Equities recover on ‘downgraded’ geopolitical risk

Four key markets in focus today: Spot gold, AUD/USD, Australia 200 Cash and Treasure Wine.

ASX 200
Source: Bloomberg

Spot Gold

While equities recovered on ‘downgraded’ geopolitical risk, gold never quite gave up the gains we had seen as geopolitical risk escalated. Developments from Friday suggested Russia is de-escalating the conflict with Ukraine. Additionally, some saw the fact that the US will not deploy ground troops in Iraq as a positive. There has been another ceasefire between Israel and Hamas and it’ll be interesting to see if this one will hold. Perhaps that is why gold remains resilient at around 1310/oz. Geopolitical developments will continue to dictate gold moves in the near term. To the upside, last week’s high at 1322.8 is the level to watch, while to the downside, round number support at 1300 will be key.

AUD/USD

The local currency could remain under pressure as it becomes clearer that the RBA feels unemployment will remain elevated for a period. In fact Friday’s statement of monetary policy suggested the unemployment rate will remain elevated before it gradually declines in 2016. Analysts feel due to the strong link between jobs and rates, we are set for a prolonged period of stable rate with a slight chance of a cut. Having said that this probably means traders will be looking to sell the pair into strength. In the near term selling a recovery into 0.932 could be a good strategy.

Australia 200 Cash

The local market is eyeing a strong bounce at the open of around 0.9% after having struggled on Friday. This will see the ASX trade at around 5482 at the open with abroad risk recovery expected. However, I wouldn’t be surprised to see the market drift through the session as some traders might be looking to sell into strength particularly in the 5500 region. While economic data is limited there are a couple of earnings to look out for from Bendigo bank and JB Hi-fi. Should we see some disappointment this could weigh on sentiment further.

Treasury Wine

The TWE takeover just continues to get more interesting with company receiving a competing takeover offer from a global private equity investor. This takeover is also at $5.20 cash per share and investors will be hoping this sparks a bidding war for the company. We already knew analysts felt fair value is around $5.50 a share. The stock closed at $5.13 on Friday and should generate some buying interest today.

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