ASX at the close

Chris Weston, Chief Market Strategist at IG Markets

It’s been a fairly crazy session today in Asia and there has been a lot of head scratching as to the reason behind the sharp moves, which were predominantly centred in US futures.

It’s not every day you see NASDAQ and S&P futures dropping 1.3% in around 20 minutes, and 0.7% in three minutes, especially when risk FX (such as AUD/USD) or copper didn’t go along for the ride. Initially there were some tongue in cheek comments that perhaps the China PMI data had been leaked, but clearly that wasn’t the case as we actually saw expansion in the larger manufacturing series, although the new orders sub-component did fare a little worse than February.

Generally you will see the algos pull markets closer together in alignment, especially when US futures do their own thing, but that wasn’t the case. Brent futures were closed at the time when S&P futures started to tail off, and this was the most logical asset to watch given the barrage of headlines around the negotiations between Iran and foreign diplomats.

Some focus on negotiations with Iran

From all accounts, some progress has been made in the talks; although the official deadline was missed there is still a view that an agreement will be reached soon. It all seems reminiscent of the Greek talks where we see painful negotiations, with deadlines missed and the final result being a positive one. We have already seen the market express a clear desire to push energy prices lower on the perception of agreement, as Iran is already OPEC’s third biggest producer and this will only increase if agreement is found. Falls in energy as we have seen as bad for US equity markets, although the Federal Reserve (among other central banks see lower oil as vert positive for economics).

There has been some techincals moves made as the S&P futures broke the 100-day moving average at 2046, a level at which the market has found good buyers over the last few days. I don’t put much weight behind the technical call myself and would look much more favourably at liquidity and stops being the key driver. The new quarter may also be a factor.

US futures have recovered some 50% of the losses from the earlier highs of 2060, as has brent and WTI oil prices, but the falls have still taken the wind out of the sails of the likes of the Nikkei and ASX 200. China, however is once again pushing higher and is likely to continue to outperform from here. Our European opening calls are looking weak and client business has tended to trade the move lower than question the logic of the move lower and buy the dip.

The market now heavily leaning on an April cut from the Reserve Bank 

We’ve even seen some buying of iron ore futures during Asian trade, although not quite enough to push AUD/USD through the former uptrend drawn from the March low at $0.7644. Better building approval numbers and house price data have helped to a degree, as did the Chinese data, but the swaps market tells a clearer story here and have actually modestly increased the probability for an April cut from the Reserve Bank to 76%. Just like we have seen in the March and February meetings, there is clear disagreement between market pricing and the economist consensus, with only seven of 27 economists surveyed (by Bloomberg) agreeing with the market. Naturally those calling for cuts will all be saying ‘why wait’?



  1. What percentage chance was the market pricing in a rate cut back in Feb and March?
    I’ll position a long AUD/US for a rate hold come next Tuesday regardless of market consensus, I don’t think Glenn Stevens will be as reckless as most people seem to think.

    • I wouldn’t be going long at this price, the market is selling any rallies. That said 75.8 is a very strong support, if you want to make 50pips go for it.

      My view is though that tonight the market will be testing the 74.8…

  2. Day seven in the @UptownFunk = Bull v @Stomper = Bear challenge saw a massive correction to @UptownFunk position with significant falls in our favorite three miners.

    FMG (aka CartelCo) succumbed to overnight falls in iron ore prices to finish the day 3.32% down.
    RIO wasn’t spared from the carnage, down 1.43% and BHP was caned 2.22% with further cracks developing in the IO price floor.

    Which means the Bull is now well out of the money – 2.8% down on our starting position or 3.09% down on a proportional basis.

    23/03/2015 1/04/2015 Mvt %
    BHP $31.00 $30.340 -$0.66 -2.13%
    RIO $58.21 $56.400 -$1.81 -3.11%
    FMG $1.98 $1.900 -$0.08 -4.04%
    Average $30.40 $29.55 -$0.85 -2.80%

  3. New site looks better & I’m sure in time will actually be better. But at the moment its a real pain having to refresh etc. every time you go to site. Am I missing something? Never had to do this before & don’t need to do it for other sites. Perhaps I’ve stuffed something up…

  4. Weak demand hits China factory, services firms in March, more easing seen | Reuters

    (Reuters) – Surveys of China’s factory and services sectors showed stubborn weakness in the world’s second-biggest economy in March, adding to bets that Beijing will have to roll out more policy support to avert a sharper slowdown.

    Three separate surveys showed Chinese companies shed jobs last month as they struggled with soft demand and deflationary pressures, suggesting that economic growth may have slipped below 7 percent in the first quarter of 2015, which would be the weakest in six years. … read and view via hyperlink above …

  5. Space and the city … The Economist … h/t David L …

    Poor land use in the world’s greatest cities carries a huge cost
    Apr 4th 2015 | From the print edition

    BUY land, advised Mark Twain; they’re not making it any more. In fact, land is not really scarce: the entire population of America could fit into Texas with more than an acre for each household to enjoy. What drives prices skyward is a collision between rampant demand and limited supply in the great metropolises like London, Mumbai and New York. In the past ten years real prices in Hong Kong have risen by 150%. Residential property in Mayfair, in central London, can go for as much as £55,000 ($82,000) per square metre. A square mile of Manhattan residential property costs $16.5 billion. … read more via hyperlink above …

  6. The significance of constraining land supply as the trigger for housing bubble had been poorly understood internationally … particularly by economists and within the finance sector … until recent times.

    To get a sense of the dramatic shifts in thinking, check out the thread to an older MB post “New Zealand’s economy booms” …

    In my view, there is now massive momentum internationally to deal with land supply constraint issues. Note too, the Australian Federal Labor Party has woken up to it as well (UK Daily Mail report) …