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. See full non-independent research disclaimer and quarterly summary.
While equities were firmer, currency markets were relatively calm with tight ranges maintained in most of the major currency pairs. USD/JPY was a standout as it finally broke through 102 helped by a wider-than-expected current account deficit figure for Japan aiding renewed yen weakness.
Japan’s March current account deficit was the highest since 1985 and this was mainly blamed on stocking ahead of the consumption tax hike. With the pair holding at around 102.17, this should be quite positive for the Nikkei at the open today. We are currently calling the Nikkei 1.1% firmer at 14,301 which should see Japan lead the way ahead of a fairly busy Asian session.
Plenty of data for the AUD
The AUD will be one of the interesting currencies to watch over the next 24 hours, with local and China data set to hit the wires. AUD/USD hasn’t moved much at all from yesterday and remains sidelined at 0.936. At 11.30 AEST we have the house price index and home loans data due out. China released M2 money supply and new loans data at the end of Asian trade yesterday, which showed the economy remains challenged.
Today we have industrial production, fixed asset investment and retail sales data due out at 15.30 AEST. These readings are expected to show signs of continued subdued growth, with most of them relatively unchanged from the previous readings. Focus will then switch to the federal budget which is expected to result in significant fiscal tightening. This threatens to derail the AUD’s recovery as it would have significant implications on monetary policy. Support for AUD/USD is in the 0.93 region where an uptrend support line which has been in place since January comes in.
Resources in for a recovery
The ASX 200 is in for a recovery today with our current open calls indicating a 0.5% rise at the open to 5476. Resource names might be in for a recovery after commodities posted some good gains overnight. Copper led the way after a rally in China yesterday, while gold and iron ore also recovered. Nickel also continued to power ahead and this should see nickel plays extend gains. A big dividend also comes out of our ASX cash contract at the end of trade today to the tune of around 19 points, with the likes of MQG and WBC trading ex-div tomorrow. This might see some of these stocks bought up as investors get set ahead of dividends.
Fiscal tightening on the cards
Consumer stocks will be an interesting space to watch today as traders and investors position themselves ahead of tonight’s budget at 19.30 AEST. Several measures have been pre-leaked, but we could still easily get some surprises. Market expectations are that the underlying budget deficit for 2014/15 should be around $26 billion, which would be $8 billion lower than the original estimates from the government’s mid-year review of $33.9 billion. Analysts feel fiscal policy should be tightened by around 0.25% of GDP, which when combined with other measures should lead to total fiscal drag of 0.50%.
It seems logical that this budget will be fairly austere in a bid to front load the fiscal tightening, in a bid to put the Abbott government in a tidy position to ease policy through targeted tax cuts as we head into the 2016 elections. Some traders would say an austere budget is largely in the price; however it will be interesting to watch price action in the consumer space today as last minute positioning plays out.