ASX at the close

Stan Shamu, IG

While China continues its upward trajectory, the rest of the global equities space remains extremely choppy. Some of the recent volatility in bond markets has played a big role in the choppy price action in equities and yesterday it was all about a sell-off in US treasuries. The sell-off in bonds was actually triggered in European trade and not even the fact Greece managed to make a €750 million payment to the IMF was enough to stem the losses.

Data has been limited to start the week but is set to ramp up tomorrow with a raft of releases across Asia, Europe and the US. China releases industrial production, fixed asset investment and retail sales data while new loans and M2 money supply data could also potentially be released tomorrow.

Following some of the action we’ve seen from Chinese officials over the past few months, the market is expecting to see an improvement in all these readings. If that’s not be the case, it will likely fan equities even higher as hopes for further easing increase.

Elsewhere in the region Japan will release its current account, bank lending and economy watchers sentiment reading.

Federal Budget in focus

The ASX 200 has managed a modest rise today despite the Federal Budget commentary flying in from all angles throughout the day. Politicians have a knack of disrupting financial markets and it’ll be interesting to see if investors will be willing to stay the course over the next couple of days. While the headline will be whether the deficit is indeed under $40 billion, the level of fiscal drag from the budget is likely to be the highlight.

The next issue to contend with will be the level of government debt from a budget which is tipped to be family and small business friendly. From there analysts will then look to monetary policy and whether the RBA will have to act to stem pressure from the fiscal side of things. This would then have a direct impact on the AUD and domestic equities. The breakdown will also be interesting as there are no major projects to get excited about and, of course, there will be certain measures that benefit/drag certain equities directly.

The banks have made a bit of a comeback in today’s trade, helped by a jump in March home loans/lending/credit data. However, they continue to lag the miners. China has really given some of these materials plays some renewed vigour and some investors are starting to get excited about them again. However, this move could well be a flash in the pan and might not necessarily go the distance.

Weaker open for Europe

Ahead of European trade we are calling the major bourses mildly weaker with limited releases on the calendar. In the UK we have manufacturing production and industrial production set to be released. This could cause some volatility for the sterling which has been on a tear since the elections.

Sterling crosses are where all the action is at the moment with the post-election momentum continuing to drive the currency. In fact, the sterling is one of the few currencies that the greenback is struggling to gain ground against.

Tomorrow we have the BoE inflation report and Governor Mark Carney speaks. This will be the key risk event for the sterling this week. Europe will be pinned on any commentary from today’s ECOFIN meetings, which could bring fresh commentary on Greece. EUR/GBP remains one of the more interesting pairs to watch given recent election activity in the sterling and the current challenges the euro is facing.

Latest posts by Chris Becker (see all)

Comments

  1. StomperMEMBER

    Another day of irrationality in day thirty-five of the @UptownFunk v @Stomper challenge with RIO up 1.08% BHP up 2.23% and FMG holding ground with no change for the day.

    The overall improvement saw @Uptownfunk’s lead jump from +2.00% to +3.47%

    23/03/2015 12/05/2015 Mvt %
    BHP $31.00 $32.530 $1.53 4.94%
    RIO $58.21 $59.250 $1.04 1.79%
    FMG $1.98 $2.570 $0.59 29.80%
    Average $30.40 $31.45 $1.05 3.47%

    The proportional calculation also strengthened from +11.05% to +12.17%

    Budget night tonight – can’t wait to see the Iron Ore price forecast!

    • Hi Stomper. Thanks for the score-keeping and bright comments. Continued good luck wishes, OK.

      • Mining BoganMEMBER

        You have no idea how many are talking about getting in now while things are cheap to be ready for the next boom.

      • Every second advert i hear on the radio is along the lines of, are you going to miss out again. Get in now for the next boom.

    • Crash. No other way to describe it.

      Macrobusiness.com.au needs to start looking for signs of contagion in regional banks, major banks lending on distressed loans to FIFO workers showing up in capitals, small business loan stress in services and secondary industries, builders, suppliers, etc.

  2. It’s all good, looks like the IMF has given Greece the money to pay the IMF loan payment. Lever up!

  3. We need that treasury forecast vs reality over the last five years curve to be available. Too funny…

    • The treasury will just tell you with straight face that Australian economy kept missing their consensus expectations by a wide margin.

      Time to show the CEO the door?

  4. Good budget wrap. The political aspect:

    “Confused budget reveals Joe Hockey’s real agenda: political survival”

    http://www.theguardian.com/australia-news/2015/may/12/confused-budget-reveals-joe-hockeys-real-agenda-political-survival

    The analysis:

    “The budget to repair the (poll) damage done by the last budget – in graphs”

    http://www.theguardian.com/business/grogonomics/2015/may/12/the-budget-to-repair-the-poll-damage-done-by-the-last-budget-in-graphs

    Just to show how confused this Governments thinking is:

    The government still expects unemployment to get to 6.5% but now expects it to take a year longer to get below 6%. Not until 2018-19 do the budget papers predict unemployment at 5.75%.

    And despite better labour force participation over the next 12 months, the government now expects employment to grow by just 1.5% compared to the 1.75% it was hoping for when it did the Myefo:

    or

    For the three years from 2016-17, the budget expects company tax revenue to grow by around 8% on average. By contrast from 2008-09 to 2015-16 company tax revenue grew by just 1.6% on average each year.

    and this statement sent a cold shiver through Mrs Nut (accountant type)

    “If you run a cafe it might be new kitchen equipment, or new tables and chairs. If you’re a tradie, it might be new tools or a computer … cars and vans, kitchens or machinery … anything under $20,000 is immediately 100% tax deductible from tonight,” he said.

    Kitchen fit outs and equipment are not immediately claimable, they’re depreciated and will require a rewrite of the tax code which will cost the Government a motza.

  5. Govt bond woes trigger broad market turmoil … Financial Times … google search title if blocked …

    http://www.ft.com/intl/cms/s/0/dd2f6afe-f887-11e4-8e16-00144feab7de.html#axzz3Zs6QxrO7

    Investors intensified their selling of government bonds on Tuesday, knocking eurozone share prices, while emerging markets also experienced significant pressure.

    Concern that long-dated bond yields are low and provide meagre protection against the prospect of higher inflation, has driven the shift out of what was a winning trade for much of the past year. … read more via hyperlink above …

  6. Appeal to Dwindling Core Proves Costly for Labour Party in Britain – NYTimes.com

    http://www.nytimes.com/2015/05/10/world/europe/appeal-to-dwindling-core-proves-costly-for-labour-party-in-britain.html?_r=0

    LONDON — The Labour Party’s defeat in Thursday’s British elections was its poorest performance in nearly 30 years.

    It was nearly wiped out in Scotland, long one of its strongholds. Some of its brightest and most experienced members of Parliament lost their seats, including its shadow chancellor and shadow foreign secretary. … read more via hyperlink above …

  7. So based on an analysis of last years and this years budget, it seems the only guiding principle that the Libs have is never ever remove tax rorts for the aged and asset rich. Color me unsurprised.

    Hey everyone! Look at the size of Joe’s government!

    They’re nothing but big government deficit junkies who believe in economically inefficient spending and tax rorts for rich mates; just like the US Republicans.