IG Markets Morning Prices

IG Markets Morning Prices

In the US overnight, stocks retreated throughout the session from highs hit early on the back of the news that Osama bin Laden had been killed. Investors considered the potential for reprisal attacks as well as concerns over economic growth and corporate costs. The market has had a pretty good earnings season so far so it is not surprising to see a bit of profit taking around current highs.

The tech-heavy NASDAQ was the worst performer, down 0.3%. Elsewhere, the S&P 500 lost 0.2% while the Dow Jones Industrial Average finished the session mostly unchanged, down 3 points.

Locally, the ASX 200 is called to open the session 0.6% softer at 4796 following the modestly weaker Wall Street lead and ahead of this afternoon’s interest rate decision from the RBA. Declines are likely to be felt across the energy and materials sectors after they were the worst performers during the US session, losing 1.3% and 0.7% respectively.

Despite a gain of 0.5% to US$112.98/bbl since our 4.30pm close yesterday, energy stocks were the biggest drag during the US session. The likes of Chevron, ExxonMobil and ConocoPhillips were all down more than 1.2%.

Material names came under pressure again despite the closure of UK markets for the May Bank holiday. With the LME and FTSE both shut, BHP’s ADR from US trading is calling the locally listed name to open 0.8% weaker at $45.77. Gold names could also see some selling pressure after the precious metal retreated from another all-time high of US$1577/oz to currently be trading around the US$1536/oz level.

Elsewhere, financials could see some pressure too after their US peers fell 0.4%. Of more interest today will ANZ’s first half result, which has just been released. At first glance, it looks like the result in pretty much in line with market expectations, although closer analysis will be conducted in the ensuring hours.

In summary, it looks like the ASX 200 will open Tuesday’s session lower around the 4800 level. With Japan on holiday today, trade volumes across the region are likely to be on the light side. The big focus today will be this afternoon’s interest rate decision and accompanying statement from the RBA.

Traders will be keenly awaiting the RBA rate decision at 14:30 and whilst interest rates will not change, the board’s statement will be closely inspected for signs of when the RBA are likely to next hike. Whilst the recent CPI print would have been noted, there are still not a huge amount of reasons for the RBA to tighten at present; hence, we are still in the camp that rates should not be increased until the back end of the year. Nonetheless, a hawkish statement from the RBA could see a slight change in our thinking.

A stronger sense that inflation is not as ‘transitory’ as some central banks initially thought could see expectations change and the AUDUSD rally to new highs. As it stands the money markets are pricing in about a 50% chance of a hike by August and a 75% chance by November, so any rhetoric that could increase this view will not only be positive for the ‘Aussie’ but could see stocks under further pressure.

The AUDNZD cross will likely be used as a proxy for how the statement has been received as the pair trades on a similar thematic, although the two central banks have very different thought processes. The RBNZ is uncomfortable with the kiwis strength whilst the RBA seems perfectly happy to let the AUD appreciate; any signs of more hawkish language could be a good buying opportunity in the AUDNZD cross, with possible upside targets towards the 1.38 level in the short term.

Market

Price at 6:30am AEST

Change Since Australian Market Close

Percentage Change

AUD/USD

1.0941

0.0003

0.03%

ASX (cash)

4796

-28

-0.57%

US DOW (cash)

12816

-85

-0.66%

US S&P (cash)

1361.3

-12

-0.87%

UK FTSE (cash)

6090

-44

-0.72%

German DAX (cash)

7510

-69

-0.90%

Japan 225 (cash)

9971

-36

-0.36%

Rio Tinto Plc (London)

43.60

closed

-

BHP Billiton Plc (London)

25.25

closed

-

BHP Billiton Ltd. ADR (US) (AUD)

45.77

-0.38

-0.81%

US Light Crude Oil (Jun)

112.98

0.57

0.51%

Gold (spot)

1545.9

-7.15

-0.46%

Aluminium (London)

2764.00

closed

-

Copper (London)

9371.00

closed

-

Nickel (London)

26845.00

closed

-

Zinc (London)

2265.00

closed

-

RBA Cash Rate to be raised by 25bp (May) (%)

10.00

-3

-3.00%

ends

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