IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Choppy trading looks set to continue today; yesterday saw $3.09 billion in trading turnover which, compared to the average $4 to $5 billion turnover, shows how cautious trading is.

The ASX managed to somehow close in the green despite the fact Tokyo closed down 3.32% (had been as much as 4%) and Shanghai lost 1.73% (had been over 2%). The lacklustre trade is due to so many unknown quantities from macro data that are due in the next three to four days, plus earning season kicking off next week.

Asia will again be front and centre today as Japan releases its household spending, industrial production and unemployment rate today. It will be more data that will illuminate Abemonics. Household spending is the one we will be watching, as increase to consumption will be influential on inflation. One thing that was interesting from yesterday’s announcements was BoJ Governor Haruhiko Kuroda’s speech stated he would support an increase to consumption tax. Some would argue this is counter-intuitive to the current program, but it is supportive to government finances and government spending.

Domestically, 11:30 AEST sees the release of Australian building approvals. Construction activity in Australia continues to contract; the expected 2.2% growth forecast may be slightly optimistic considering the data, and will add more pressure to the RBA if the print comes in under expectations.

The building approvals data is basically a preview to today’s main event. The much anticipated speech by Glenn Stevens.

Some are suggesting he will authenticate the markets pricing of a rate cut for next week. We find this a little presumptuous considering Glenn Stevens’ history. He is the ultimate poker player and after the slight misinterpretation of his ‘deliberation’ comment last month, he is unlikely to suggest which way the RBA is leaning heading into next Tuesday’s board meeting. He is more likely to address global concerns, specifically China and the residual sluggishness in the surrounding regions in the post-GFC environment.

The money markets are really ramping up for next Tuesday’s rate decision. The swaps market is now pricing in a 79% chance of a 25% rate on Tuesday. That is the lowest call of the year and 22% higher probability then in May, when the RBA last cut rates. The economists are evenly split at 50/50, with 13 of the 26 surveyed calling for a cut. The RBA does have its work cut out.

Today sees the final quarterly reports with AWE, BPT and DLS on the wires, but the market will be eagerly watching Woolworths. The market is looking for comparable store sales growth of 2.3% from its food and liquor division. The group’s total like-for- like growth is expected to be modestly at 2%, while total revenue (ex food) is expected to come in at $12.4 billion. There will be continued interest in the performance of Masters after the company announced profitability for the store will now occur in FY16 rather than the earlier forecasts. For us, the market is still mainly interested in the current and future performance of its main revenue source – food and liquor.

Moving to the open, we are calling the ASX 200 up nine points to 5055 +0.17%. With the US pending home sales, consumer confidence and the big two – non-farm payroll and GDP quarter-on-quarter – still to come this week, trade will continue to fluctuate.

BHP looks set to add to its recent gains with its deposit receipts, suggesting the stock should add 25 cents today to $34.70 (+0.72%) and will follow its prints from yesterday in Sydney and London. Iron ore took a breather yesterday, dropping 90 cents; however it still remains above US$130 a tonne.

It will be a soft trading morning before Glenn Stevens’ speech; trade should shift in tight ranges.
Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9203 -0.0051 -0.55%
USD/JPY 97.8950 0.0900 0.09%
ASX (cash) 5055 9 0.17%
US DOW (cash) 15541 18 0.11%
US S&P (cash) 1686.4 -0.1 -0.01%
UK FTSE (cash) 6575 7 0.10%
German DAX (cash) 8279 17 0.20%
Japan 225 (cash) 13497 -164 -1.20%
Rio Tinto Plc (London) 29.37 0.17 0.58%
BHP Billiton Plc (London) 18.93 0.15 0.77%
BHP Billiton Ltd. ADR (US) (AUD) 34.80 0.25 0.72%
US Light Crude Oil (September) 104.52 0.39 0.37%
Gold (spot) 1328.75 1.5 0.11%
Iron Ore 131.7 -0.9 -0.70%

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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