Global equities mixed, gold remains firm, oil & AUD slightly lower, ASX futures 3 points lower

Asian markets performed strongly yesterday, due to the excitement associated with China’s unexpected rate cut. The ASX 200 rose over 1% yesterday while, unsurprisingly, Hong Kong’s Hang Seng was the best regional performer outside of mainland China, rising 1.95%. There are a lot of mixed views emerging as to the motivation behind this rate cut, with the Chinese administration dressing it down as anything but a policy change or stimulus measure, and many journalists labelling it a ‘sugar hit’ to those peripheral markets that were destined to respond positively. And to the journalists’ credit, yesterday did appear as a sugar hit – there is no sense of a multiplier effect on its way from this event that would see expansionary activity emerge in China on the back of it.

One thing that did spring to mind in regard to Chinese motivation to ensure liquidity and economic continuity, however, was the regional economic competition for investment dollars being driven by India, given the dynamics there are beginning to align and create a lot of domestic and foreign interest.

The fall in commodity prices is aiding India’s terms of trade, given it is not suffering from falling export values tied to this phenomenon, unlike South Africa, Russia and Brazil are. In addition to a falling current account deficit, India is also benefiting from falling commodity prices by way of cooling inflation, which has been historically quite unattractive due to its high levels. In the chart below, I’ve shown the big dip in Indian inflation this year, which now stands at a relatively palatable 5.52%, as well as its year-to-date change in stock market capitalisation compared with others. If this level of inflation can be sustained, it will allow India to more aggressively pursue growth, which most expect to grow at between 5%-6% over the next 6-12 months.

The Financial Times has reported increased political and investor optimism on the back of Narendra Modi’s election, and increases in the amount of retail stock market investment in India has soared to US$6 billion, almost matching estimated foreign institutional investment of US$8 billion. This is evident when examining the rise of India’s SENSEX stock market index, which has risen from 12-month lows of 19,963.12 to be near its highs presently at 28,499.54, a rise of 42.8%.

In today’s first chart I have tracked the rise of the SENSEX index via the iShares SENSEX tracker ETF, which you can find in the Rivkin Trader platform by typing in 02836 – it’s a Hong Kong-listed instrument. I have taken a few steps back in this daily chart to plot the movements of the last few years, and you can see that the tracker is close to breaking new post-GFC highs, previously set for this instrument at around 21.20 in November, 2010.

Moving on and today’s second chart shows the AUDUSD currency pair, which last night had a bucket of cold water thrown on it after the Chinese-rate-hike excitement. This may reflect the mood somewhat in relation to some of the resources stocks that ran hard yesterday; however, BHP Billiton (BLT) and Rio Tinto (RIO) in London were only moderately softer last night, -1.41% and -0.58% respectively. The AUDUSD pair remains vulnerable, with the danger zone being around US$0.8540, the low put in on 7 November.

Lastly I’ve illustrated the EURUSD currency pair, which, in its weakness, is more reflecting ECB President Mario Draghi’s success in depreciating it than it is reflecting US dollar strength, which remains elevated but on hold as far as its trend is concerned.

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Base metals higher overnight: aluminium +0.25%; copper +0.34%; nickel +0.76%; zinc +0.38%, iron ore +0.16% to US$70.42 per tonne

Overnight

  • Dow up 7.84 points/0.04%
  • S&P 500 up 5.89 points/0.29%
  • NASDAQ up 40.60 points/0.86%
  • German DAX up 52.99 points/0.54%
  • WTI and Brent crude lower, US$75.74 and US$79.50 
  • Gold and silver steady, US$1,197.20 & US$16.51
AU Market Preview
  • AUDUSD softer at US$0.8613
  • SPI 200 futures 3 points lower
  • Bank of Japan minutes out at 10:50am, Bank of Japan Gov. speaks at 12pm, US GDP out at 12:30am, US consumer confidence out at 2am, all Sydney time.


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