Global Markets Overview - Dec. 4, 2015

Over-excitement always causes disappointment

A lesson in over-positioning was delivered overnight as the short positioning in the EUR and the long positioning in European bond and equity markets were given a rather measured ECB policy change.

I have been fully aware that last night’s ECB meeting would be the biggest ‘disappointment’ event of the week. What the market ‘wanted’ versus what the market was ‘going to get’ were two distinctly different events.

The end result from the ECB meeting was that the deposit rate was cut by 10 basis points to 30bps versus the market pricing of around -41 bps.

And the asset purchase program has been extended to March 2017 (some had called for it to be open-ended) but the pace of monthly purchasing was maintained at €60 billion; the market had priced in a €75 billion a month pace.

The result of the over-positioning in the currency market was clear:

EUR/USD was at 1.0525 at the low yesterday. If the non-farm payrolls (NFP) tonight is weak, a plus $1.10 will be locked in come the weekend. That’s over five cents in 48 hours in the biggest volume pair on planet – staggering.

Things of note

· Staggering moves were clearly seen in European fixed income (German two-year bund +14bp, ten-year +19bp), with huge knock-on effects on Swiss Govies too as traders sense there won’t be a counter response. Even the US ten-year treasury moved +15bp, with the US curve steepening to 134bp despite a poor services ISM. T he spread in the two years between the US treasures and German Bunds was smashed.

(Source: Bloomberg)

The other issue from overnight is the vote was not ‘unanimous’. It’s not hard to conclude were the ‘resistance’ came from – the Germans would have been rather displeased to see the measure the market was wanting to put into the European economy. It is also clear that Germany is going to have to be dragged kicking and screaming into ‘further stimulus measures’ and there is now a belief that Draghi has done his dash. Although there was slack for further moves into 2016, the premium in European equity markets in the short term will filter out fast.

· OPEC is now making all the ‘right’ noises of inaction. Brent and WTI did rally overnight, however we see this move being down to the mass shorts in the trade simply relaxing before using the OPEC announcement as a reason to pile back in.

Iran is resisting calls to cut production having just come back into the output mix from sanctions being lifted this year. Russia, a non-OPEC member, was invited to the conference is also showing signs it’s unwilling to move on its output mandate and now squabbling has broken out between ‘action’ members. I mention this at the start of the week the hype around the last two OPEC meetings was exactly the same as this one – the conclusion is the status quo will be maintained.

Ahead of the Australian Open

The European overpricing is going to spread globally. Nothing ‘risk’ based (equities) was spared last night and I don’t expect the ASX or any Asian indices to really miss out on the sell off today. We are calling the ASX down 73 points to 5154. BHP and RIO were savaged in London; BHP’s ADR has the Big Australian at $17.87 which has not happened since mid-2005. The banks are also unlikely to see any respite; CBA’s ADR is off 76 cents to $80.74.

Asian markets opening call

Price at 8:00am AEDT

Change from the Offical market close

Percentage Change

Australia 200 cash (ASX 200)

5,154.50

-73

-1.40%

Japan 225 (Nikkei)

19,467.30

-473

-2.37%

Hong Kong HS 50 cash (Hang Seng)

22,061.60

-355

-1.59%

China H-shares cash

9,835.70

-152

-1.52%

Singapore Blue Chip cash (MSCI Singapore)

318.67

-4

-1.29%

Futures Markets

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

Dow Jones Futures (December)

17,453.50

-322.50

-1.81%

S&P Futures (December)

2,045.63

-38.50

-1.85%

ASX SPI Futures (December)

5,158.50

-66.00

-1.28%

NKY 225 Futures (December)

19,477.50

-500.00

-2.50%

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

$0.7345

0.0030

0.41%

USD/JPY

¥122.385

-1.060

-0.86%

Rio Tinto Plc (London)

£21.35

-0.54

-2.46%

BHP Billiton Plc (London)

£7.99

-0.16

-1.95%

BHP Billiton Ltd. ADR (US) (AUD)

$17.87

-0.32

-1.76%

Commonwealth Bank ADR (US) (AUD)

$80.74

-0.76

-0.93%

Metals Exchanges (Change are from 16:00 AEDT )

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

Gold (spot)

$1,065.18

12.31

1.17%

Brent Crude (January)

$43.88

0.92

2.14%

Aluminium (London)

1478

-2.50

-0.17%

Copper (London)

4571.5

19.50

0.43%

Nickel (London)

8820

-85.00

-0.95%

Zinc (London)

1526

-23.00

-1.48%

Iron Ore (62%Fe Qingdao)

$40.75

-0.38

-0.92%

IG Iron Ore (CNH)

¥290.95

-6.70

-2.25%

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
IG, Level 15, 55 Collins Street, Melbourne VIC 3000
D: +61398601748 | T: +61398601711www.ig.com

[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