The information 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 Bank S.A. 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 and as such is considered to be a marketing communication.
With many Asian currencies and equity markets heavily influenced by commodity markets, this also saw the energy and materials sectors performing strongly across the region.
The probability of a Fed rate hike in 2015 fell away considerably with the disappointing set of US data last night. It is becoming increasingly clear that the almost 9% increase in the US dollar index seen from the start of the year to August effectively functioned as a “phantom rate hike” by considerably tightening US financial conditions.
This is the argument that Fed member Lael Brainard was putting forward: The massive strengthening of the US dollar has effectively functioned as equivalent to two US rate hikes. With US CPI inflation still at 0.2% year-on-year, real interest rates would increase dramatically in the event of a rate hike. The high US dollar is also clearly affecting US manufacturing and tourism.
The bond market pricing for a Fed rate hike has emphatically responded to these changes with the probability of a Fed rate hike in in December falling to 29%, and a March 2016 rate hike sitting below 50%, at 48.6%.
The Aussie and the Kiwi dollars saw significant gains on the US dollar weakness. But these gains paled in comparison to the biggest losers this year in Asian currencies (Malaysian Ringgit, Indonesian Rupiah and Korean Won), which all saw huge intraday increases. The Korean Won was further boosted by the central bank leaving rates on hold today, and expectations that Bank Indonesia will leave their rates unchanged at the meeting later today as well.
The hotly anticipated Australian employment data came in below expectations. While the Aussie dollar briefly retraced some of its gains on the release, it proved to be only a speedbump on its continued rise upwards today.ang
Australian employment declined 5100, below even the lowest estimate of a zero increase. Although this did not push the unemployment rate back out to 6.3%, it does heighten concerns about the weakening of the Australian economy. Vehicle sales were strongly up 5.5% month-on-month.
The ASX 200 opened relatively flat in the morning, but seemed to rally strongly along with the Aussie dollar ahead of the employment data release at 11.30 am AEDT. The ASX almost touched 5240 at its intraday high and, while it gave this away, it still continued to trade comfortably above the 5200 level clearly finding some support there.
Materials and energy continued to see strong gains on the back of further USD weakness. But gold miners were the star performers in the space, with the gold price rising over 1% overnight to touch $1190 (Your analyst here called a short-term price target of $1200-$1250 last week: www.youtube.com/watch?v=RsRu1oPkzMQ).
The material sector was the best-performing on the index rising 1.8%. Among the top performing gold miners were Evolution Mining (+7.7%), Newcrest Mining (+4.9%), Northern Star Resources (+4.5%) and Regis Resources (+4.3%). Fortescue also had a strong day, beating cost-cutting estimates and lowering its outstanding debt, this saw the stock rise 6.3%.
News that the ACCC had issues with the Brookfield takeover of Asciano saw its stock dive 7.9%.