IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Overnight trading was light in the US as the Easter long weekend sees more and more market participants leaving their desks early for extended holidays. The light volumes meant the S&P 500 moved around more than it probably should have, and dropped 0.8% on the open, before paring back all the losses bar one point - to close at 1563.

The opening move in the US was again due to euro fears, as more investors start to see the Cypriot deal as a monster in the shadows for banks in Portugal, Spain and Italy. The Cypriot banking deal is the first time the ECB has turned political. The bank has basically said to lenders ‘if you are going to bloat yourself with positions you cannot handle yourself, we’re going to make your depositors take the pain, not the public purse’.

It is hard not to see how this won’t make risk premiums jump, nor will it alleviate bank run-on fears, even with some fairly draconian measures to stop this. The controls on Cyprus include: cheques cannot be cashed, non-cash transactions are banned outside of Cyprus, plastic card transactions will be capped at €5000 per month, per person and can only be used inside Cyprus. It basically means Cyprus has been frozen out of Europe.

Next week the ECB will meet for the first time since the finalisation of the Cyprus saga. There are rumours flying around that Mr Mario Draghi may change his language to dovish and even look to cut rates to regain some stability in the eurozone, and counter the comments made by Eurogroup head Mr Jeroen Dijsselbloem.

EUR/USD continued to trade below its 200-day moving average, and is now under $1.28 for the first time in four months at $1.2777, as the Cypriot deal sees investors leaving the currency. Italy was the other major factor in the EUR’s woes as Mr Pier Luigi Bersani ‘s attempts to form a government fell flat as a vote of no confidence materialised. The political deadlock coincided with a poor Italian bond auction, with ten-year yields coming in at 4.66%, and only managed to get €1.331 billion away; it expected two billion and in turn heaped more pain on the region.

Moving away from the woes of Europe - today is the last trading day of the month and the final trading day for the quarter, which could make today slightly interesting. Most fund managers and hedge funds will have to assess their weightings today, to make sure they are aligned with their respective charters. This may see inflows and outflows from certain asset classes, so watch for bulk moves in or out of equities, due to fund managers reweighting portfolios.

This is also a good time to reflect on what we have seen this month and this quarter. For March the ASX 200 is off 2.13%; this fall has been driven mainly by the materials space as investors leave the sector in droves. However, for the quarter, the ASX 200 is up 7.44% and is one of the strongest starts to a year, in a decade. The fact that non-mining sectors have led this gain is also unheard of, and now sees the index weighing on the resource sector drop to levels not seen since the middle of 2007, and now makes up 22% of the index, versus the financial sector that makes up 30% of the ASX 200 - its highest weighing for a decade.

Looking at the open, we are calling the ASX 200 down 5 points to 4990 (-0.11%), which is another flat call considering the choppy nature of trading overnight. Commodities moved up modestly overnight however, Cliff’s Natural Resource was smashed in the US, going down nearly 15% on a broker downgrade as material stocks continued to fall out of favour with investors. BHP’s ADR is dead-flat with the stock set to hold at its closing price of $33.19, so the materials plays may have to go it alone.

It is also D-Day for Billabong, and we would not expect are not to see any offer(s) during trading today, but on the close we might witness some action as it is the last day for the two consortiums to submit their offers. This will give investors in the stock the weekend to ponder their next move. With Easter now on our doorstep l expect trading to be quiet, volumes to remain light as will company news. Just keep an eye out for possible bulk reweighing.
Market Price at 9:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0442 -0.0023 -0.22%
ASX (cash) 4987 -8 -0.16%
US DOW (cash) 14521 -32 -0.22%
US S&P (cash) 1560.7 -1.4 -0.09%
UK FTSE (cash) 6397 -18 -0.29%
German DAX (cash) 7810 -88 -1.12%
Japan 225 (cash) 12486 7 0.05%
Rio Tinto Plc (London) 31.06 0.20 0.65%
BHP Billiton Plc (London) 19.41 0.02 0.13%
BHP Billiton Ltd. ADR (US) (AUD) 33.19 0.00 0.00%
US Light Crude Oil (May) 96.69 0.63 0.65%
Gold (spot) 1605.45 6.0 0.38%
Aluminium (London) 1923 7 0.35%
Copper (London) 7638 11 0.14%
Nickel (London) 16888 53 0.31%
Zinc (London) 2133 -3 -0.15%
Iron Ore 137.40 0.3 0.22%

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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