Equities rally despite disappointing GDP

Once again we saw a sharp contrast in sentiment from European to US trade as a different set of forces dictated sentiment. 


European trade remained fairly risk-off as investors focused on rising geopolitical tension on the Iraq and Ukraine front. Latest reports suggest the US is considering further sanctions against Russia, while militants in Iraq continue to expand their territory.

However, in US trade investors focused on the final Q1 GDP print which came in much lower than expected at -2.9% (-1.8% anticipated). Durable goods orders also disappointed and these readings resulted in a slight unwind of the hawkish tone we heard from Fed members Dudley and Plosser. Additionally the market is expecting to see a bounce in US growth in Q2 after a poor Q1 performance. Given the weather-related impact on data earlier in the year, there is a good chance the recent momentum in Q2 will continue.

Risk currencies bid higher

With that in mind, the USD unwound and this lifted most of the risk currency pairs. AUD/USD bounced back above 0.9400 and GBP/USD edged back towards the 1.700 mark. The sterling is in for another bid day with BoE Gov Carney speaking on the financial stability report. Perhaps his comments will offer more clarity on the current uncertainty around rates and what the trigger for a rate hike will be. Once again a retest of this week’s highs just above 1.7000 will be in focus.

USD/JPY was quite choppy but managed to find some buying off the lows. The pair is back near 102 and this will be a positive for the Nikkei today. As it stands we are calling the Nikkei up 0.4% to 15,328. However should geopolitical risk ramp up in Asian trade then we could see this gains swiftly evaporate.

Ex-div stocks to weigh on ASX 200

Ahead of the local market open we are calling the ASX 200 down 0.1% at 5396. Perhaps this is also to do with the 9.774 point dividend which is coming out of the market today, with the likes of TCL and SGP trading ex-div. After some good buying momentum earlier in the week, it seems interest has faded fast in the local market. Perhaps an improvement in the metals complex will help lift sentiment in the materials.

Iron ore, gold, copper and nickel all enjoyed some solid gains. The energy space will remain one to watch as geopolitical risk remains rampant. With the US now looking to export oil in light of the recent developments, then we could see WTI start playing catch up to Brent.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. 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. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.