ASX pointing lower as US politicians stall

Once again it seems US leaders will be taking this to the wire, with latest headlines out of Washington suggesting the House will put forward a new proposal containing changes to Obamacare.

US leaders yet to agree
Yen safe-haven flows to dictate sentiment
Local market facing a weaker open

This has seen some choppy trading, with equities venturing further south. Just yesterday it seemed US leaders were close to coming up with a solution, which had seen equities rally on optimism that a deal would be done. Fitch has been on the wires saying the US AAA rating is on watch over the debt debate. The US dollar has been reversing the gains it had made against the majors, with flows getting back into the yen.

USD/JPY tested 98 where it found some support, but remains under threat the longer this US government situation rolls on. With just 30 hours to go until the deadline, nerves will be playing on traders’ minds as they will continue to be on US political headline watch. As a result, trade will be extremely choppy until we get an outcome.

JPY safe-haven flows to dictate sentiment

USD/JPY is likely to dictate the risk-on/risk-off sentiment in Asian trade today with a drop below 98 a possible trigger for further losses. There is no significant data out of Asia to look out for today, which leaves attention firmly pinned on the US. AUD/USD has been threatening to push higher all week and yesterday’s RBA minutes gave it further impetus. The pair finally pipped the September 19 high when the no-taper decision was announced and remains sidelined at around 0.953. AUD/USD is likely to remain steady as traders wait for cues from the US and a data dump from China at the end of the week. 

Local market facing a weaker open

Ahead of the open we are calling the local market down 0.4% at 5238. More than likely we’ll see a mildly risk-off tone at the start of the session, with some cautiousness due to the US political situation. Iron ore miners will be in focus as investors continue to respond to Rio Tinto’s positive 3Q output report. RIO announced record iron ore and thermal coal production, while raising its FY copper forecast; this helped its London-listed stock rally over 4%, the most in over 2 months.

Locally, near-term resistance for RIO is at $64.50 and a close above this level could see it target $67.50. Renewed US dollar weakness due to the political chaos actually proved to be a positive for metals. Modest gains for metals could support the miners at the open. BHP’s ADR is pointing to a 0.8% rise at the open to 35.70. Iluka is set to report its 3Q output today and it’s always a big mover whenever it reports. There are a few more AGMs to keep an eye on today, with CSL Limited being the main one.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa 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. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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