Stats and trends of note

Today will mark the end of one the calmest trading weeks since February and also see the ASX become the best-returning developed equity market in Asia for the week.

Neither events are surprising considering the three main factors that have been heavily impacting the index since mid-April:

· The ASX’s underperformance versus the MSCI world index. US and European indices have monstered ahead as the ASX has looked to be ex-growth.

· The impact of China, which is a major concern for cyclical material and energy names. However, the PBoC’s ‘stability’ liquidity has clearly leached into the economy and that will be a short-term positive for as long as it remains in place.

· Huge amounts of pessimism. Expectations for the upcoming earnings season are as low as they were for FY09 and FY10 (the GFC years). Year-on-year comparison figures will no doubt be lower. However, the possibility of earnings beating estimates is high. (Interestingly, forward EPS estimates have begun to be revised up in the past week.)

These points currently give me reason to be more optimistic and have for the past week. China worries have died down and Greece is now a non-issue (until September, anyway). The next month or two may be the first positive months since February.

Here are the likely reasons for a positive print in July and possibly August:

· July is historically the best month of the year for the ASX, with an average of 3.9% growth.

· This week will be the best weekly gain since 2 February , the week the RBA cut rates for the first time since August 2013.

· Business confidence is at its highest level in a year, yet consumer confidence is sinking to multi-year lows and the spread between business confidence and consumer confidence is at record highs.

· The downtrend in the ASX from April to June has been broken. The next test for the market is whether it can punch through 5700 points, which is highly possible.

· US earnings season will give global markets an extra boost, considering the low-ball estimates and the optimism it will create in investment sentiment.

Ahead of the Australian open

We are currently calling the ASX up 12 points to 5682. This could be the first-four day rally in the local market since 21 May.

What’s more, the trends in the USD are highly pronounced – those with overseas earnings continue to be the ones most are excited about.

However, only about 13% of ASX corporations derive the majority of their earnings from overseas markets. The stock-specific companies that do have overseas earnings and have exciting prospects over the coming earnings season are: CSL, ANN, RMD, RHC, MQG, WFD, HGG and PTM.

My only warning is the macro picture can turn at any moment – be vigilant as storm clouds may return faster than expected.

Asian markets opening call

Price at 8:00am AEDT

Change from the Offical market close

Percentage Change

Australia 200 cash (ASX 200)

5,682.50

13

0.23%

Japan 225 (Nikkei)

20,673.70

74

0.36%

Hong Kong HS 50 cash (Hang Seng)

25,198.10

35

0.14%

China H-shares cash

11,797.70

49

0.41%

Singapore Blue Chip cash (MSCI Singapore)

378.69

2

0.61%

US and Europe Market Calls

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

WALL STREET (cash) (Dow)

18,077.00

-47

-0.26%

US 500 (cash) (S&P)

2,123.53

6

0.31%

UK FTSE (cash)

6,786.90

10

0.15%

German DAX (cash)

11,732.60

121

1.04%

Futures Markets

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

Dow Jones Futures (September)

17,998.00

-45.50

-0.25%

S&P Futures (September)

2,116.88

6.25

0.30%

ASX SPI Futures (September)

5,629.00

15.50

0.30%

NKY 225 Futures (September)

20,702.50

92.50

0.45%

Key inputs for the upcoming Australian trading session (Change are from 16:00 AEDT )

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

AUD/USD

$0.7405

0.0038

0.52%

USD/JPY

¥124.145

0.300

0.24%

Rio Tinto Plc (London)

£26.27

0.30

1.15%

BHP Billiton Plc (London)

£12.93

0.59

4.78%

BHP Billiton Ltd. ADR (US) (AUD)

$26.89

-0.19

-0.69%

Gold (spot)

$1,145.15

-1.70

-0.15%

Brent Crude (August)

$57.57

0.17

0.30%

Aluminium (London)

1713

-1.50

-0.09%

Copper (London)

5545.5

1.00

0.02%

Nickel (London)

11580

120.00

1.05%

Zinc (London)

2069

-11.50

-0.55%

Iron Ore (62%Fe Qingdao)

$50.08

-0.17

-0.34%

IG provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday’s close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

Please contact IG if you require market commentary or the latest dealing price.

EVAN LUCAS Market Strategist

[Kick off your trading day with our newsletter]
More from IBT Markets:
Follow us on Facebook
Follow us on Twitter
Subscribe to get this delivered to your inbox daily