IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Yesterday’s chatter was that stimulus tampering was imminent which sent US investors running for the exits.

Today, ‘all is right in the investment world’ after unemployment claims and preliminary data showed that things are not as strong as estimated which has allowed investors to believe stimulus is here to stay.

This sent Europe and the US in to the green which will mean the US will close in the black for the month of May, making it five out five in 2013.

It is concerning that markets are reacting to data this way. Bad news should be seen as bad news; the whole principle behind all the QE programmes, ‘operation twist’ etc., was to support the US economy. The concern from these reactions would be that once the Fed does start to wind back stimulus (whenever that might be) the markets themselves could unwind reasons for tapering. A falling market will see confidence and consumer spending falling on fears the market is under pressure. It could become a self-filling prophecy.

It is the end of another month today, and unfortunately the May curse has struck again. This will be the fourth ‘sell in May’ event for the ASX in a row. The last time we popped up in May was 2009 and that was because the market had been pummelled due to the GFC and looked attractive at bargain basement prices.

We would need to bounce over 5% today to end this streak and this seems very unlikely considering the moving in yield stocks. There is no doubt the Telstra yield story is unwinding. Telstra has dropped 38 cents since May 22 - that’s 7.4%. TLS volumes are well above the 30-day moving average and the daily dollar value turnover is fourth behind BHP CBA and WBC. This does suggest that the high yield trade may be coming to an end.

Goldman Sachs called it this week - the rotation is on, banks are top-heavy and high yield trades are unwinding. The shift into resources does look appealing as they are severely undervalued to net-present values. The concern comes from the falling underlying commodities - have these resource companies managed to extract a profitable price?

Ahead of the open, we are calling the ASX 200 up 19 points to 4950 (+0.39%). The sell-off in the banks may have been slightly over done over the last few weeks and they may have a slight bounce today. CBA and WBC managed to claw their way back into the green yesterday, and we would expect ANZ to follow suit today. We are not saying that this will continue but the yield support at 4900 4950 level is strong and buyers will hit the market.

BHP’s ADR is suggesting the security will also support the ASX today, pointing up 36 cents to $34.82 (+1.04%). BHP managed to hold onto half of the gains from the day before yesterday; legging higher today will see BHP support further momentum.
Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9668 -0.0010 -0.10%
USD/JPY 100.7350 -0.1000 -0.10%
ASX (cash) 4950 19 0.39%
US DOW (cash) 15330 57 0.37%
US S&P (cash) 1657.4 10.1 0.61%
UK FTSE (cash) 6654 41 0.62%
German DAX (cash) 8401 86 1.04%
Japan 225 (cash) 13806 217 1.60%
Rio Tinto Plc (London) 29.33 0.73 2.54%
BHP Billiton Plc (London) 19.43 0.13 0.69%
BHP Billiton Ltd. ADR (US) (AUD) 34.82 0.36 1.04%
US Light Crude Oil (June) 93.64 0.53 0.57%
Gold (spot) 1413.80 7.9 0.56%
Aluminium (London) 1898 33 1.78%
Copper (London) 7304 34 0.46%
Nickel (London) 14792 -20 -0.13%
Zinc (London) 1907 21 1.13%
Iron Ore 111.60 1.3 -1.15%

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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