IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Risk assets struggled through European and most of US trade on speculation the Cyprus parliament was unlikely to pass the bailout package. There has been plenty of talk around the levy on deposits over the past few days, and indeed it was overwhelmingly rejected by parliament. Despite this rejection, risk still managed to improve late in US trade after the ECB said it will provide the necessary liquidity. The euro was perhaps the biggest culprit in all this as EUR/USD slipped from $1.2957 to a low of $1.2844. Cyprus has taken a turn for the worse overnight by rejecting the bank levy, and traders will question exactly what happens now. Supporting the EUR is the fact the ECB will continue to provide liquidity for Cypriot banks, but traders will look now at whether senior bond holders will have to share the pain, or an all-out default could materialise. AUD/USD lost some ground after having held up quite well in yesterday’s Asian session. The pair is now down at around $1.0367 and might continue to struggle given some of the moves in the commodities space. The surprise performer continues to be GBP/USD which once again held its ground above $1.50, despite all the chaos in the risk space. UK CPI came out pretty much as expected yesterday at 2.8% year-on-year headline and 2.3% for core inflation, so probably won’t influence the markets’ short-term view too much on sterling. The pair traded in a range of $1.5073 to $1.5145, but we think market participants were probably sitting on their hands ahead of a massive night of data. On the docket we get BoE minutes, jobless claims and perhaps most importantly the UK budget. There has been a lot of speculation around this budget, and there is a good chance we will see the coalition continue its austerity drive, but look to offset this with new powers for the BoE which could increase volatility in cable.

Ahead of the open, we are calling the ASX200 down 0.5% at 4960. Before yesterday, the local market had not traded below 5000 since February 26. Many will be now questioning whether this is the beginning of a deep near-term correction. However, the believers out there will be using this as an opportunity to get involved in equities they missed out on. One of the key issues to keep an eye on today will be the performance of the iron ore names. Rio Tinto (RIO) fell 5.2% in London despite the iron ore price holding firm at $134.4 per tonne, with Goldman Sachs putting the stock on its conviction sell list. The bank put out a note on iron ore after market in which it modestly downgraded its 2013 price target for iron ore, but painted a much more negative view for the longer term. Goldman’s expect iron ore to fall to $139 per tonne this year, $115 per tonne in 2014 and $80 per tonne, with the market going into over supply next year. BHP at the same time was only cut to neutral given it still makes a decent part of its EBIT from petroleum. BHP’s ADR is pointing to a 2.2% drop at the open to $33.78. Gold outperformed the commodities space and this will support gold names today ahead of the FOMC meeting. Given the Fed will provide potentially revised economic projections at this meeting, if the bank lowers its view on where the full-year unemployment rate is, we could see USD inflows and subsequently gold could come under pressure. Key resistance on the precious metal comes in at $1647 (the 38.2% retracement of the $1795 to $1555 move), while support comes in at $1576 (the March 14 low). Apart from the resources, David Jones will be in focus on the back of its 1H earnings. At first glance the result doesn’t seem to be as good as what we saw from its peer Myer with earnings coming in just in line with consensus. However, its dividend of 10 cents a share was slightly ahead of consensus of 9.5 cents a share. Comments regarding its future strategic direction plan and how it plans to counter the challenging retail environment will probably get significant attention.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0372 -0.0019 -0.18%
ASX (cash) 4966 -21 -0.42%
US DOW (cash) 14450 -36 -0.25%
US S&P (cash) 1544.4 -8.1 -0.52%
UK FTSE (cash) 6441 -12 -0.18%
German DAX (cash) 7957 -49 -0.61%
Japan 225 (cash) 12439 -10 -0.08%
Rio Tinto Plc (London) 31.07 -1.70 -5.20%
BHP Billiton Plc (London) 19.81 -0.73 -3.54%
BHP Billiton Ltd. ADR (US) (AUD) 33.78 -0.77 -2.24%
US Light Crude Oil (May) 92.48 -1.71 -1.81%
Gold (spot) 1613.28 7.7 0.48%
Aluminium (London) 1936 -8 -0.42%
Copper (London) 7511 -78 -1.03%
Nickel (London) 16621 -49 -0.29%
Zinc (London) 2169 -15 -0.67%
Iron Ore 134.40 -0.2 -0.15%

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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