ASX at the close

Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets

China key for Q2

It has been a choppy start to the quarter for global markets and I get a sense that this will be a dominant theme through the Q2. While equities mostly enjoyed a strong Q1, it’s clear that without the support of policymakers, investors would not be feeling quite as optimistic. In fact if we consider some of the recent price action, policy expectations have been the pillar holding everything together. As Q1 data starts to trickle in, it’ll give a clearer assessment of the impact that action by various central banks and weaker oil prices have had on some key economies. Having said that, I feel China could be the missing piece or game changer in Q2.

While other economies have seen officials step up to resuscitate growth, the action out of China has been somewhat lacklustre. Given China has been pivotal for global growth over the past decade, the country’s slower growth rate is a worry. However, following comments by the PBoC’s Governor Zhou over the weekend, it is clear China still has an unacceptable level of growth that will prompt it to step up its actions. This has kept China equities bid and if it comes to fruition could really do a lot for the region.

Greenback dips a buying opportunity

The US economy for example will also be keen to see to what extent the stronger greenback has impacted the recovery. It has been well documented that US rates liftoff will be data dependent and the US dollar has been reacting to data releases much like an election poll.

Yesterday’s disappointing ADP non-farm payrolls and ISM manufacturing PMI readings may have gotten a little too much attention as it was greeted by a strong bid tone in treasuries, while the greenback was a touch weaker. However in the past six months or so we’ve seen the private payrolls reading understate the official payrolls reading, which will be released on Friday. As a result, any sizeable gains in Friday’s release could really reignite the greenback.

The market is looking for around 250,000 jobs to be added which is below the 12-month average of 275,000. I still expect to see a firmer greenback in the medium term and short-term greenback weakness is likely to be a good opportunity for traders to buy.

AUD selloff accelerates

Some of the interesting currency pairs at the moment are AUD/USD, USD/CAD and of course EUR/USD. In all three pairs, the greenback just seems to be gaining momentum. The AUD is in focus due to iron ore, CAD due to oil and the euro because of the unpredictability of the Greece situation. In all three pairs it just seems buying USD dips is the way to go. The CAD is particularly interesting given its high correlation to oil prices.

AUD/USD is perhaps the pair to watch at the moment heading into next week’s RBA decision. Traders do not want to be caught out on the wrong side of the AUD. The pair is testing March lows and the sell-off in iron ore has seen the probability of a rate cut on Tuesday ramp up to nearly 71%. While there is still a disparity between market expectations and economist expectations, this has proven to be irrelevant in the past particularly at the February meeting. Some analysts have been changing their calls following the iron ore price rout and UBS is the latest to change its call to an April cut.

At the same time iron ore price forecasts are being slashed by analysts quite heavily. Some now feel until BHP and RIO hit their breakeven levels then it’s hard to call a bottom. However, in the past when analysts grow overwhelmingly bearish about an asset, then it could be that we are near the bottom. For now though, even against other risk currencies like the NZD, the AUD is finding sellers.


  1. My neighbour, who’s a painter, (and very, very bullish on property) is always telling me to be careful of interest rates, which are bound to go up because they’re at “historic lows”. Maybe he could think about some other careers.

    • Paint fumes can wreck havoc of peoples mental capacity.

      Incase anyone missed,

      AUD trade balance (feb) comes in @ -$1253 million beating market expectation of $-1300millon.

  2. Watch ABC’s The Business today’s interview with a solar energy Aussie entrepreneur operating in the US.
    You will see how the rest of the world has moved forward with green energy, we’ve fallen behind due to mixed messages, political interference, lack of a level playing field, and lack of political leadership on this issue.

    Some stats. US has created 700,000 Jobs in Solar. China is allocating the equivalent of 1/3 of Australia’s electricity grid to Solar. California is on track to have 33% of its electricity from renewable sources by 2020.
    Meanwhile, we’re busy here speculating on real estate and lowering interest rate and wondering why there’s no “animal spirit” in the market. And of course our elected leaders have a different take on this: “Coal is good for humanity” we’re told.

    • 2B2F

      “interview with a solar energy Aussie entrepreneur operating in the US.
      You will see how the rest of the world has moved forward with green energy, we’ve fallen behind due to mixed messages, political interference, lack of a level playing field, and lack of political leadership on this issue”

      “created 700,000 Jobs in Solar”

      Do you know of there’s a replay of “The Business” today?

      Are the Americans exporting the technology in Solar?

    • I recall seeing news piece on Oz tv few years ago, maybe ABC or commercial, the (almost quietly disbelieving) notion that ‘Australia may have potential with solar power’…….. says a lot about the news research and presentation, plus the complacency of Australia…… then again hard to fit in with normal Oz diet of car dependency, spectator sport on tv, finance/property, ingrained oligopolies and comfortable xenophobia…. it was suggested to be a foreign concept that couldn’t possibly work in Australia, bit like internet, NBN and digital economy i.e. innovation, very foreign to Oz…..

  3. StomperMEMBER

    Day eight in the @UptownFunk = Bull v @Stomper = Bear challenge saw a continuation of yesterday’s falls in our favourite three miners.

    FMG (aka CartelCo) plunged almost 4% to now be 8% down from the start of our challenge.

    RIO wasn’t spared, down a further 1.2% and with BHP down 0.4%

    Which means the Bull stays well out of the money and hoping for a China stimulus miracle.

    23/03/2015 2/04/2015 Mvt %
    BHP $31.00 $30.220 -$0.78 -2.52%
    RIO $58.21 $55.780 -$2.43 -4.17%
    FMG $1.98 $1.820 -$0.16 -8.08%
    Average $30.40 $29.27 -$1.12 -3.70%

    On a proportional basis the three are down 4.92%

    Happy Easter (or alternative pagan festivities) everyone

    • Heard this fucken idiot on AM this morning. As I waited at the traffic lights, I looked around at my fellow drones oblivious to the fait that awaits them, diligently heading to our Dilbert cubicles, I thought; has Australia hit, some how, a new low in politics? Who the fuck voted for this idiot? As this blubbering fool spilled that he was also backed by property developers, um, is that fucking illegal in NSW? Oh well, what can you but enjoy the show folks!

  4. THE CRUNCH – Are You Ready? PODCAST

    1) From US Dept of Energy lab, Dr. Steven J. Smith says we will get hotter faster.
    2) Paul Goddard on why sea level went up over 2 inches in New England in 1 year.
    3) Carolyn Baker: preparing our minds and hearts for the coming troubles.

    We have two science reports: how we know the world will get hotter faster, and why sea levels along Eastern North America went up a couple of inches in single year. But first, I worry how we will cope with the coming bottleneck, when the economy crashes, along with climate disruption. Are you ready inside?

    Download / listen

  5. Many capital market benchmarks and key currency pairs are coming up on key technical levels, says @JohnKicklighter –

    ‘………..with the NFPs countdown ticking away to Friday’s release, there is a strong case for those awaiting the decisive break and trend development – whether extending exceptional moves or reversing them’.

  6. Damn SLR.

    Ok, so one of the directors resigned.

    SLR will publish the march qtr report at the end of this month. With the low oil prices their AISC should be materially lower, and with the lower AUD their realized sale price should be materially higher, than the Dec qtr. If they somehow manage to balk at either of them I will sell. It would serve as evidence that, for whatever reason, the management is utterly incompetent and unfit to run the company.

      • Well, up by 5% for one day is one thing. Down by 59% for one year is another.

        SLR needs to bring their costs down. Perhaps, the resignation of the director is a good thing. It will bring the corporate overhead down a little bit, I guess. Still, the economy of scale dictates that a small miner like SLR will have difficulty in bringing their costs down – if you have 10 operating mines instead of 1, some fixed costs can be spread.

        Their internal ownership is high, so I think the management will do what they can to improve the share price, but whether they are competent enough to pull it off is another question altogether.



    Land-shackled economies: The paradox of soil | The Economist

    … extract …

    Growth in the rents available to property owners fuels corruption and wastes resources. Landowners work to strengthen development restrictions while politicians cash in on their ability, through selective development approval, to grant fortunate supplicants a windfall. In economies where political corruption is already a problem the renaissance of land may be especially corrosive. In October 2014 the Times of India reported that the bribes required to clear the various stages of the planning-permission process in central Mumbai could add up to as much as half of basic building costs.

      • A few notes on Texas housing.

        1. Energy. A big chunk of the Texas economy is based on energy, which is somewhat counter-cyclical to the rest of the economy. While Texas experienced the tech boom-and-bust, this was mitigated to some extent by offsetting gains and losses in the energy sector.

        2. The Texas job market. The smaller economic highs and lows Texas experienced have meant that Texas’s job market, while not stellar, has suffered less than nationally. Of course, job loss often leads to foreclosure.

        3. Lack of zoning in Houston. There are pros and cons to Houston’s lack of zoning, but it does reduce some of the fluctuation in real estate prices in Texas’s largest city.

        4. I would not overlook the significance of the constitutional restrictions on home equity loans, making it harder to draw on your house’s equity. This not only means more people have had more equity in their homes during an economic downturn, but also that they were less likely to think of themselves as “investing” in a house for purely speculative reasons.

        5. Migration pattens E.g. the higher migration influx other south west states saw as Calif cashed out and moved creating a bubblelicious psychological enviroment.

        Skippy…. yet that entire dynamic is now facing other challenges which will be born out in a few years.

        PS. Still at the end of the day, it pretty much is a case of still nursing a black eye from the S&L Fraud scandal, heighten risk awareness and a bit of old fashioned luck..

      • Housing and Wealth Inequality | Randal O’Toole | Cato

        American Nightmare is in some ways the most profound of the three books I have written for Cato. It covers a wide range of issues, including a detailed explanation of the 2008 financial crisis. But the overarching theme is that urban planning and zoning are best viewed as a form of economic warfare by the upper and middle classes against the working and lower classes. While that might not have been the original intent, to judge by the smug attitudes of the beneficiaries of such planning and zoning, they are perfectly happy with the results. … read more via hyperlink above …

      • @Hugh,

        Texas is about to meet the eye wall of those head winds…

        First quarter job cuts were dominated by the energy sector, where employers announced 37,811 job cuts in the first three months of 2015. The three-month total is up a whopping 3,900 percent compared to a year ago, when fewer than 1,000 energy cuts were reported.

        “Oil companies are not the only energy-related firms who are getting hit this year. Coal mine closings in West Virginia and elsewhere around the country are also costing jobs,” noted Challenger.

        Let’s ignore coal mines for now and focus only on energy.

        What we find is that while Challenger has found “only” 37.8K energy-related layoffs in the first quarter, when broken down by state, things get bad for Texas, very bad. As in recession bad, because with 47K total layoffs, or 10K more than all energy-related layoffs, in just this one state so far in 2015, it means that the energy sector weakness has moved beyond just the oil patch and has spread to the broader economy and related industries in the one state that until recently had the best jobs track record since Lehman. – ZH

        Which begs the question of how some are going to keep up mortgage repayments after the C/RE development expansion, let alone the endemic fraud associated with energy sector financialization i.e. all the tax minimization scams e.g. Houston is almost broke aka the Detroit of the south.

        Skippy…. maybe its time to get some derivative exposure to that action.

      • Houston area’s economy loses some of its zing – Houston Chronicle

        … concluding …

        The Texas Workforce Commission reported that the local unemployment rate fell to 4.3 percent in February, down from 4.5 percent in January. The rate is not seasonally adjusted and is subject to wide employment swings around holidays and school schedules. The statewide rate, however, is adjusted for those typical seasonal factors. In Texas, the jobless rate was 4.3 percent in February, down from 4.4 percent in January. … read more via hyperlink above …

      • Hugh you are aware that’s a lagging indicator which has zero relationship to quality or security of employment, hence not very granular, tho more a confidence gimmick and structural inflation hedging tool.

        “A handful of sectors accounted for half of all jobs created — construction (16,700), professional and business services (15,600), restaurants (13,100), health care (10,400), wholesale (8,200) and retail (6,100). Construction benefited from the $8.7 billion in permits the City of Houston issued in ’14 and the tens of billions in chemical plant construction occurring in the region. Growth in population, income and consumer confidence drove wholesale, retail, health care and restaurant employment. The expansion of the energy sector supported job gains in professional services. A handful of industries reported job losses of 2.0 percent or more — clothing stores (-5.6 percent), computer manufacturing (-3.8 percent), information (-3.6 percent), air transportation (-3.3 percent), and credit intermediation (-2.2 percent). Most of the losses resulted from ongoing restructuring in their sectors ”

        Skip here…. as you can see its not very robust and the sectors that did see growth [services] will experience maturity sooner than later. This is compounded by the two main factors i.e. the 8.7B stimulus in the development sector, which a significant portion is to the Chemical industry by dollar amounts. Those developments have a shelf life and when its over, so it will be for the employment rates, lots of capital expenditure in automation.

        Know Houston pretty well as I did a lot of work for Ash-Land Chemical et al and a fare whack of industrial – distribution facility’s in the late 80s and 90s.

        Skippy… water is going to be a huge factor in population migration, you can’t control it, only mitigate where possible.

      • As I said Hugh… the employment rate does not denote a functioning economy, just look at the pre GFC data and lets not forget they changed the methodology lately [unemployment insurance], its a broad snap shot of a very narrow time line. Per say if you look at U6 across America the range in much narrower.

        Skippy…. Nevada [Las Vegas] was quite the hot spot for a while, as well, as Arizona et al. Do you want Australia to look like that?

      • Skippy … please read Randal O”Toole of Cato’s article hyperlinked above. The graphs tell the story.

        Australia (and NZ too) is in the California, Nevada and Arizona camps … housing bubble victims.

        Texas is resilient because it is not a housing bubble victim.

        The destructiveness of housing bubbles should never be under-estimated.

      • Hugh housing is not the end all be all of an economy nor sociological cohesion, too myopically focus on it is to miss the forest for the tree. Hence your inability to discuss the matter out side that narrow band.

        Sorry…. Cato does not do economics, its more interested in ideological agendas such as “neo-Lockean” Propertarianism i.e. [Libertarians’] use of the word “liberty” refers almost exclusively to property and that where as the “propertarian approach to privacy,” both morally and legally, has ensured Americans’ privacy rights.

        Skippy…. Sorry Hugh… that gets back to an antiquarian concept which is founded on religious beliefs, separation of church and state for me, with a health dose of informed democracy.

  8. They won’t know, until the tide goes out …

    China Isn’t Ready for Creative Destruction – William Pesek – Bloomberg View

    … extract …

    Questionable accounting practices also extend to China’s local governments, which have amassed at least $4 trillion of debt. Their use of off-balance-sheet financing vehicles means even Chinese President Xi Jinping doesn’t know the true magnitude of China’s debt profile. Beijing won’t be able to accurately assess the risk of letting individual companies or banks to go bust until China’s regional finances are less opaque, its companies more shareholder-friendly, and its shadow-banking sector less massive. … read more via hyperlink above

  9. Kiwis view Economic issues (40%) as the biggest problems facing NZ; Housing shortage/ Housing affordability up 4% to 10% in March – Roy Morgan Research

    … extract …

    “There has been a large increase in New Zealanders nominating Government/ Public policy/ Human rights issues 26% (up 5%) as the biggest problems facing New Zealand – the highest this indicator has ever been. What should worry the Key Government is the significant increase in New Zealanders mentioning Housing shortage/ Housing affordability 10% (up 4%) – Housing affordability is a huge problem in Auckland. Over the 12 months to March 2015, house prices in Auckland have soared 13.9% according to the QV Residential Price Movement Index – and over 45.8% since 2007. Over the same time periods housing prices in New Zealand as a whole have increased by around half this rate – by 7.7% over the past year and by 21.3% since 2007…. Read more via hyperlink above …

    • Ahh the old rag Jared Kushner [Charles Kushner land developers kid] bought in 06 and is married to Ivanka Trump. Now that’s unbiased journalism if their ever was.

      Skippy…. personally I’m quite hopeful with the Iran deal, seriously who wants more conflict in the ME.

      • “Now that’s unbiased journalism if their ever was. ”

        Try reading the comments below the article if you want some true entertainment…

        Edit: So hard to pick just one but I think this is my favourite.

        Obama is the political reality of feel good populism . Young voters and shamed whites operating out of guilt , and a racist black minority are the slavish supporters of this Trifling Fool , Barack Obama .

        Like many of the Ancient Hippies , and retooled Socialist Stalinists found in our Higher Education ” factories ” the current crop of Progressive Youth operate on ” feelings ” … not reason let alone any historical context .

        Childish petulant babies have voted in a candidate along with Leftist Elders that mirrors their own hate and shallow reasoning .

      • drsmithyMEMBER

        Skippy…. personally I’m quite hopeful with the Iran deal, seriously who wants more conflict in the ME.

        Conservatives, who are always eager to send someone else’s children off to die for their beliefs ?

    • The first piece is superficial but captures the mood, the second is ridiculous partisan twaddle.

      I went to Iran last year, partly because elsewhere in the ME was too combustible, partly to see for myself.

      After generations of being a plaything for superpowers, and especially the disastrous 1953 CIA-sponsored coup and installed puppet Reza Pahlavi that in turn gave rise to the theocrats, they just want to be their own masters. Can’t blame them for that.

      Interesting thing – the ’79 revolution was actually driven by leftists and, God forbid, communists, in a nose-holding ‘alliance’ with the theocrats. The theocrats then assumed the ascendency and wrote the others out of history. Who controls the present controls the past etc.

      Lovely people by way. The rabid demonstrations sometimes seen on tv are overwhelmingly army conscripts. The people occasionally try to rise up against the rulers, the last election being notable for ruthless militia suppression. Give them time and as the article states, don’t radicalize them. They’re not stupid.