ASX at the close

Chris Weston, Chief Market Strategist at IG Markets

Asian markets have been mixed in the closing session of the week.

There doesn’t really seem to be any significant concern from traders around the upcoming US payrolls report (090:30 AEDT), although clients have been net buyers of USD/JPY, which will be one of the cleaner ways of playing a strong payrolls report. The market actually feels quite sanguine considering the ramifications could be far reaching and will almost certainly set expectations for next week if there is a reasonable miss (either way).

Many of the G10 currency pairs are seeing low range moves of late, and implied options volatility has dropped right off. In fairness, unless we see something in today’s US jobs numbers that wildly alters the picture around Federal Reserve policy, then volatility should remain subdued. It’s when we get massive disagreement that we get volatility which is so desired by traders. So, for this to occur we would probably need to see a headline jobs print below 160,000 or above 300,000 for traders to get excited about change. Throw in an average earnings (yoy) above 2.5% and both the US two- and five-year treasury will be dumped by investors and traders alike and the USD should fly.

Interestingly the US dollar index has already rallied for eight months in a row, which is the best run it has ever had. The fundamentals still suggest the run has further to go despite the USD having rallied 32% since May 2011; bear in mind the average rally during cyclical bull rallies is 7 years. The US economy has been the bright spot and as a result if the market’s roadmap for 3.1% economic growth this year changes in the data flow, the perception of monetary policy could change rather quickly. That probability seems quite low right now and as the Fed says we should all be ‘reasonably confident’.

Locally, traders have been picking up their short exposure to stocks like FMG and AGO, although there has been no real follow-through selling in iron ore futures today. Comments from the Chinese finance minister that the fiscal deficit may actually be 2.7% of GDP and not 2.3% have not supported despite this leading to increased spending, presumably at a central government level.

ASX 200 ending its six-week unbeaten run

The ASX 200 looks set to end its six week unbeaten run, which started since 16 January. Interestingly, despite the market rallying 13% in that time, consensus earnings estimates have fallen 3.1% in the process. This shows just how much moves in global markets; RBA interest cut expectations and dividend growth has played into the markets investment case. Earnings don’t seem to matter too much at present, as long as you are getting paid to be in a position.

There has also been limited interest to push EUR/USD lower during Asia and the consensus trade is to sell rallies in the pair on any disappointment in today’s jobs report. EUR/USD is slightly oversold, but if we do get short-covering then $1.1075 looks like a good level to work shorts into. Stops could be placed above supply at $1.1250, for a potential move to $1.0800. The lack of conviction is similar in European equity markets and our opening calls reflect this, although looking at client positioning some 76% of all open positions (from our global client base) on the DAX are short. Although there has been a slight bias to cover today.

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Comments

  1. https://au.finance.yahoo.com/news/us-running-room-store-oil-171025359.html

    “NEW YORK (AP) — The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months.

    For the past eight weeks, the United States has been producing and importing an average of 1.1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, according to the Energy Department.”

    • By my calculations they are paying AUD 82.6/litre So why are we paying $1.27/litre ?? 0.45/litre difference. 3 weeks ago we are paying around $1.02/litre. What changed to add 30% at the pump when crude has had only modest rises.

      • Petrol should be more expensive, and now is the perfect time to increase fuel excise. Political opportunism by the ALP and Greens unfortunately.

        The crime is not what we pay for petrol — we have some of the cheapest in the world — its that mining companies pay hardly any fuel excise.

        You and I pay 38c/L excise.
        Miners pay 6c/L excise.

      • Miners don’t use the roads, they employ people and pay huge amounts of tax

        Australians on average cover long distances – why should they pay European sized taxes?

        Hasn’t helped any of them balance the books either

      • Road Transport employs around 450k and mining employs 230k. I think road transport has it over mining.

      • And in comparison – how much wear and tear do they account for on the multi billion dollar road network?

        I’m no fan of charging road transport companies fuel taxes either.

        Just another easy tax for governments to tweak that the mug on the street doesnt complain about.

        The demand is inelastic – but Greenies get excited about fuel taxes, regressive as they are, on fuel.

      • The lorax

        “The crime is not what we pay for petrol — we have some of the cheapest in the world — its that mining companies pay hardly any fuel excise.

        You and I pay 38c/L excise.
        Miners pay 6c/L excise.”

        The crime is that you benefit indirectly from mining. Do you suppose farmers also pay the same taxes?

        Tell me Mr all mighty what is it that you do for a living or did?

        Also whats your issue with mining? They made some short term profit? They produce raw ingredients to increase the well being of others? Oh is it 0.00002 degrees of “warming”?

      • drsmithyMEMBER

        And in comparison – how much wear and tear do they account for on the multi billion dollar road network?

        Road transport ?

        Most of it.

        If one were to calibrate fuel taxes (/rego/tolls/etc) against the relative damage to roads, heavy vehicles would be paying vastly more, the average car less, and motorcycles basically nothing at all.

        It is particularly moronic to be transporting things around the country on trucks, anywhere a rail link exists.

        The demand is inelastic – but Greenies get excited about fuel taxes, regressive as they are, on fuel.

        People who think further into the future than their next bonus. The horror !

  2. https://au.news.yahoo.com/sa/a/26522286/australian-first-floating-solar-farm-due-to-begin-construction-in-sa/

    “An Australian-first floating solar power plant is expected to be operational in South Australia by early April, with construction about to begin.

    The plant will float on a wastewater treatment facility in Jamestown in the state’s mid north.

    Felicia Whiting of Infratech Industries said the plant was designed so that much of the construction could be carried out offsite and slotted together at the facility.

    “We should see some plant on the site within about two weeks,” Ms Whiting said.

    She also explained that as the solar panels were floating they would be kept cool by the water mass, making them about 57 per cent more efficient than land-based solar panels.

    “It prevents water evaporation up to 90 per cent of the surface area covered, and for dry states and dry climates that’s a big water saving measure,” Ms Whiting said.

    “It prevents the outbreak of blue-green algae by keeping the surface water cool, which is for treated wastewater an issue in water quality.

    “By preventing photosynthesis, the energy from the sun goes into the panel rather than into the water.”

    NICE !!!

      • I’m out of here, stuff this place too many people with agendas talking on a thread specifically entitled “asx at the close”

        Meh, im over it. Stick to the topic or don’t talk. This website is half threads and half community. You guys ruined the latter and ridded the place of Mig. (Someone who actually talked and knew markets)

        Revert2idiot and the lozer there’s more to life than your unshakable religion of climate change.

      • Simplicity’s got a point!

        The community is becoming buggered by righteous types who are starting to run the asylum. I’m an open minded type, but I don’t need to be smoke screened, dragged OT or harassed & treated like a fool by arrogant zealots who posit that their POV is the only one – whatever their cult.

        This place has seriously taught me heaps, (less of late) I’ll be considering my options when my renewal comes due!

        MB – it’s your site & naturally it’s evolving. Personally I’m not convinced it’s been a good turn of late (talking a few months here). Time to step up in here & balance out the community before it’s completely chased away by the dogs!

      • ErmingtonPlumbingMEMBER

        +1 Nudge and simplicity

        I miss that cranky young fella to.

        Mig though cringingly abrasive at times, was a very informative and entertaining contributor to this forum.

        Do you really want to be preaching, only, to the already converted R2M,………….. kind of a waste of time Brother.

  3. The junk bonds are starting to live up to their names

    http://www.zerohedge.com/news/2015-03-05/shale-company-pulls-movie-gallery-defaults-175-mm-bonds-without-making-even-one-coup

    Missed the first payment

    Same thing started to happen to sub-prime mortgages six months before the wheels properly fell off.

    Imagine buying a bond where the first payment was missed?

    Love to see the ‘ownership’ of this particular bond and how much of it was ‘analysis free’ index/ETF muppets.

    Meanwhile

    http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/03/20150305_bull1_0.jpg

    “The ASX 200 looks set to end its six week unbeaten run, which started since 16 January. Interestingly, despite the market rallying 13% in that time, consensus earnings estimates have fallen 3.1% in the process.”

    Nobody looks forward anymore – it isn’t until the car either slams into a wall or runs out of fuel that anybody takes precautions and then they say “whocouldaknown”.

    Lucky Janet has everyone’s back I guess

    • Much shale is precariously structured, particularly apparent when price declines. If oil price does not rebound, AAE first of many I would suspect.

    • Mining BoganMEMBER

      C’mon, it’s the only way the young’uns will ever have enough to buy a bloated property off a bloated boomer.

      How else are these poor sods supposed to retire?

    • Thinking about getting rid of some family property Joe?

      Self-interested pump and dump at its finest. Just legitimises the filth that are already flaunting SMSF regulations.

    • Uranium GeoMEMBER

      Maybe Joe didn’t get the same memo Xenonophon got.
      If I had twitter I would be trolling the bejesus out of him about now.

    • drsmithyMEMBER

      I do wonder how long it will take enough people to realise these policies are not incompetent, but malicious.

      The UK and US had a 5-10 year head start on neoliberalism. We know where it ends up. Deliberately continuing along that destructive path ceased being justifiable by incompetence a couple of decades ago.

    • It’s funny how the only non-baby boomer directed government handout he could come up with was the first home owners grant…yep

      There are only really two points in the lecture; unemployment and interest rates
      On unemployment he says:
      “The current jobless rate is 6.4 per cent. Between the mid-70s and the early 2000s it averaged 7.5 per cent, and got as high as 10 per cent”

      Yes, but this avg. is a poor guide to labour market conditions when the boomers joined the workforce in the 70’s. Despite the oil shocks unemployment in the 70’s never climbed above where it is today. In reality most boomers joined the workforce in the early 70s under conditions of genuine full employment.
      His average is skewed by the early 80s and 90s recession and the increase in the structural rate from the mid 80’s all of which were felt by Gen x, not the boomers.

      On interest rates:
      “The standard home loan rate hovered around 5 per cent in the 60s and was sitting at 7 per cent when the oil shock hit. It was above 10 per cent within a year, and in the 80s rose from about 9 per cent to a peak of 17 per cent in 1989”,

      Two words – money illusion. In the late 1970s (when boomers were first hopping on the property ladder) real rates were actually negative. On top of that, very high inflation from the late 1970s all the way through the 80’s mean’t the real value of long term mortgage contracts were inflated away very quickly.
      In the late 1980’s mortgage rates spiked when caps on mortgage rates were lifted. In real terms the effect was muted. In anycase, again it was Gen x who copped it, the boomers were already on the property ladder.

      He also has a familiar non-point:
      “However as the chart shows, the relative cost of servicing home loan debt is lower than it was in the 80s and early 90s because home loan interest rates have fallen. It is actually in line with the average since 1980”.

      The cost of financing an asset and the cost to consume a good or service are not the same thing. This point comes up all the time, because ‘housing affordability’ and ‘the cost of housing’ are so poorly defined.

      Housing affordability = Market Rent/Household Income
      High house prices have nothing to do with affordability.
      Bubble house prices are an intergenerational transfer because they mean wealth is transferred from those who are short the market to those who are long the market (just like any other asset market). In housing this always means younger cohorts to older ones. Stop talking about affordability, it’s irrelevant. What matters is the transfer in wealth.
      Just like if younger cohorts decided to inflate away the boomers nominal assets. The ‘unfair’ transfer would be from those long nominal assets (boomers) to those short nominal and long real assets (younger cohorts). I am beginning to think that would be a very good idea.

      • I can’t find it on a quick search, but didn’t the guys just show the boomers have actually taken more out than they put in. So even on a purely economic analysis, ignoring the environmental and urban amenity degradation, they have essentially plundered the country.

    • How could he get away with garbage like this:

      “In 1989 an average Sydney house cost $170,000, and an average Melbourne house cost $132,000. Average annual earnings were about $26,400, and mortgages were priced at 17 per cent. Today, the median Sydney house costs about $873,000, the median Melbourne house costs about $610,000, average earnings are about $77,000, and the mortgage is about 5 per cent.”

      Someone should send him this:
      http://www.macrobusiness.com.au/2013/02/the-history-of-australian-property-values/

      In particular he should look at “interest payments to disposable income 1997-2012” graph.

      Does not make sense to use average annual earnings to house prices as he did. Interest payments to disposable income is a better measure.

    • It doesn’t even warrant picking to bits he’s so FOS.

      Not one mention of the ecological and environmental mess left behind. It’s a great life now, as long as you don’t mind that all the rivers, beaches and fisheries are f..d beyond all measure.

      As an economic journo could he have closed his eyes any more to the wholesale sell off of national assets, and the total ruinous financialisation of everything?

      50 pieces to shut up and take your tiny piece of the capital as you sell out 200 years of progress to fairness.

      Un-f..g-believable.

      Oh we’ve hardened up mate don’t you f..g worry about that.

  4. https://au.pfinance.yahoo.com/money-manager/real-estate/article/-/26535731/chinese-investors-with-1-million-cash-in-suitcases-to-buy-sydney-property/

    “Have you ever seen a $1 million in cash, a Sydney estate agent asked the quite surprised 2GB Money News broadcaster Ross Greenwood on his show last night

    The agent said he came from an undisclosed suburb heavily populated by people of Chinese origin and also a destination for Chinese investors.

    Property Observer gathers it maybe riverfront inner west Sydney.

    They come in weekly with literally suitcases with a $1 million, $2 million in cash, the agent told Greenwood, who had the agent’s identity checked, but not revealed on air.

    The one thing they say is we don’t need a bank, we can settle in two weeks.

    Asked whether they were buying new or established homes the agent said: “Anything.”

    It is happy days for me as I am an agent, but for my kids, your kids and the listener’s kids, they have no hope.

    Asked how they are getting around the rules, they responded with, you don’t have to worry about that.

    Upon being questioned further given an agent’s obligations regarding excessive cash transactions, the buyer told him the cash came from a camper van trailer factory back in China.

    Ross Greenwood wondered how the money gets through Australian customs.”

    • GunnamattaMEMBER

      There was a youtube video of an auction out in Balwyn in Melbourne about a year ago which showed just how up front it can be!

      This guy (Chinese – spoke very little english) turned up at an auction, blew the other bidders (including 2-3 other groups of Chinese and an Indian family) out of the water. No sooner did the auctioneer wave his hand and say ‘sold’ than the guy walked up to them with two suitcases and opened them up before the auctioneer (showing AUD in large quantities) who gesticulated to to the guy to close them, and then turned to another guy (off camera) somewhat shocked and asked ‘what do we do about this? Can we take it like that?’ – someone off camera could be heard saying ‘yeah, yeah its its OK, we can handle it’

      That video was loaded on youtube and then subsequently removed.

  5. “I get a lot of people approaching me saying that young people should be able to use their superannuation to fund a deposit on a home, on their first home,” Mr Hockey said.

    Translation: A lot of Hockey friends (i.e. BB) approached him knowing that their Ponzi scheme is running out of steam looking for additional fuel to keep it going. Gen Y is what came to their mind. Let’s face it, what’s keeping the Ponzi going is immigration and that might slow down in light of the slowing economy so a replacement is needed. Gen Y are screwed anyway, why not screw them some more so that BB retire comfortably?.

    • More evidence that Hockey is a moron. Not that evidence was needed.

      The story in Canberra when he was Human Services minister is he could not be given a brief unless it was fundamentally explained in a graph. He could handle numbers at all.

      It explains the info graphics that littered the IGR too.

      • @ Cornflakes – Hope your not having a dig at visual learners.

        I don’t blame Hockey. Those wordy double dutch weasel words used by self-preserving professional bureaucrats make me sick. They say they actively encourage people to write clear unambiguous English – yet the only way to get promoted its to start throwing around the most convoluted and esoteric language into policy statements. Make your boss reach for the dictionary twice in 20 mins? Make them re-read the same sentence three times and have a coffee after the second? Winning.

        Its deliberately obfuscated to preserve their own sense of importance and control over something. Inter-department work between rival departments is even funnier – becomes a shitting contest to see who can bury the other under the most tedious pile of paperwork. Just look at the arranged marriage between the Customs and Immigration departments. Tribal. The other purpose is that the muddy waters provide individuals and departments with the option to defect accountability.

        Gimme graphs and statistics anyday. Sure have a go at Joe but lets have a look at the performance of the public service and their actual outcomes- not just their polished statement and annual reports.

    • I read it as “if we are just going to take their money in the future, why not get them to give it away now.”