IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Risk assets were mixed overnight with US equities losing ground while European equities and metals mostly gained ground. The fall in US equities was mostly blamed on stimulus uncertainty after Chicago Fed President Evans was on the wires with a fairly dovish statement. Evans said it is possible the Fed will keep rates low even after unemployment falls below 6.5%. Moody’s also warned that is may downgrade the US if a budget deal is not reached. It just seems we are starting to see a bit of consolidation ahead of the FOMC meeting minutes and Fed Chief Ben Bernanke’s testimony on Thursday. When markets are this elevated, with US markets at record levels, investors generally look for any excuse to exercise caution. Mixed signals from various Fed members were enough to keep the bulls at bay for now. Expectations of tapering off on QE might be a little overdone at the moment and should this be the case, US markets could easily extend their gains. Regardless, a situation where the Fed acknowledges a steady recovery in US data could also work out well for US markets as it would confirm that stability has been restored. Risk currencies mostly regained some ground against a greenback that was weighed on by the dovish Evans comments. AUD/USD managed to post a high of $0.9828 as it climbed in line with some of the metals. It’s a fairly big day for the local currency today with monetary policy meeting minutes due out. This round of minutes will carry some weight as it’s from the meeting which produced the surprise rate cut. Should the minutes not sound as dovish as the market expects with many analysts calling for another rate cut in the near term, then this might result in short term strength for AUD/USD. EUR/USD managed to trade as high as $1.29 as it moved higher in line with risk. USD/JPY is maintaining a fairly tight range heading into the BoJ meeting. Some traders feel Japan’s officials might be looking to talk down yen weakness in the near term and this might be a reason to exercise caution. The slight pullback in USD/JPY will likely weigh on the Nikkei today.

Ahead of the open, we are calling the ASX 200 up 0.2% at 5218. Just like its overseas peers, the local market might also be entering a period of consolidation with a barrier at 5250. We suspect the firmer opening call is to do with the sharp reversal higher in the metals space with the likes of gold rallying 2.6%. Gold just touched 1400 before pulling back into 1394. As a result we might see a bounce in some of the gold names today after the recent selloff. Some traders who had a momentum play on gold stocks might get caught out by the moves and be forced to close out positions. Arrium has a 3Q output report today and we might get some more comments on cost cutting measures and potential for asset sales. Transfield Services is the latest culprit in the mining services sector after issuing a profit warning today. The company downgraded its FY13 earnings to between $62-$65 million (from $85-$90 million). This is around a 28% downgrade and TSE has blamed this on a mining and process industries slowdown. The company has brought forward some planned cost cuts as in an effort to deal with the slowdown. Boart Longyear has an AGM today and following the recent downgrades by other mining services companies, this AGM deserves some attention.

Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9810 0.0070 0.72%
USD/JPY 102.2800 -0.3600 -0.35%
ASX (cash) 5220 11.4000 0.22%
US DOW (cash) 15339 5.0000 0.03%
US S&P (cash) 1668.4 4.4300 0.27%
UK FTSE (cash) 6750 13.3000 0.20%
German DAX (cash) 8445 8.1000 0.10%
Japan 225 (cash) 15296 -65.0000 -0.42%
Rio Tinto Plc (London) 29.04 0.0375 0.13%
BHP Billiton Plc (London) 19.25 -0.0375 -0.19%
BHP Billiton Ltd. ADR (US) (AUD) 34.69 -0.0958 -0.28%
US Light Crude Oil (June) 96.90 0.8700 0.91%
Gold (spot) 1394.70 47.7000 3.54%
Aluminium (London) 1863 11.6250 0.63%
Copper (London) 7390 94.2500 1.29%
Nickel (London) 15075 289.5000 1.96%
Zinc (London) 1856 14.3750 0.78%
Iron Ore 123 -0.1000 -0.08%

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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