This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
- Asia on headline watch
- Mr Boehner to allow clean senate bill vote
- Yen dictating the pace in FX
- Europe to open higher
- Iron ore plays dominate local trade
At the end of US trade, headlines out of Washington suggested the House will put forward a new proposal containing changes to Obamacare. Markets also had to contend with Fitch on the wires saying the US AAA rating is on watch over the debt debate. The latest headlines suggest a deal will be sealed despite the US Senate adjourning until tomorrow.
There has certainly been a lot of back and forth among US politicians. Just in last few days we've had potential agreement from Mr Boehner/Mr Obama (markets got excited, but talks collapsed on Saturday); then to the Senate on Monday for a debate between Mr Reid and Mr McConnell (markets got excited, again no agreement); this was pushed back to the House (no real excitement and no agreement); now it’s back to the Senate where apparently we should get a deal soon. This will then need to be pushed back to the House (which is closed tonight, where apparently they might now have the votes, although it’s hard to see Mitch McConnell agreeing to anything that he doesn’t think will get the votes from Mr Boehner and his team! Then eventually a deal will have to be put in front of the President to sign off.
Mr Boehner to allow clean Senate bill vote
It now seems like Mr Boehner will allow a clean Senate bill vote in the House which is a strong sign he has yielded. As a best case, should we get a deal it will be pushed through to January 15, where they will debate and try and avoid a new government shutdown, which coincides with the sequester spending cuts that kick in on that same day. Then February 7 for a new debt limit extension and boom we’re back to square one!
Yen dictating the pace in FX
US politics has dictated the price action in Asia, with eyes firmly pinned on the key currencies for some direction. When talk of an imminent deal being done ramped up, USD/JPY popped higher to around 98.60 after having tested 98. As I’ve said before, safe-haven flows tend to benefit the yen and therefore how USD/JPY is a good indicator of sentiment for the risk-on/risk-off trade. Japan’s Nikkei actually ventured into positive territory when USD/JPY was rising and this had lifted other Asian markets, like the ASX 200, off their lows. However, it’s back to treading water for most asset classes as a ‘cautiously optimistic’ tone prevails. The more retail-dominated markets, like the Shanghai Composite (-1.7%), are weaker as investors stay on the sidelines ahead of the deadline.
Europe to open higher
Looking ahead to the European session, most of the major bourses are pointing higher with the DAX leading the way with a 0.6% rise. While the US political bickering has been going on and dominating headlines, the DAX has managed to rise to record highs. While the euro and pound are relatively flat against the greenback, it’ll be a fairly busy European trade on the economic calendar. ECB President Mario Draghi will be on the wires along with jobs numbers out of the UK. A drop in the claimant count change is expected, while the unemployment rate is likely to remain steady at 7.7%. In the US, the Beige Book is released and Fed member George speaks.
Iron ore plays dominate local trade
The local market has actually had a solid day considering we had a dismal start to the session. Iron ore names have really lit up the boards today, with solid performances from heavyweights Rio Tinto and BHP Billiton. RIO has continued its momentum from yesterday’s production report. We’ve seen even stronger performances from pure plays, with big gains from Fortescue, Atlas Iron and Mount Gibson. MGX has jumped over 5% on the back of a quarterly activities report in which it reiterated FY14 sales guidance with Q1 iron ore sales of 2.6Mt, up 47% on year.
Ideally I would want to see the stock close above 84 cents. This would open it up for a move to 90 cents in the near term. Lagging the miners is Iluka which has declined after its production report disappointed. In the defensive space, CSL Limited is having a stellar day after announcing a $950 million buyback. This is a bit more than what the market was expecting and has been well received. I feel this could be a catalyst for the stock to make its way back up towards its all-time high at $68.