IG Markets: Notes on Australian markets today

The day's key takeaways

Kyle Rodda, Market Analyst, Australia

The day's key takeaways:

- Markets turn a little “risk-off” as traders digest risk of coronavirus outbreak

- Westpac Consumer Sentiment survey shows another fall in sentiment last month

- Australian Dollar looks vulnerable, ahead of tomorrow’s make-or-break jobs data

- ASX200 hits fresh record highs, breaks 7100, as investors continue to hunt for yield

- Netflix posts a mixed set of numbers: IG Financial Write Shane Walton reports

The run down:

Markets have been primarily focused today on picking apart the implications of a potential outbreak of the coronavirus. It created a risk-off tone to trade globally overnight, as traders fret that the virus could take-on epidemic proportions, muck akin to the outbreak of the SARS virus in the early 2000’s. The risks were really hammered home in US trade, after it was reported that a US citizen is exhibiting possible symptoms of the virus. Despite that soft lead from Wall Street, however, market bulls have seemingly wrestled back control of Asian stock markets today. The ASX200 has proven the region’s strongest performer, while the Hang Seng has recovered a reasonable margin of the losses it sustained yesterday. Price action in risk sensitive assets in other markets have proven slightly more reserved. Growth currencies have dipped – and the Japanese Yen remains bid slightly, as a consequence. While bond yields have fallen along with oil and other industrial commodities.

The Australian Dollar has been the G10 currency space’s laggard today, in part due to the possible consequences that the coronavirus will have on the Chinese economy. But there was also a sprinkling of negative domestic news that gave the Aussie a little kick in the guts. Westpac Consumer Sentiment survey was released for the month, and showed another contraction in consumer confidence. A large part attributable to effects of the horrific Australian bushfire season, the survey also showed that consumers are generally pessimistic when it comes to the future strength of the economy, and that they remain reluctant to go out and buy big ticket household items. It adds to the narrative, broadly known: Australian households remain in a tough spot. For all the stimulus that’s been thrown at them, policymaker support is yet to manifest in consumer behaviour. Potentially still, it could be the case that stimulus measures have actually undermined the confidence of consumers.

Westpac’s sentiment survey prefaces a very important set of Aussie employment numbers tomorrow. Conceivably, whether the RBA cuts or not next month hinges on the strength of this data. As it stands, market participants are roughly split 50-50, according to interest rate futures, on whether the RBA cuts next month. Indeed, its considered just a matter of time before the RBA cuts again. But a surprise lift in the unemployment rate tomorrow, and/or an undershooting in the jobs change numbers, would likely be all the confirmation that a cut ought to be coming in February, for the RBA to have any chance of hitting it’s mandated employment objectives. The Australian Dollar looks vulnerable to further downside should the jobs numbers disappoint. With the USD regaining its lustre recently, and despite greater optimism about global growth, a greater widening of yield differentials between US and Australian assets would be a likely catalyst to drive the AUD/USD back into the 67 handle.

A weaker Australian Dollar and lower Australian bond yields is certainly a benefit to the ASX. The Australian stock market bucked the lead provided by Wall Street, with the ASX200 charging to new record highs this afternoon. As of 3PM, the benchmark index is trading 0.9 per cent higher. The ASX has been one of the significant outperforming stock markets to begin 2020. Despite what are clearly stretched valuations, and tepid fundamentals, like most stock gauges, the market’s strength is being underwritten by the expectations of greater monetary stimulus in the year ahead. In fact, as traders generally price-in marginally less monetary policy stimulus from global central bankers this year, in light of an assumed turnaround in global growth, weak Australian fundamentals have seen bets of RBA cuts increase. This is turning what’s a historically unattractive dividend yield for the ASX200 into something worth jumping into equities for, as falling bond yields boost considerably equities’ relative yield appeal.

Netflix reported its Q4 earnings today. Despite a beat in financial metrics, a miss in subscriber growth estimates for Q1 saw the company’s stock chop around in afterhours trade. IG Financial Writer, Shane Walton, gives a rundown of Netflix’s results here: https://www.ig.com/au/news-and-trade-ideas/netflix-share-price--where-next-as-paid-subscribers-hit-167-mill-200121


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.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired
liveprices.javascriptrequired

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.