IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

The main theme from Friday’s trade was an extension of USD strength on the back of the non-farm payrolls print. The data showed the US added 195,000 jobs versus expectations of around 165,000. However, an increase in participation kept the unemployment rate at 7.6%. Analysts now feel the Fed is on course for September tapering as some of the ones who were still looking for tapering later in the year, like Goldman Sachs (which had pinned it for December), have since revised this to September. This resulted in a selloff for the risk currency pairs with AUD/USD dropping to around 0.905 and EUR/USD to 1.281.

There’s a big day for Europe ahead with Mario Draghi on the wires and Eurogroup meetings. GBP/USD was even worse off and cable fell to a low of $1.4856, although rallied a touch into the close. All eyes now fall on the March 12 low of 1.4831, where a closing break would see the pair head lower, even though it has fallen 5.5% since the recent high on June 17. Meanwhile, USD/JPY powered higher and remains elevated this morning at around 101.26. This will undoubtedly support the Nikkei today and we are currently calling it up another 1% to 14,454.

Japan’s Upper House elections are on July 21 and this will play well into the hands of Prime Minister Abe; with the election campaign underway. At 09:50 today we get Japan’s May current account balance and the market is once again predicting a surplus of ¥600 billion. A BoJ quarterly survey released on Friday also showed household sentiment towards the economy rising to a seven year high; with 80.2% of respondents believing prices (i.e. inflation) would be higher in a year’s time. Rising inflation expectations are key for ‘Abenomics’ to work.

Ahead of the open we are calling the Aussie market down 0.4% at 4822. We suspect the weakness is a result of the strong US dollar weighing on commodities. Gold naturally attracted strong selling on the back of the jobs print, although found buyers off the low of $1208. This will put significant pressure on the gold miners yet again today.

Iron ore miners are also in for a tough start after being sold off in Friday’s European trade. BHP’s ADR is pointing to a 1.6% drop to 31.09, despite iron ore being up 0.5%. Apart from the resources, Graincorp will be back in focus today on reports that Treasurer Chris Bowen is under pressure to delay or block the Archer Daniels deal. On the local economic calendar we have ANZ job ads today which will give an indication of employment sentiment. However, we doubt it’ll be encouraging at all after recent official numbers disappointed and after Reserve Bank governor Glenn Stevens himself said he expects unemployment to rise.

Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9057 -0.0081 -0.89%
USD/JPY 101.445 1.115 1.11%
ASX (cash) 4822 -20 -0.41%
US DOW (cash) 15150 13 0.08%
US S&P (cash) 1632.6 3.5 0.21%
UK FTSE (cash) 6434 -24 -0.37%
German DAX (cash) 7870 -153 -1.90%
Japan 225 (cash) 14454 144 1.01%
Rio Tinto Plc (London) 26.66 -0.92 -3.34%
BHP Billiton Plc (London) 17.2 -0.1 -0.55%
BHP Billiton Ltd. ADR (US) (AUD) 31.09 -0.51 -1.60%
US Light Crude Oil (June) 103.69 2.63 2.60%
Gold (spot) 1226.2 -15.8 -1.27%
Iron Ore 122.6 0.6 0.50%

IG 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 if you require market commentary or the latest dealing price.

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