Global Markets Overview - Oct. 19, 2015

Rates, growth and earnings

For those central bank watchers, a very interesting week is ahead with three main themes to note: growth, earnings, and the pressure these have on global rates.

What’s catching my attention

· You can’t look past China’s GDP today – ANZ are forecasting a bit of carnage with a year-on-year figure of 6.4% (this would send the market into a bit of a fuss). The consensus estimate is 6.8% – this would be considered ‘near enough’ to the targeted ‘around 7%’, however it would still be lowest growth rate since 2009.

· Three hours later, China will release its urban investment, retail sales and industrial production numbers – all expected to slide from the previous month. Industrial production is expected to decline to 6% in September after bouncing back in the previous five months from a 25-year low of 5.6% in March.

· PBoC rate cut expectations are creeping up, but still no signs that it will actually act. Chinese President Xi Jinping was interviewed over the weekend and pointed to the ‘sluggish world economy that is weighing on China’s growth’ as the cause for its marked slowdown. No suggestions yet that he will interview either.

· US earnings season remains mixed, 57 companies have reported so far, and 71% have beaten expectations on the earnings per share (EPS) line. However, the revenue line has fallen below half with 48% beating expectations.

· Top line growth in the US has been ripped to pieces in the past year. The USD is effectively applying a tightening bias on the US economy and the headwinds its creating see the current ‘growth’ in corporate revenues contracting 6.8% in this quarter (from the small sample so far).

· JP Morgan released a report over the weekend estimating that the US is losing 50,000 export-facing jobs a month in 2015 because of global growth and the USD. That compares to the 9000 jobs added in export-facing jobs in 2014.

· The pressure on the Fed’s first mandate is growing, employment is beginning to feel the pressure of global factors. The Fed funds futures is currently pricing the December rise at 32.6%. The only month that has a noteworthy probability is July 2016, at 74.6%.

· Expectations of a cut from the RBA jumped on Friday . Westpac’s rather bearish report coupled with several economic reports showing further signs of weakness saw the interbank spiking.

· Expectations of a cut on Melbourne Cup moved from 26% to 38.5%. The expectation for a December cut has hit 80% from sub 50%.

· House clearance rates in Sydney continue to tumble. Melbourne rates remain steady, however the rest of the country is sliding faster with Queensland and Western Australia seeing marked pressures.

· Westpac’s decisions to test the pricing power of the Big Four remains an interesting dichotomy. It would be watching CBA with renewed vigour this week (NAB and ANZ are unlikely to move rates until reporting their full-year numbers next Thursday and Friday respectively). Expectations would be for Australia’s largest bank to join it in raising rates. However, the longer CBA holds out, customer churn issues will create an uneasy pressure on the bank.

· If CBA does raise rates, the interbank market’s rate cut expectations will rapidly ascend towards 100% probability.

· AUD slid over the weekend. It remains in the 72 cent handle, however with China, the Big Four and the minutes from the RBA all likely to add downside pressure, the 70 handle is the most likely end for the AUD come Friday .

Ahead of the open and based on the close of the futures on Saturday , we are calling the ASX up 27 points to 5295.

Asian markets opening call

Price at 8:00am AEDT

Change from the Offical market close

Percentage Change

Australia 200 cash (ASX 200)

5,295.30

27

0.51%

Japan 225 (Nikkei)

18,368.20

488

2.73%

Hong Kong HS 50 cash (Hang Seng)

23,266.40

199

0.86%

China H-shares cash

10,754.60

118

1.11%

Singapore Blue Chip cash (MSCI Singapore)

342.72

3

0.80%

US and Europe Market Calls

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

WALL STREET (cash) (Dow)

17,212.50

69

0.40%

US 500 (cash) (S&P)

2,033.97

9

0.47%

UK FTSE (cash)

6,391.50

25

0.38%

German DAX (cash)

10,127.70

5

0.05%

Futures Markets

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

Dow Jones Futures (December)

17,115.50

64.50

0.38%

S&P Futures (December)

2,026.25

9.13

0.45%

ASX SPI Futures (December)

5,270.50

15.00

0.29%

NKY 225 Futures (December)

18,397.50

50.00

0.27%

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

$0.7259

-0.0033

-0.46%

USD/JPY

¥119.365

0.270

0.23%

Rio Tinto Plc (London)

£25.35

0.22

0.88%

BHP Billiton Plc (London)

£11.63

0.18

1.53%

BHP Billiton Ltd. ADR (US) (AUD)

$24.84

-0.16

-0.65%

Gold (spot)

$1,177.20

-0.30

-0.03%

Iron Ore (62%Fe Qingdao)

52.6

-0.60

-1.13%

IG Iron Ore (CNH)

¥360.65

-1.40

-0.39%

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 Friday’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 Markets

[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