IG Markets - Morning Prices Feb 14

Overnight the S&P 500 found some resistance after reaching its highest level in five years at 1525 points. Investors took this point as a good time to lock in profits and concentrate on President Barack Obama’s State of the Union address. The sell-off saw the S&P lose all of its morning gains and drift lower before finding support around 1516 points. Heading into the close it was one point off for the day at 1518 points, down 0.09%.

There was positive economic news for the US with retail sales rising in January for a third consecutive month. The result shows that US household spending is at least holding up, unlike the Australian household. These figures also show that recent increases to payroll tax are not impacting on pay checks as much as feared, and should continue to help the US economy grow. Yesterday saw the release of Westpac’s consumer confidence figures and they showed a marked increase at 7.7%. Although the results are populated by a small sample and confidence is not the same as actual tangible data, it does show that people are starting to feel better about their finances.

The other news that should buoy equity markets over the coming weeks was the $24 billion auction of US 10-year bonds. Yields on the new notes drew 2.046% (the higher end of consensus) and saw 10-year treasuries fall for the third straight day, registering their highest yields in a week and breaking 2% again. This shows that safe-haven asset are starting to find it difficult to hold at those record lows as funds finally start to wiggle their way back into other markets; there is no doubt about it, equities have been a big beneficiary of this shift and should continue to do so.

Europe continued to stay out of the headlines as industrial production in the eurozone rose by 0.7% in December compared to Bloomberg’s consensus of 0.3%. While Italian 10-year bonds fell 11 basis points (bps) to 4.4%. We also note that the yield investors demand for holding Italian bonds over German bunds has narrowed to only 15bps – ‘risk on’ is coming. With Mario Draghi confirming that the ECB is yet to release any of the Outright Monetary Transactions (OMT) established in September last year, and economic data improving, European issues will most likely be political ones rather than economic ones; the first of these will come next weekend when Italy goes to the polls. This will end the reign of the current technocratic government and the concern here is; what government will form? Watch for Italian bonds yields to rise if a coalition government has to be formed; it will also have ramifications for the surrounding region, particularly in Spain where government officials are under pressure.

Yesterday the ASX 200 reached its highest level since April 15 2010 and managed to close the day above the psychological barrier of 5000 points. The euphoria of the CBA results dragged the financial sector along with it as the market saw increased buying.

The most interesting thing about CBA and its share price is that it is owned by more retail investors than any other stock on the market. These retail investors are coming from one major source - Self-Managed Super Funds (SMSF). SMSF now accounts for just over 30% of all superfunds, and SMSF retail investors are interested in one thing these days - dividend growth. Over the last three years, investor tastes have changed and as most SMSF holders are aged between 35-55 (and thus will not be able to access their superfund for at least another 10 years), SMSF ‘fund managers’ have made it pretty clear that income growth is what they are searching for. CBA’s 20% dividend growth announced yesterday is just the ticket to meet that investment need. It will mostly likely see CBA continuing to outperform its peers as most SMSF funds employ dividend reinvestment plans, which will continue to support CBA long term (something to watch for on Monday when they go ex-dividend).

Moving to the open, we are calling the ASX 200 down 6 points to 4998, as investors and analysts alike digest whether the ASX is truly valued at 5000 points. Watch for broker downgrades in CBA today; while they are unlikely to have a major effect as CBA goes ex-dividend on Monday, post the dividend will be interesting. Today, however, our attention will turn to London, with Rio reporting its full-year 2012 results after market. Analysts are expecting approximately $9 billion in underlying earnings with 80% of that coming from the iron ore division (the division news-installed CEO Sam Walsh has controlled for years). We are expecting to see BHP moving higher today, with its ADR pointing to a 0.07% gain to $37.95. A good result from Rio tonight may finally even up our market as cyclical stocks play catch up.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0347 0.0002 0.02%
ASX (cash) 4998 -6 -0.11%
US DOW (cash) 13983 -19 -0.14%
US S&P (cash) 1521.1 0.3 0.02%
UK FTSE (cash) 6359 45 0.71%
German DAX (cash) 7708 44 0.58%
Japan 225 (cash) 11323 125 1.12%
Rio Tinto Plc (London) 37.58 0.88 2.40%
BHP Billiton Plc (London) 21.94 0.42 1.98%
BHP Billiton Ltd. ADR (US) (AUD) 37.95 0.03 0.07%
US Light Crude Oil (March) 97.18 -0.43 -0.44%
Gold (spot) 1642.70 -8.6 -0.52%
Aluminium (London) 2139 18 0.86%
Copper (London) 8235 -21 -0.26%
Nickel (London) 18403 57 0.31%
Zinc (London) 2412 -12 -0.50%
Iron Ore 155.1 0.0 0.00%

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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