Caution prevails in global markets

Equities remain subdued with investors digesting the impact of the resurgence in oil prices, firmer US data and some fed commentary. 

Source: Bloomberg

The conflict in Yemen saw equities on the backfoot in Asia yesterday and should this escalate into a deeper regional conflict, then the risk-off trade is only likely to ramp up. On the data front we had unemployment claims in the US, while James Bullard called for the Fed to start normalising now.

All eyes will be on Fed chair Janet Yellen today as she speaks on ‘The New Normal for Monetary Policy’. We have already started to see a risk-off tone in the FX space with the AUD and EUR losing ground to the greenback after a couple of weeks of resilience. This has benefited safe haven plays such as the yen as USD/JPY slipped to a low of 118.33, its lowest since February 20. This move will also be negative for the Nikkei today, which we are currently calling down around 0.7% at the open. Around 111 points worth of dividends comes out of the Nikkei today, which will put a dent in the index. It’s a big day for Japan today with a raft of releases set to hit the wires including household spending, CPI, unemployment rate and retail sales.

China industrial profits in focus

At the same time out of China we have industrial profits data tomorrow, which is likely to show a further decline. This makes for an exciting finish to the week for the region considering how quiet the middle part of the week has been for us.

The data out of China will have a fairly significant bearing on the AUD today and could see yesterday’s losses extended. The industrial profits data is due out at 12.30 and given we haven’t had a print for a couple of months, there will be quite some attention on this reading. While many would expect disappointing China data to drive stimulus expectations and in turn spur risk, there are plenty of questions around how effective China stimulus is on the economy these days. AUD/USD is retesting 0.7800 and traders will be eyeing fresh shorting opportunities on a break below that level.

Gold extends rally

Ahead of the open we are calling the ASX 200 mildly higher at 5897. While crude spiked in Asia yesterday, it hasn’t really added on to its gains since then. Regardless, I expect to see some speculation in energy plays helping to prop up price action in the energy sector.

Gold has continued its rally and this also leaves gold plays in a good position heading into the weekend. Northern Star might be an exception as it goes ex-div today. Apart from that there isn’t much on the company news front and I suspect it’ll be a risk tone driven market. The positive for the local market is that yield plays are likely to find buyers at lower levels.

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.