IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Wednesday night it is was US non-manufacturing PMI that pushed the Dow to all-time highs and the S&P near its all-time high; last night, however it is was non-farm payrolls shooting the lights out.

US employers added 198,000 workers in the shortest month of the year, well and truly topping forecasts of 170,000. This helped both indices to push higher. What hasn’t been fully factored into current market values is the beige book which was released an hour ago. The results are ‘goldilocks-like’ - expansion is continuing and inflation is almost non-existent. Mr Bernanke will be smiling all the way to bank.

Heading into the close, the S&P was up 2 (0.14%) points to 1542 (another 52-week high) and is now only 34 points off its all-time high. The Dow was higher by 50 points to 14,304 (+0.35%) - again an all-time high.

Bears keep harping on about the mirage that is the current US recovery; they argue that all this positive data is back-stopped by the government, with the Fed spending $85 billion a month. Sovereign debt and therefore sovereign risk will cause the financial markets to come crashing down once the money rug is pulled out from underneath the markets.

Comparatively, in October 2007 when it was heading to the top of the market, everyone was a bull, with the sentiment ‘just get in and your investing would run off into the sunset’ This mindset burnt a lot of investors. In 2013 however, it’s about even between bulls and bears, if not skewed slightly to the bears. That suggests to me that the wall-of-worry that is the more like the mortar for the wall of cash is still cracking up. If any of this wall breaks up it looks like it will head to one place - global markets. The rally (bull market) looks like it still has room to move.

Bears also say the volumes in markets are low and that this is artificially increasing share prices. However, if we look back at the average trade volumes going through the ASX 200 over the past few months, $6 billion worth of trade is passing through daily. That is well above the 30-day moving average and is almost double the volumes we were getting in 2011 to mid-2012; this rally is real. One down day has been immediately covered by two up days and local economic data is in-line. Markets are forward-thinking and people believe in 12 to 18 months their investments will be worth more.

Moving to our region, and the BoJ will be in the headlines for doing absolutely nothing, as the it announces its overnight night rate and monetary statement later today. It is set to be Mr Shirakawa last announcement before stepping down on the 19th of March. It is very unlikely he will move on anything. What will be interesting is the April 4 meeting when current nominee Mr Kuroda takes power and whether or not he brings forward the stimulus plans for next year into 2013.

Moving to the open of the local market, we are calling the ASX 200 up six points to 5123 (+0.12%) as the ASX looks to consolidate gains. Investors still fear ‘missing out’; yesterday 14 stocks made all-time highs, most notably Westpac, CBA, Woolworths Coca-Cola Amatil and Seek. Materials should also move higher today, although commodities were mixed overnight. BHP’s ADR is suggesting the stock will add 21 cents to $36.03 (0.59%) today.

The market has now closed above 5100 points twice in the last week-consolidation above this level will be key for moving higher. I still feel sideways movements are in order for the next few weeks as dividends come out and stock-specific news dies down. I do however believe the market will hold onto its current gains as investors look to snap up any dips almost immediately.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0242 -0.0042 -0.41%
ASX (cash) 5123 6 0.12%
US DOW (cash) 14294 31 0.21%
US S&P (cash) 1544.3 1.5 0.10%
UK FTSE (cash) 6445 18 0.27%
German DAX (cash) 7938 74 0.95%
Japan 225 (cash) 12098 188 1.58%
Rio Tinto Plc (London) 33.70 -0.68 -1.99%
BHP Billiton Plc (London) 20.77 -0.31 -1.45%
BHP Billiton Ltd. ADR (US) (AUD) 36.03 0.21 0.59%
US Light Crude Oil (April) 90.46 -0.57 -0.63%
Gold (spot) 1583.65 4.9 0.31%
Aluminium (London) 1957 -22 -1.10%
Copper (London) 7703 -71 -0.91%
Nickel (London) 16562 -115 -0.69%
Zinc (London) 2188 -41 -1.83%
Iron Ore 145.8 0.6 0.41%

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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