ASX at the close

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Chris Weston, Chief Market Strategist at IG Markets

It’s been a fairly good news day in Asia today, highlighted by a ridiculously strong Australian employment report, which took consensus to the cleaners.

In addition, today the RBNZ become the first central bank in the G10 currency block to lift its cash rate. While this was fully expected and probably the most telegraphed move in the history of RBNZ policy changes, the RBNZ governor went one further and laid out that the central bank could hike 125 basis points (bp) throughout the year. With the market pricing in around 110bp over this period, you can see why the NZD caught a bid.

As I mentioned, the Australian jobs number was a mere 17,300 above the top end of the economists range, and where 80,500 full-time jobs came from will dumbfound some. Some will point to the changes to the Australian Bureau of Statistics (ABS) seasonal adjustment methodology, but even when you take this out of the equation it’s still a reassuring number. The fact that the participation rate moved 30 basis points higher and the unemployment rate stayed at 6% is also positive and continues the trend in fairly positive domestic data. The swaps market is now pricing in 15 basis points of hikes over the coming 12 months and seems to have recouped the lost sentiment caused by the moves in copper, steel and iron ore of late. Still, we also need to be cognisant that there simply isn’t anyway we will see the pace of job creation seen this year continue; however the RBA will be happy with its neutral bias and continue to eye the April 23 Q1 inflation figures.

Aussie employment extremely strong

The jobs print was so impressive that it even managed to put a bid in the ASX 200, with banks and consumer names doing well backed by some strong short covering and ‘bargain’ hunting in the material space. Rates could be on hold for some time and much hinges on how China pans out from here.

AUD/USD rallied to a high of 0.9081 today, but sellers have moved in, and given the fact that the 20-day moving average is moving perfectly sideways, everyone seem to be trading two standard deviations either side of this average (i.e. respecting the Bollinger bands). With that in mind, the market seems happy to bid up the pair on moves to 0.8920, and this also coincides with the 50-day moving average and top of the ichimoku cloud.

News out of Japan was not as upbeat with the weekly Ministry of Finance (MOF) fund flow data, showing yet another week where domestic funds have sold foreign bonds and stocks and presumably repatriated this money back to Japan. For Japan to swing back to a current account surplus they need to see better outflows and this means domestic players buying overseas assets. It was also interesting to see the consumer confidence index) fall to 38, and this reading is now at the lowest level since September 2011 and importantly lower than when Shinzo Abe came into power. The prospect for a fresh round of easing is growing and while the early April TANKAN report could seal that fate, there is little doubt that Abenomics is not where it needs to be.

China in a better spot today

China is in a better spot, but they are by no means out of the woods. Iron ore futures have pushed up 1.1%, USD/CNH and USD/CNY have fallen and Shanghai Copper has found better buyers as well. Price action in Shanghai copper was strong yesterday and after another limit down open, we saw strong buying activity into the close. The CSI 300 has also moved higher to the tune of 1.2% and the combination of better equity and commodity buying seems to be helping the region.

European markets should feed off the positive flows in Asia and it seems we are at an interesting juncture in a number of European asset classes as well. The DAX closed just above the June uptrend drawn from the June low, so a close below 9230 would put much emphasis on the double top neckline at 9012. The FTSE saw solid buying off the 6600 level, but the short-term trend is lower and momentum indicators reflect that. In the forex space we are seeing good interest for EUR/GBP on the break of 0.8350, which is not only the level that has capped gains three times this year, but is also the 61.8% retracement of the December to February sell-off. This retracement has been the level at which all counter-trend rallies have failed at from last July, so a sustained rally though here is significant.

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One of the interesting developments out of both regions is the increase in currency strength fighting rhetoric from both the ECB (notably the French contingent) and the BoE. One could make an argument that if we see EUR/USD move above 1.40, and more so 1.4500 we will see a significant dovish shift from the ECB, especially given around 60% of the ECB represent countries that need a EUR much closer to 1.25 (such as Italy and France). However, in the short-term while we are getting currency fighting narrative from both countries, but price action would suggest the EUR bulls are getting the upper hand and this seems a function of strong inflows into European stocks and bonds above all else.

8 Responses to “ “ASX at the close”

  1. migtronix says:

    That step change in EUR after lunch, launching it well past 1.39, was pretty good performance for your quasi-safe-haven I’ll say that much :)

    Pulled cable up too but meh.

    EURGBP which has been compressing for a couple of years at least is set to either i) keep rising to .8600 or higher 0.868; ii) break-down at head to 0.78.
    I like the payout of the short side there better – which implies? Strong pound or weak euro?

    EDIT: @Nudge how are you playing YEN these days?

    • Nudge says:

      I’m spending way too much time at work to get a good handle on it all right now – starting to lose track! There’ll come a time when I’ll have to decide which is better for me – IFcome or INcome…… Pressure to step up my hours at work……

      I’ve had small longs on NCM, Xau/Usd & Eur/Yen for a couple of weeks. Looking at the other Yen crosses, it was more arse than class that I’m in the money though – might have had some subliminal from Chris (thanks). Had a shot on IP’s oil call & glad I had a tight stop on it.

      My mind changes daily regarding AUD, my system tells me it’s currently still a buy, but it looks like a dogs breakfast.

      • migtronix says:

        Thanks Nudge and that’s good problem to have man, sounds like you guys are finally getting traction on production! If so I imagine you’re doing more of that metal work you love :)

        Oh that reminds me, @DiscoStu brought us all down to childhood playground daydreams and the difficulty health safety etc regs such activities would incur now — which reminded me of the fun to be had in the metalwork shop; with flying bench drill chucks, razor sharp tin edges, band-saws and powder-coating. Do they still have that today?!? I figured you’ d be the best person to ask.

        BTW don’t you dare be a stranger which ever of your trades you pans out!

        EDIT: Oh thanks for views of course – goes without saying and was requested – but how’s that gold!! :)

      • Mining Bogan says:

        Ha! I was a boilermaker in a previous existence. The dumbest of the dumb. Except for blacksmiths.

        God, if the safety dudes today could have seen us back then. Especially the acetylene bombs…

      • Nudge says:

        Yep there’s traction for sure. More about being short staffed & growing pains though.

        All that stuff’s still there, although as you get older less ‘shit’ happens – well to me at least.

        Single digit age, Motorbikes, .22′s & flying foxes as far as the eye could see, Chain breaking on a very high swing & landing on a garden stake. Motor bike acco saw me concussed & out for an hour – senseless for a fortnight, Totem tennis ball hitting me in the eye & knocking me out. FC bonnet dragged behind the ute at god knows what speed trying to throw each other off (11yrs) & when you did you landed & rolled hard! No helmets, wind in my hair & stitches in my scalp – Loved it (in hindsight)! Bolt bombs using starting pistol caps……… The thing I miss most is probably fireworks though, used to get a potato sack full every year & light 300m long windrows for the bonfire – & run over them! Roman candles @ 20 paces….. :)

        MB, Acetylene bombs, Sniffing oxy in the mornings to help hangovers for about 20 mins before needing another hit ;)

        Spinning a grinding wheel way too fast & it blew up like a shotgun taking my finger with it. It looked like the terminator hand inside till the blood started rushing out :) I’m buggered if I know how they sowed what was left back on, but they did a bloody good job.

        Maybe now I can see a use for OHS, but it seems to me more about saving their arse & insurance premiums than actually caring for their employees. (in general)

        Edit. MB I’m a Fitter/Machinist/Toolmaker – but I’ll stand up for the boilies, there’s far more skill in boilermaking than building or papershuffling.

      • migtronix says:

        Thanks for the fantastic and entertaining reply Nudge that was awesome. You missed my question though I meant do kids still to metalwork? I figured you’d got better with the tools over the years lol.

      • Nudge says:

        TAFE has had the shit cut out of it over the years & it’s changed – understaffed too! I’m not as up on the training side as maybe I should be, but now they combine schooling & the trade in their last years & get credits at TAFE for school modules done. So the apprentices hit the floor with a little more trade knowledge & a little less of other schooling modules..

        Taiwan had a system similar to this from at least the 80′s except there, they were starting their trade skills from about 12yrs & were damned hard to beat by the time they hit their late teens!

  2. dumpling says:

    Gold 1374