IG - Morning thoughts and opening prices 14/1/13

The S&P 500 rose for a second consecutive week at the close of the trading week, reaching its highest level in five years. This occurred amid optimism regarding fourth quarter earnings and better-than-expected Chinese export data. The S&P 500 was unchanged however on the final trading day of the week and held its gains to finish at 1472 points as investors looked to the US terms of trade figures for November, which were released on Saturday. The results showed that the trade deficit widened further than expected to $48.7 billion dollars verves the forecasted $41.1 billion, suggesting that global growth is well and truly on the rebound. Even more compelling was the record demand for consumer goods illustrating that consumers had little to no concern regarding ‘Fiscal Cliff’ furore.

This positive data adds growing optimism for the local market, along with strengthening Asian economies, a US economy that continues to self-heal and European markets expected to have ‘positive-contagion’ in 2013. Domestic trade is also expected to pick up - notably raw materials - so watch this space. This has already been seen with the better-than-expected results from Alcoa, and has impacted local companies such as Alumina (AWC).

There was also talk about risk currencies over the weekend, with several traders looking at the technical charts of the Aussie dollar. After better-than-expected trade data from China, AUD/USD rose to a five-month high of $1.0599, however it was unable to break through the $1.06 residence level suggesting a pull-back is now on the cards. Later that same day, Chinese inflationary figures showed a higher-than-anticipated result and the swap market is now factoring in a 65% chance of a rate cut by the RBA in February. This all suggests a pullback to $1.05 and lower than this is a real possibility. Looking to the week ahead, and Thursday sees the release of the unemployment figures for November with forecasts suggesting a rise in the number of unemployed from 5.2% to 5.4%, adding additional selling pressure to AUD/USD. We would look to buy dips here as AUD/USD on the medium-term appears positive as global trade picks up. Remember AUD/USD is a quasi-play on China. China is growing again as its new-look leadership team released some of the policy strings to start its ten-year leadership tenure.
The other currency of note is the yen. Over the weekend it continued to fall to a three-year low, reaching ¥89.338. As the BoJ and Prime Minster Shinzo Abe continued to rattle off stimulus and policy change rhetoric, you do have to ask one question; will they actually follow through with it? The yen-bearish trade does seem to be well and truly on however this trade is becoming very over-crowed and a correction in the currency would not be surprising. We do believe some stimulus will occur, the size and conviction of it is another matter. However, the old saying of ’don’t fight the Fed‘ is ringing in our ears. We would look to buy the dips here.

Moving to the open and we are calling the ASX 200 up a further 0.2% to 4720 points. As we are one of the first markets to digest the US trade figures, a steady day is expected as we look to a bigger leads from the US and Europe overnight before moving another leg up. Looking at technicals, the market is holding onto the 4700 level (although only just), but if fourth quarter earnings do pan out as forecasted, another advance for the ASX 200 is looking possible. Commodities were again stronger over the weekend on the back of the US trade figures and US consumer demand. This, coupled with positive data from China, should see BHP up over the week. However, BHP’s ADR is currently flat this morning at $36.68, as investors wait for the open of Asian markets. As it is a Monday we are a trading ahead of lead markets, so look for stronger trade later in the day as Japan and Hong Kong come online.

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.

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ENDS

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