Global Markets Overview - 7/3/13

Once more choppy trade is defining the start of the new financial year.

The US and Europe both suffered from low volume trading and sporadic price action last night, as both sides of the Atlantic slip into the red for the first time this week.

Trade was also affected by long-term geo-political simmering issues. At about 8:00pm AEST last night, Reuters reported that an unidentified EU official had stated that Greece has three days to comply with the original terms of agreement to receive its next tranche of bailout funding or 'face the consequences'. This saw the 'Greek tragedy' of the last three years remerge, which sent the peripheral countries on a roller-coaster trading session, with the ASE dropping -3.24% by the close.

The spread of the Egyptian uprising is also affecting global markets. It caused tensions in the energy market overnight and has driven oil up to be touching US$100 a barrel (so watch the petrol bowser in two weeks - it will punch through $1.60 a litre). It also saw the Egyptian market having its best day of the year as investors placed bets on the army stepping in to break the impasse, even though President Morsi has dug his heals in further demanding that the army disbands.

So the 'stabilisation' buzzword from Monday's session has been replaced with 'instability'. What a difference 24 hours makes in this digital age.

Over in the US, trade is a lot calmer, however that was broken up by one of the biggest doves on the FOMC changing his tune for the first time. President Bill Dudley in a speech this morning stated that 'economic growth in 2014 will probably quicken, possibly warranting a reduction in the central bank's bond-purchase programme'. He was quick to add that the FOMC 'wouldn't want to rule out asset purchases exceeding the current monthly level of $85 billion if the central bank were to be surprised on the downside'. This is the second major policy-maker to change his tone inside two weeks, after having seen Fed Chairman Bernanke very publicly state his change of tune during the Fed press conference.

So the instability of the last 24 hours will mostly like flow through to our market today. However, there is some positive news coming out of the Asian region - and that is Japan. After strong manufacturing data on Monday, the yen has been falling again. USD/JPY has punched through the ¥100 mark, and the inverse correlation that has been firmly in place under the Abe government that has seen the Nikkei now back above 14,000 points is expected to head higher today, which could rub off on other Asian markets.

Turning to the data dumps today, and Australia has three major pieces and five in total that will move the AUD. The trade balance and retail sales will be keenly watched, both of which are expected to grow ever so slightly, while the AIG service index and HIA new home sales figures will also illustrate how the non-mining sector of the economy is performing.

However, the one everyone will be listening to is Governor Stevens' address at the Economic Society in Brisbane. After another very short and sweet statement yesterday with very little changes from the month before, investors will be hanging on every word of his address to see if there are any indications of how the board views the changes in China and the US, where AUD is expected to head and if further rate cuts are on the cards. So 12:55pm AEST could see a large momentum change.

Moving to the open, we are calling the ASX 200 down points 36 to 4799 (-0.73%), after the best one-day session since December 2011. Yesterday's 2.63% gain was characterised by a massive rally in the materials space as commodity prices finally pop up.

Overnight, commodities continued their push higher, however BHP's ADR isn't following this lead and is pointing to a 46 cent drop to $31.61, down 1.43%, despite the fact iron ore jumped 2.1%. One thing we believe will occur in the materials space is come the August reporting season, iron ore price abstraction will be considerably better than the current spot price, which should see the sector higher.

So with Australia in focus all day, price action should be stronger as each piece of data hits the airways.

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.

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