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[email protected]: ASX’s winning streak set to snap

The Australian share market looks set to open lower following an overnight dip in oil prices and a weak lead from Wall Street, where markets were weighed down by tech stocks.

At 7am on Friday, the local share price futures index was down 19 points, or 0.32 per cent, at 5,859.

Tech companies pulled US stocks back in late trade after reports in Taiwan suggested Apple was cutting orders for its iPhone 8 due to low sales. A slide in crude oil prices also pulled down energy stocks, which could follow suit on the ASX. The long and short of it

1. Volatility: Take the five-day average (true) range of our Aussie 200 index, it has traded in an average range (in the past five-days) of 40 points – the lowest range over a full session since August 2014. Fine, this is using historical data, but even if we look at implied volatility and see what the expected move in the session ahead, this sits at 37 points – so again this market is devoid of any real pulse. However, the question I am interested in is whether the buyers step in and we see a re-test and close above 5900 or whether we see traders and investors take a bit off the top ahead of the weekend and next week’s shenanigans.

2. US tech sell-off: US equity markets overall have closed a down a touch, but importantly have found good buying off their session lows amid the prospect for higher corporate earnings and data showing firmness in the American labour market, which of course, is why SPI futures rebounded. The Nasdaq Composite Index fell the most in three weeks as technology stocks faltered. United Air plunged on a weak than expected profit outlook. Apple weighed on sentiment, given concerns its sales of iPhone 8, specifically in China, will not support the sort of the revenue growth many had hoped for.. It’s not all doom in tech though and IBM continues to build on yesterday’s impressive rally, while Adobe Systems has put on 12 per cent after strong earnings.

3. Company earnings: Next week is the busiest week in the US third-quarter company reporting calendar, so Wall Street will certainly be worth watching. And so will Australian financial stocks, with ANZ and Macquarie Group scheduled to report full-year numbers next Thursday and Friday.

4. Don’t fret the Minsky Moment – yet. We have also seen a number of negative news headlines, notably a focus on the commemoration of the 1987 crash and comments from the head of the Chinese central bank pushing against an impending “Minsky Moment” – a sudden collapse of asset prices after a long growth run – but these are not reasons to sell shares or corporate credit to any great degree. We know the risks in the system, but now is not the time to act, especially after Thursday’s solid China economic data. The broader sentiment does seem to be hitting the oil markets though and we have seen US crude close 1.3 per cent lower.

5. Bonds: US Treasury yields were bid for most of the session but yields have moved higher to mostly sit unchanged on the day, with traders buying the slight dip in the S&P 500. Of course, there has been some focus on Janet Yellen’s meeting with Trump, as part of the president’s recruitment drive for a chair of the Federal Reserve, which is to be disclosed by 3 November. As of 7am, US Treasury yields extended their fall after a report that Trump was said to be leaning toward Powell.

6. Aussie/ Kiwi: The moves in US fixed income in turn has put pressure on the US dollar. The Aussie dollar is a touch higher on the session at US78.62??, but sits just off the highs of US78.84??. The ‘Kiwi’ got a work over more broadly given Winston Peter’s, and the NZ First parties, decision to form a coalition with Labour and The Greens. The market has been worried about this outcome and this outcome is partially in the price, but it does mark the start and a new phase on concern about future Reserve Band of New Zealand policy and the Kiwi economy. Given how cheap the NZ dollar is against the Aussie, relative to bond yield spreads, there is good upside here. My preference is to take long positions into NZ$1.1175 though and wait for a little heat to come out of the price.

7. Local company events to watch out for: The chief executives of National Australia Bank and Commonwealth Bank will make their latest appearances before MPs in Canberra. Ansell and insurer IAG hold their annual general meetings.

8. Key figures: SPI futures down 19 points or 0.3% at 5859.AUD +0.2 per cent at US78.62 centsOn Wall St: Dow flat, S&P 500 flat, Nasdaq down 0.4 per centIn New York, BHP flat Rio flatIn Europe: Stoxx 50 -0.5%, FTSE -0.3%, CAC -0.3%, DAX -0.4%Spot gold +0.5% to $US1287.07 an ounceBrent crude -1.6% to $US57.23 a barrelUS oil -1.2% to $US51.40 a barrelIron ore -2.9% to $US60.88 a tonneDalian iron ore +0.2% to 446 yuanLME aluminium +1.6% to $US2153 a tonneLME copper -0.3% to $US6967 a tonne10-year bond yield: US 2.32%, Germany 0.39%, Spain 1.62%, Australia 2.76%

???This column was produced in commercial partnership between Fairfax Media and IG

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