IG Markets - Morning Thoughts
Markets continued to edge higher in the US on Friday and brushed off some negative tape out of Europe. Although the
gains in the US were only minor, the Dow and S still managed to finish the session at record closing highs. Fed member James Bullard was on the wires with some dovish
comments opposing dialling down stimulus due to the threat of disinflation. He would like to see inflation tick higher
towards 2%. However, over in Europe France was downgraded to AA+ outlook stable (from AAA) by Fitch, merely bringing its
rating in line with Moody’s and S Portugal also remained in focus as the political situation remained tense and yields pushed higher.
AUD/USD dropped significantly and even ventured a touch below $0.90 in European trade. The pair printed a low of 0.899
before managing to bounce back to around $0.908 and will be back in focus today ahead of China data. Meanwhile, EUR/USD
managed to find support at $1.30 but remains contained by the $1.31 level. We feel the single currency might be a source
of volatility for markets this week once the novelty of the recently dovish Fed comments wears off. USD/JPY is just
holding onto ¥99 with Japan closed today for the Marine Day holiday.
A data dump from China will be the main point of focus for risk today with a raft of releases set to hit the wires at
midday. China’s Q2 GDP is expected to cool to 7.5% which would see the annual run rate steady at 7.7%. For the quarter,
real GDP is expected to rise 1.8% (from 1.6%). With China admitting to trade figures manipulation recently, and the
government content with liquidity tightening, many analysts expect further deceleration in growth over the second half.
China will also release industrial production, retail sales and fixed asset investment. Any big misses on these prints
could see AUD/USD trade below 0.90 again today. We continue to feel selling into strength is the preferred strategy on
AUD/USD but momentum plays on a break below $0.90 can’t be ruled out.
Ahead of the open we are calling the Aussie market up 0.3% at 4990. On Friday we briefly traded above but failed to
close above key resistance at 5012. This is the 61.8% retracement of the recent sell-off from 5246 to 4632. A closing
break here would be very positive but we remain concerned about the reversal from the highs at that level on Friday.
We expect to see the resources get off to a fairly positive start with BHP’s ADR pointing to a 0.3% rise at the open to
33.41. Iron ore was up 1.3% to 126.8 and this should be quite supportive today. Other cyclicals are also likely to get
off to a good start as risk continue to benefit from the recovery in US equities. The key releases out of China are
likely to keep markets relatively sidelined heading to the data. Billabong could continue its recent recovery on the
back of reports it is seeing strong sales in the US, Canada and South America.
Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9081 -0.0092 -1.01%
USD/JPY 99.2050 0.3250 0.33%
ASX (cash) 4987 13 0.27%
US DOW (cash) 15432 -7 -0.04%
US S (cash) 1674.1 2.8 0.16%
UK FTSE (cash) 6546 -4 -0.06%
German DAX (cash) 8211 34 0.41%
Japan 225 (cash) 14492 Closed Closed
Rio Tinto Plc (London) 28.25 -0.09 -0.30%
BHP Billiton Plc (London) 17.90 -0.10 -0.56%
BHP Billiton Ltd. ADR (US) (AUD) 33.41 0.10 0.30%
US Light Crude Oil (June) 105.93 1.16 1.11%
Gold (spot) 1287.25 4.4 0.34%
Iron Ore 126.8 1.6 1.30%
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.
ends