and econo-watchers will be highlighted by the release of this month’s trade balance figures, and local Building Approvals data. The latter ought to show a slight improvement in construction activity last month within the Australian economy, though the annualized figure will show a less flattering year-on-year contraction of -21.5 per cent. Barring an extraordinary miss, the data won’t shift the narrative too much, either way. But after yesterday’s interest rate decision, it may bring-about a marginal re-pricing of when the next rate cut ought to occur from here. Oil prices to become about demand: Oil prices tumbled nearly 5 per cent in overnight trade, after the end of what was a highly anticipated OPEC(+Russia) meeting ended yesterday. Announced at the meeting was an extension to production cuts for another nine-months, to stabilize the price of oil in the face of a slowing global economy. Undoubtedly, the sell-off in oil last night was due to the fact that production cuts were more less agreed to by the Saudi’s and Russians at the weekend’s G20 Summit, taking the bite-out of the formal announcement. Nevertheless, the price response indicates that right now, the announced cuts won’t be enough to offset the global growth slowdown. A new chapter for Bitcoin (and other cryptos)?: Bitcoin prices plunged yesterday, to trade back below the $US10,000-mark, briefly. Though a small-blow to the Bit-Bugs, the move could (arguably) signify an interesting development in the crypto-currency’s lifecycle. Seemingly, Bitcoin has behaved as the anti-fiat-currency, anti-geopolitical-risk, store of value it was, in principle, designed to be. That is: it rallied last month on the increased likelihood of global rate cuts, and potential trade sanctions and trade barriers; and sold-off when those risks diminished. Conclusions ought not to be leapt to, of course: but perhaps markets are beginning to take to Bitcoin as a legitimate form of anti-risk investment. Written by Kyle Rodda-IG Australia
  10. G20 outcome bolsters sentiment: Market activity was defined by a demonstrable lift in risk appetite yesterday. Stock markets rallied, especially in China, and the S&P500 touched new all-time highs. The Yen dipped, as did the Swiss Franc. The stronger Greenback combined with the lift in global bond yields knocked gold prices down below the $US1400-mark. And oil rallied – boosted, too, by the prospect of coordinated supply controls from OPEC-members at their meeting this week. While the positive growth sentiment, combined with news of falling export volumes here in Australian, drove the price of iron ore over 4 per cent higher, and to another new high. Fundamental questions return to fore: The euphoria did fade throughout the day, it must be said. A combination of global PMI releases seemed to underly the dynamic: investors are coming back to fundamentals, again, meaning market-action was a lot less “one-way”. Momentum shifted on the release of European PMI data during Europe’s session, which again showed a contractionary print, and increased fears of a slow-down in the bloc’s economy. It preceded a much better than expected US ISM Manufacturing figure, which helped support a big rally in the US Dollar and a sell-off in the Euro, as markets priced out modestly the need for cuts from the US Fed. ASX rallies, but fails to test highs: The ASX made the most of the positive sentiment; however, the price action for the index can still be aptly described as one of consolidation. Though rallying around half-a-per-cent yesterday, the ASX200 proved reluctant to truly challenge its recent 11-year highs, as market momentum grinds to the downside, and the daily-RSI continues to pull away from overbought levels. Market breadth was solid yesterday at 73 per cent, so the gains on the market were well spread. But the heavy lifters failed to fire, with the relative light-weight Real Estate sector leading the gains, after another weekend of better-than-expected auction results in Melbourne and Sydney. Chinese data disappoints: Financial markets did receive a small dose of reality during Asian trade yesterday. Caixin Manufacturing PMI data was released, backing up the day prior’s official numbers, and the results weren’t positive. The figure showed a “contractionary” print of 49.4, versus a forecast estimate of 50.1. It’s possibly a reminder that though the trade-war is certainly a compounding factor – and perhaps could prove the proverbial straw that breaks the camel’s back, eventually – China’s growth slow-down does seem quite cyclical in nature, as mounting concerns about financial-stability, and the slow process of modernization, drags on activity in the Middle Kingdom’s economy. Chinese stocks climb, as Yuan pulls back: The consequences to the Chinese data were tangible. As it so often is, bad-news is good-news for equities: the clear deterioration in business sentiment and economic activity boosted the chances of monetary and fiscal stimulus from Chinese policy makers, which gave an extra boost to China’s stock market. The currency landscape was more illustrative of economic fundamentals, however. Having touched support at 6.82 in early Asian trade Monday, the USD/CNH recovered some of its losses on the news. While the Australian Dollar unwound its G20 related gains, to return to the 0.6900 handle. RBA to take centre stage: The Australian Dollar will come into focus today, again. The RBA meets this afternoon, and if surveyed economists, along with the balance of opinion implied in market pricing is any guide, ought to cut interest rates to a new historic low of 1.00 per cent. For financial markets, it’s a matter of when, and not if, the RBA cuts rates again. They practically told us so in the minutes of their last meeting, stating: “members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead”. Cut-or-not, markets to move: As it currently stands, the uncertainty in the market around today’s RBA meeting is, of course, whether they do cut rates today, or not. This month’s meeting isn’t as cut-and-dry as the June meeting, whereby a full cut was already baked into the market prior to decision itself. Hence, by necessity, markets have to move around this event, somewhat. That is: they cut, the AUD falls, and the ASX edges higher, as the remaining 5 basis-points of cuts, or so, are priced-in to the market; or they don’t, and the reverse proves true, as traders unwind the 20 basis-points already priced-in. Written by Kyle Rodda-IG Australia
  11. Expected index adjustments Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 1st July 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. Dates can be affected by public holidays. Special Divs are highlighted in red. Special Dividends Index Bloomberg Code Effective Date Summary Dividend Amount UKX IAG LN 04/07/2019 Special Div 0.35 UKX CCH LN 04/07/2019 Special Div 2 IBEX IAG SM 04/07/2019 Special Div 35 RTY TBNK US 05/07/2019 Special Div 10 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.
  12. G20 Summit goes to plan: Financial market participants will be relieved by the outcome of the Trump-Xi meeting at the weekend’s G20. They’ve effectively received what they’d been expecting: no-deal of course, but a pledge to restart talks and not increase tariffs in the interim. As has been discussed by many, this is likely to be just the latest chapter of what’s going to be an epic tale for US-China relations. And it doesn’t, in the shorter-term, completely remove the headwinds faced by the global economy courtesy of the existing tariffs. But things aren’t getting any worst, for now, which means what touch of uncertainty for markets has been resolved. What to expect (in general): Price action will be the ultimate judge of market sentiment in the next 24 hours – remembering, too, that market participants are staring down the barrel of another busy week. But the general dynamic might look like this: the ASX and equity markets up globally, with cyclicals and growth-stocks leading the charge. Bond yields will probably lift, as bets of interest rate cuts from global central banks are unwound. Industrial metals may climb, as will agricultural commodities, though oil will probably remain bound by its own drivers. And gold will dip, as the USD strengthens; the Yen will fall across the board, while the AUD will jump. A little relief rally: Classic relief rally behaviour, to be fair. Probably quite predictable, all-in-all. And it continues a process that was, more-or-less, underway to cap-off last week’s trade. For one, stocks on Friday closed higher – though it must be said, the ASX200 missed-out on the action, due to some end of year re-positioning. But the S&P500 gained modestly, to sit 25 basis points below its record highs. While of the other “benchmark” indices: the FTSE100 floated higher, the DAX jumped over 1 per cent, with the Eurostoxx 50 gaining by slightly less than that figure. Asian stocks were the laggards, however – the majors were all down on Friday. Rates and bonds: Interest rate markets demonstrated signs of both a modest flight to safety, as well as a small increase in rate-cut probabilities from global central bankers. Sovereign bonds were higher around the middle of the yield curve, on this basis: the yield on the US 10 Year Treasury note dipped to 1.75%, the yield on the equivalent German Bund dropped to -0.33 per cent, and the 10 Year Australian Government Bond yield returned to 1.33 per cent. Yields curves flattened too, on diminishing confidence about the outlook for global growth, coupled with a re-evaluation of the imminence of rate-cuts across the global economy. FX markets: Currency markets on Friday behaved in a way more indicative of a confidence about what was to come out of the weekend’s G20 Summit. And this morning, as traders return to their desks, that view seems to have been validated. The Yen is down, trading back above 108, as is the Swiss Franc. The US Dollar is slightly higher across the G4 currency landscape, consolidating in the 113 handle against the Euro, and holding steady against the Pound. But growth tied currencies are the outperformers, though: the Kiwi is flat-ish currently, however the Loonie is up, and the AUD is trading at a 2-month high. Global commodities: Commodity markets will be slower to get moving this morning. One expects they’ll benefit from the modest improvement in the global growth outlook. That means upside for industrial metals, like copper, and agricultural products, too, given their special place in US-China trade negotiations. Gold is likely to experience some fresh weakness owing to a stronger US Dollar and a probable lift in global bond yields. Oil confronts its own turbulence ahead: though the bulls will be happy about the weekend’s events, traders will turn their attention to this week’s key OPEC meeting, to judge the likely trajectory of prices. Another big-week: Financial markets will enter a week now much more concerned with economic data. A dumping of PMI data comes from across the world – China is in focus first, with Caixin PMI released today. US Non-Farm Payrolls will mark the climax to the week on Friday; however, it will come a day after the US Fourth of July holiday, and trading is expected to be thin, consequently. And on the home front, the RBA meets tomorrow afternoon, and if the balance of opinion implied in market pricing is to be a guide, the RBA will cut interest rates to a new record low of 1.00%. Written by Kyle Rodda-IG Australia
  13. G20 Summit begins: Market attention turns, almost singularly, to this weekend’s G20 Summit, today. There are numerous issues with significant financial market and global economic implications to be discussed at the event – the general concern about a global economic slow-down the overarching one. But of course, at the centre of everything, almost eclipsing the Summit’s primary purpose, is the highly anticipated meeting on Saturday afternoon between US President Donald Trump, and Chinese President Xi Jinping. For markets, the outcome to this meeting guides the future direction of the global economy, and the fundamental strength of financial markets. Markets sit and wait: The week thus far in the financial world has broadly been defined by positioning for this high-profile event. The flurry of activity that characterized last week’s trade, following the litany of central bankers – most pertinently at the US Federal Reserve and European Central Bank – who pledged to provide monetary policy support to the ailing global economy, has diminished. Global equities have traded sideways, bond yields have floated higher, the US Dollar has reversed some of its losses, and gold prices have retraced some of its gains. The next big cue is being awaited, to build an outlook for market fundamentals. The intractable issues: And at least for now, and until the US Fed reclaims the onus approaching its July 31st meeting, market sentiment hinges on the outcome of that Trump-Xi meeting. The issues hovering-around the meeting are numerous, and complex: protectionism and perceived trade-imbalances; competitive currency devaluations; intellectual property theft and forced technology transfer; cyber espionage; freedom of navigation. And all of this within the broader narrative of one aging-Superpower attempting to control the rise of another burgeoning-Superpower, by forcing it into an existing world-order it had little say in creating, and wishes to gradually modify to serve its own growing strategic ambitions. The new-normal: Surely, only the most zealous of idealists believe that the power-struggle between the US and China can truly be resolved. The dynamic between the two-nations is Machiavellian, and a matter of realpolitik. As has been quoted ad nauseum in the market: we are right in the middle of Thucydides Trap; and perhaps at the beginning of a new-age of bipolarity. Future disruptions in international political economy and financial markets ought to be (and probably are already) expected. But what about the more immediate future? The issue now for financial markets is how this weekend’s events will impact global growth, more-or-less, now. The best case: The best-case scenario is that the US and China manage to negotiate and finalize a deal this weekend. Tariffs are removed; and new-rules are drawn-up between the two-nations about trade-relations, currency intervention, and intellectual property rights. Stocks markets spike across the globe, pushing the S&P500 to new all-time highs, and the ASX200 to new 11-year highs, as the earnings outlook improves, especially for cyclicals and growth-stocks. The Yen and other safe-haven currencies fall, along with gold-prices, as the US Dollar lifts with US Treasury yields as bets of rate-cuts from the US Fed unwind. Commodity prices jump, probably supporting an overall outperformance in the AUD. The worst case: The worst-case scenario is that trade-talks and diplomatic relations break-down at the summit, and the trade-war escalates. President Trump sticks to his word, and applies tariffs to the remaining $US300b worth of Chinese imports currently not being taxed; and the Chinese respond in kind on a proportionate value of US imports. Stock markets tumble, especially in China, even while global bond yields fall, as markets increase their bets of immediate central bank support to ward-off recession. Gold lifts-off; oil, agricultural products and industrial metals drop. And the Japanese Yen goes-on-a-tear across the board, especially against growth proxies like the AUD, NZD and CAD. The base case: Both of these scenarios are crude representations of potential extremes. They are what, in market-parlance, might be considered “tail-risks”. The likeliest, and therefore expected outcome, at this weekend’s G20 is one where nothing is agreed upon, but niceties are exchanged, as well as pledges to stall the trade-war’s escalation and return to the negotiating table. A relief rally in risk assets like stocks, corporate-credit, growth-currencies, and maybe even the USD, likely resumes; while safe havens pare gains, as focus returns to watching global growth indicators, anticipating earnings-season, as well as trying to pick exactly when global central banks will cut interest rates next. Written by Kyle Rodda-IG Australia
  14. Overnight action: Wall Street equities closed effectively flat, while bond yields climbed, commodities generally lifted, and currency markets shuffled into place, as markets continue to position for this week’s massive G20 meeting in Osaka. Market activity was relatively high, and sentiment does seem to be balancing on a knife’s edge: US President Trump flippantly suggested his “Plan B” from this weekend’s trade-talks is to slap on China “billions and billions” of more tariffs. Meanwhile, bond markets continued unwind bets of a double-rate-cut from the Fed next month, after some sobering commentary from several Fed-speakers this week, driving US Treasury yields up around 6-points across the curve. FICCC: Fixed-Income, Currencies, Commodities and Crypto: The price action in bond markets could also be attributable a swift-rally in oil prices last night, consequent to the release of US Crude Oil inventory data, which showed a much bigger than expected drawdown last week. That dynamic has sustained the retracement in gold prices, as inflation and central-bank-easing worries diminish. For all the shuffling in bonds and stocks, in currencies: growth currencies like the CAD, NZD and AUD are higher, mostly at the expense of the JPY and CHF. And Bitcoin is going on a tear, breaking through $US13,000 overnight – though tumbling in early trade this morning as choppiness sets into that market. ASX200 consolidates: The ASX200 continued to trade sideways during yesterday’s session, as the market shows signs of slowing upside momentum, and a touch of consolidation. It was a high activity day, which saw the ASX200 shed -0.26 per cent, again due primarily to a dip in bank shares, which lopped 9-points from the index. Much like the position it was in last week, price action points to a market not yet ready to retrace its recent gains. Instead, it’s trading more or less side-ways, if not with a slight bearish bias, as traders position for the many unknowns awaiting them at this weekend’s G20 meeting. RBNZ keeps rates on hold: The Reserve Bank of New Zealand met yesterday, and kept interest rates on hold at 1.50%, as was generally tipped. Naturally, the focus shifted to the RBNZ’s accompanying statement, following the publishing of the decision. And what was revealed cast the central bank’s decision in a light that could be described as a “dovish-hold”. The communication to the market was plain and simple: “The Official Cash Rate (OCR) remains at 1.5 percent. Given the weaker global economic outlook and the risk of ongoing subdued domestic growth, a lower OCR may be needed over time to continue to meet our objectives.” RBNZ to play it by ear: Despite the tone struck by the RBNZ, the Kiwi Dollar lifted somewhat, and rate-cut expectations were slightly unwound, following yesterday’s rates-decision. It would seem the market read what was stated by the bank as being a trifle ambiguous: yes, interest rate cuts are likely needed to support the New Zealand economy in the near-enough future, but when that happens precisely remains uncertain. An August rate cut from the RBNZ is still considered likely, it must be said. But the probabilities have been diminished, with future employment and inflation figures – the indicators the RBNZ flagged as facing downside risks – now taking on greater significance. US GDP data: The economic calendar today will be highlighted by the Final US GDP print for the quarter. It’s the last revision to the US growth data for the quarter, so already, in the market there is a fairly good feel for what the numbers may reveal. It’s expected to come-in at what is quite a robust 3.1 per cent – above trend, in line with the preliminary estimate, and only down 0.1 per cent from last quarter. Naturally, the minutiae is what market participants will be perusing, to get a feel on the trends evolving in the US economy – especially given its assumed slow down. The Fed is treading carefully: The implications for markets from tonight’s US growth figures will, of course, begin with what it says about the US Federal Reserve’s monetary policy considerations. Right now, interest rate markets are implying a relatively high chance that the Fed will pull-out a big 50-point rate cut at that central banks July 31st meeting. The consequences of that have been huge: it’s pushed financial capital into stock markets, tighten credit spreads, and whacked the US Dollar down. And that’s seemingly captured the Fed’s attention, too, with several Fed-speakers this week moving to deftly temper these expectations, given their impact on financial markets. Written by Kyle Rodda-IG Australia
  15. USD/ZAR Analysts are split 50/50 on whether we are going to get a downgrade from ratings agencies on Friday, and with it generally occurring after market we could be waking up on Monday morning with a very ugly hangover. The Rand has strengthened against the Dollar, coming back to test support around 13.95 and whilst we have made a lower high over the last week, the pair is trading in a bullish (for the USD) upward channel and the current price action would still be considered a bullish consolidation with an upside target for buyers of the Dollar around 14.24 and 14.48 in extension. 13.80 could be considered as a stop loss for those favouring the upside move, as we see a confluence of rising and horizontal support in place. Caution trading around news events as this can lead to increased volatility and gaps in price. Courtesy of Leigh Riley Premium Client Manager Share your thoughts on the above, what could be the impact of a downgrade from the rating agencies and what is the likely impact on ZAR?
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