IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Over the weekend, the G-7 gave a tentative nod to Japan as policy makers indicated they will ‘tolerate’ the country’s current stimulus and economic recovery at a meeting in London.

Currency wars continues to be the ‘in’ term, and with the G-7 acceptance of Japan it certainly puts Europe back in focus as it looks to find ways to revive the ailing region. There is certainly renewed vigour from policy makers as they look at new ways to ramp the eurozone.

The rejection of austerity has awoken this vigour, as policy makers look for new ways to find monetary aid and unfreeze bank lending. With EUR/USD remaining at stubbornly high levels, unable to break lower holding around the $1.29 to $1.30 level, stimulus looks like being the only option. Without the ability to inject vital liquidity, the eurozone will continue to be left behind as Japan and the US skip away.

On Friday night, the Bank of Japan reiterated its current stimulus stance, helping USD/JPY move higher once more. This accelerated faster when an adviser at Japan Macro Advisers stated they ‘can and should ease again if the current measure does not seem to be working’. The inverse correction between the yen and the Nikkei will once more see it hold true. With USD/JPY leaving parity behind and hitting ¥101.74 on the G-7 and other stimulus talk, the Nikkei looks like being the only shining light in the region today. The bourse looks like popping up almost 1% to 14745 - a five-and-a-half-year high as the Hang Seng and the ASX fall back.

Gold is also back in the spot light as bears add to short positions. Shorts have once more increased with gold having bounced back from the April 15 capitulation. The precious metal has managed to pop out of the bear market over the last three weeks. However, this reversed last week as short positions increased by 6.4% to 67,374 open contracts. Gold has fallen back from the $1475 handle to $1448 and is trending lower. This should exert pressure on NCM et. al.; gold stocks have bounced over the last few weeks and are due for a pull-back, this might be the reason for it.

Major macro data is light on the ground today, however considering what we have seen over the last week from three of the four major banks, NAB’s business confidence and change home loans granted will be watched close to see if the banks have continued to find ways to grow their loan books. In the post-dividend market, the question will be if they can maintain their lofty share prices.

Ahead of the open, we are calling the ASX 200 down 11 points to 5195 (-0.21%). The drop is due to both WBC and MQG going ex-dividend today, which will subtract 12.72 points out the market on the open. BHP’s ADR is suggesting the security will drop 13 cents today to $34.64 (-0.48%) as iron ore falls back below US$130 to $129.60 and may extend the loss the index could experience this morning.

Tonight sees the release of US retails sales - if a good print is seen, the strength shown in the USD over the past five days will continue and the weakness in the AUD will also accelerate. With a dire federal budget expected tomorrow night, the pair may finally drop below parity for the first time since June 28 last year.

www.igmarkets.com

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