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.
‘Double witching’, which involves monthly index options and futures (June expiry) expiring together, pushed the cash market in one direction yesterday as investors closed out.
This means new positions will be installed today – there should to be a reasonable bounce back over the course of the trading day.
What’s spiking my interest
Janet Yellen is schooling other central bankers in communication. In one press conference Yellen managed to push the USD lower, increasing US competitiveness. We saw a 100-point positive reversal on the DOW on news ‘it’s steady as she goes’ at the FOMC while simultaneously telling global markets she will be raising rates in 2015. Genius!
Headline CPI in the US was solely driven be a massive spike in petrol pricing (+10.2%) so ignore that. Ex-food and energy CPI is pretty mundane and a little under expectations at 1.7% from 1.8% previously – the CPI read should completely rule out two rate hikes for the Fed funds rate in 2015.
China – still silent on a further cut to rates for either the reverse requirement ratios or benchmark interest rates. Expectations would be for one more. However, the housing price decline is slowing, which could rule a cut out altogether.
Japan – BoJ minutes were gearing up to be something exciting but, with Kuroda clarifying his position around the ‘weak’ JPY this week, the short covering rally has been stopped dead in its tracks. So nothing to see here.
Grexit: There’s an emergency meeting set for tonight. Pro-EU rallies in Athens. Further politicking from both sides. Plus fear mongering statements such as: ‘Greek banks may be insolvent as early as Monday’. Bank deposits are fleeing the country harder and faster than ever. Yet the market reaction was positive (DAX +1.1% ASE +0.4%). The markets are clearly convinced Greece will stay in the EU and all will be rosy.
Australia – Janet Yellen’s genius is Glenn Stevens’ headache. AUD is through 78 cents again and remains as stubborn as ever above 76 cents - no interbank market or economist consensus is calling for a cut in 2015. AUD is blowing in the wind until the Fed lift-off.
ASX’s discount to the MSCI world index widened further due to the witching hour of trade yesterday. I have changed my tune on the ASX for fundamental reasons and the underperformance to MSCI is reinforcing that view.
The end of financial year trading begins Monday – the ASX is currently up 2.4% for the financial year. Fundies will want a stronger close to the financial year than that - a sentiment rally is very probable.
Ahead of the Australian open
We are currently calling the ASX up 41 points to 5566. The bounce will be index-wide and likely to be seen in all sectors.