IG Market - Morning Thoughts

IG Market - Morning Thoughts

Friday saw a drop in risk assets through European trade after some disappointing data from China and a recovery in the US session. This occurred on anticipation that the data will inspire China easing. After an exciting few weeks of policy anticipation, policy action and market reaction, risk assets seem to have entered a consolidation phase. The three focal points of last week failed to trigger enough excitement to ignite new trends; Chinese inflation declined but by slightly less than expected, while lending growth data disappointed, as did China trade data. Having said that, easing talk is likely to ramp up over coming sessions and this could support markets and limit downside. Some were expecting to hear comments on easing over the weekend, but this wasn’t the case. Looking at the risk currencies, price action was fairly tame on Friday, with most pairs closing pretty much unchanged on the day.

Ahead of the open, we are calling the Aussie market up 0.6% at 4304. This is based on Saturday morning’s close for the futures. After having rallied late in the US session on Saturday morning, risk currencies have opened a touch weaker today. In the absence of stimulus morphine, it just seems there is a lack of confidence to inspire buyers. There is no major local economic data to look out for today. As a result, earnings reports are likely to drive sentiment and give the market some direction. Elsewhere in the region, Japan reports Q2 GDP today with analysts expecting a 2.3% quarter-on-quarter growth on an annualised basis. A result amply outside expectations might allow USD/JPY to escape from its recent range.

On a stock level, we expect a firmer start for BHP Billiton, with its ADR pointing to a 1.3% rise to $33.12. Some of the reporting stocks to look out for today are Downer, JB Hi-fi, James Hardie and Newcrest Mining. At a glance, Downer has beat estimates with net income of $112.8 million versus estimates of $108.3 million. JB Hi-fi is roughly in line with net income of $104.6 million at the upper end of analyst estimates. One of the main themes we have seen over the past year was a significant de-rating in cyclicals relative to defensives. As a result, it seems significant earnings risk may already be priced into many cyclical stocks and not in defensives. Talk of a rotation from defensives to cyclicals has started to ramp up with some analysts feeling we have seen a trough for the cyclical space.

Market Price at 6:30am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0556 0.0035 0.33%
ASX (cash) 4304 27 0.62%
US DOW (cash) 13201 67 0.51%
US S&P (cash) 1405.1 6.0 0.43%
UK FTSE (cash) 5862 31 0.52%
German DAX (cash) 6965 36 0.52%
Japan 225 (cash) 8925 34 0.38%
Rio Tinto Plc (London) 32.10 -0.08 -0.26%
BHP Billiton Plc (London) 19.91 0.05 0.26%
BHP Billiton Ltd. ADR (US) (AUD) 33.12 0.43 1.30%
US Light Crude Oil (September) 93.26 0.21 0.23%
Gold (spot) 1621.0 8.8 0.55%
Aluminium (London) 1881 -19 -1.00%
Copper (London) 7490 -44 -0.58%
Nickel (London) 15400 -100 -0.65%
Zinc (London) 1835 -25 -1.34%

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday’s close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

Please contact IG Markets if you require market commentary or the latest dealing price.
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