Equities rally on bond stability

A much calmer situation in the bond markets helped equities rebound from recent lacklustre performance.

Source: Bloomberg

However, I would caution investors against getting too excited about the overnight gains. Trade has been extremely choppy in recent weeks and we are yet to see any sustainable short-term trends. Perhaps the most surprising move was the fact unemployment claims dropped by more than expected to their lowest since April 2000 but the USD remained somewhat on the back foot. This could have been because the PPI reading fell well short of expectations.

The greenback lost further ground to the euro and sterling but managed to recover against commodity currencies such as the AUD and CAD. Comments by ECB President Mario Draghi really drove sentiment in European trade after reinforcing the belief the central bank will carry out the QE program in full.

This helped bond markets settle down and saw equities rally. Draghi said that, even if data improves, what matters is to see an equivalent effect on investment, consumption and inflation.  These comments appeased investors who were growing wary that the ECB may pull the QE pin early.

AUD gives up some ground

A weaker USD played against the ASX 200 and the Nikkei yesterday. Given the greenback has recovered some ground against the AUD and yen, it’ll be interesting to see if this will support equities in the two countries today.

We are currently calling the Nikkei up around 1.4% and, apart from BoJ Governor Haruhiko Kuroda’s speech, there isn’t a lot else to look out for. AUD/USD has dropped back below $0.8100 but the short term momentum remains bullish. We might continue to see consolidation above $0.8000 in the near term and that’ll make the situation very interesting on the monetary policy side of things.

There is no data at all locally and the next key event for the AUD will be Tuesday’s monetary policy meeting minutes. However, these may prove to be stale given we’ve since had the Federal Budget presenting a curler.

Firmer open for ASX 200

Ahead of the local market open we are calling the ASX 200 up 0.5% at 5726. The leads from overnight trade were positive and, with the AUD slightly weaker, we may get a kicker heading into the weekend. NAB will be trading ex-div today but the other banks should be able to see some gains at the open.

Mixed moves in the commodities space will make it hard to pick how resource stocks will play out through the session. Gold stocks are likely to get off to a strong start though, helped by the fact the precious metal rallied to a 12-week high. ResMed endured a significant sell-off yesterday and it’ll be interesting to see if the stock can stabilise today.

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.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.