IG Markets - Morning Prices June 4

Good morning,

Risk aversion accelerated on Friday as economic data disappointed. Non-farm payrolls came in at +69,000 and unemployment rose to 8.2%, with both figures missing expectations. US jobs numbers were not the only weak reading as manufacturing output data in China and the US were also lower, and euro area unemployment reached a record level. Gold was a standout, rallying over 4% as economic data continues to deteriorate and talk of easing is likely to ramp up. Apart from hopes of some easing, or some sort of intervention, there aren’t many positives for risk assets at the moment. AUD/USD dipped below 0.96 on Friday, but managed to recover significant ground, even popping back above 0.97. However, the pair remains under pressure, in-line with other risk assets.

Based on Saturday’s close, we were calling the Aussie market down 1.4% at 4009. However, the futures plummeted yet again this morning and we are now calling the market down around 2% at 3980. The Aussie dollar and the euro have both opened weaker this morning, suggesting risk assets are in for a tough start. Should we open around 3980, we will be testing lows from November last year. This is likely to be as a result of the developments post US trade on Saturday. China’s non-manufacturing PMI fell to 55.2, the lowest reading since March 2011. Export demand moderated and new orders in construction and real estate contracted. German Chancellor Angela Merkel also hardened her opposition to a common euro bond. On the economic front, today we have the MI inflation gauge, ANZ job ads and company operating profits.

On a stock level, we expect a weaker start for BHP, with its ADR pointing to a 1.1% fall to $31.61. We expect to see the resource stocks come under pressure on global growth concerns. Gold stocks might outperform on the back of a rally in gold prices. The mid-tier gold plays (Perseus, Medusa, Kingsgate, Northern Star etc.) are likely to be the biggest beneficiaries of the rise in gold prices. Cyclical stocks will probably struggle all round, as investor confidence continues to take a beating. Following the recent developments in global markets, there will be growing calls for an RBA rate cut tomorrow.
www.igmarkets.com.au

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