IG Markets: Morning Prices

On Wall Street overnight, US stocks continued their retreat as commodities slumped and lower-than-forecast growth in the services industries data and ADP jobless numbers weighed on sentiment.

The Dow Jones Industrial Average and S&P 500 indexes were the worst performers, both losing 0.7% while the technology-heavy NASDAQ slid 0.5% weaker at %.

Locally, the ASX 200 is called to open the day 0.8% weaker at 4705 following the bearish overnight leads. Unsurprisingly, it was the energy and materials sectors that once again did most of the damage, both falling 1.8%.

Much of the pullback in the last few days can be attributed to the fall in commodities prices. Commodities were down across the board as China said inflation fighting was it number one focus, raising concerns that there are further tightening measures to come and that the Chinese economy may slow more than expected. Base metals prices on the LME were all down while Rio Tinto and BHP fell 3.3% and 2.6% in London trade. Locally, the ASX-listed BHP is called to open the session 0.8% softer at $44.79.

Precious metals will once again come under pressure as silver continued its slide, logging another 7.5% fall and posting its biggest 3-day slump since 1983 as the CME continued to hike futures margin requirements. Gold suffered as well, falling 1.1% since our 4.30pm close yesterday to be trading around the US$1516.40/oz level.

Oil prices fell yet again, losing 1.8% to US$108.81/bbl since our 4,30pm close following crude inventory data that showed stockpiles jumped 3.42 million barrels to 366.5 million, the highest level since October; the market was forecasting a rise of only 2 million barrels. Unsurprisingly, the heavyweight oilers like ExxonMobil, Chevron and ConocoPhillips were all down more than 1%.

Elsewhere, there is likely to be little support for the other major sectors as the industrial and financial sectors dropped 1.5% and 0.9% respectively. Locally, the market will be closely scrutinising the latest of the bank results from National Australia Bank. At first glance, it looks like it is ahead of market expectations.

In summary, it looks like we’re set for another weak day’s trade as selling among commodities and fears over China continue to weigh on the local bourse.

In currency markets, there seems to be an air of frustration at the lack of growth in the US economy at present. Overnight, the ISM service PMI print can only be described as a shocker, recording the biggest month over month decline this year. The ADP jobs print also missed analyst’s forecasts by 10%.

This was reflected in US treasury yields which continued to see buying interest across the curve with 2 year yields down 2 basis points and 10 year yields down 3 basis points. Lower yields make the currency less attractive to hold for investors; hence USDJPY traded to a low of 80.44 and USDCHF 0.8554. USDJPY is at interesting levels and whether it holds 80.00 will certainly hinge on Fridays nonfarm jobs report. The market is expecting 200,000 private sectors jobs, with all the leading economic indicators mixed at best.

The AUDUSD did not react to lower US yields and continued to see profit taking due to its high correlation with risk appetite in the market. After reaching a session high of 1.0878 the aussie came under strong downside pressure, losing nearly 150 points, with strong selling in commodities not helping.

Traders today will focus on building approvals and retail sales data due at 11:30am, which could provide a further catalyst for the AUDUSD. Neither of these releases are expected to materially change the RBA’s thinking with regards to rates. Nonetheless, with the retail sector under pressure a sales number north of the 0.5% growth expected could come as a relief.

Market Price at 6:30am AEST Change Since Australian Market Close Percentage Change

AUD/USD 1.0747 -0.0090 -0.83%
ASX (cash) 4705 -36 -0.75%
US DOW (cash) 12735 -42 -0.33%
US S&P (cash) 1347.2 -5 -0.35%
UK FTSE (cash) 5994 -36 -0.59%
German DAX (cash) 7387 -76 -1.01%
Japan 225 (cash) 9851 -17 -0.17%
Rio Tinto Plc (London) 41.52 -1.40 -3.27%
BHP Billiton Plc (London) 24.22 -0.66 -2.63%
BHP Billiton Ltd. ADR (US) (AUD) 44.79 -0.36 -0.79%
US Light Crude Oil (Jun) 108.81 -1.94 -1.75%
Gold (spot) 1517.4 -16.05 -1.05%
Aluminium (London) 2748.00 -41.00 -1.47%
Copper (London) 9101.00 -107.00 -1.16%
Nickel (London) 25725.00 -1075.00 -4.01%
Zinc (London) 2200.00 -45.00 -2.00%
RBA Cash Rate to be raised by 25bp (Jun) (%) 26.00 0.00 0.00%

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