Global Markets Overview - 9/25/13

Japan looks east instead of south.

With the markets very light in terms of movement, as investors continue to reposition themselves after the Fed meeting and now look to Washington regarding the debt ceiling, it feels almost like they are waiting to be spooked.

Trade finished soft which will more than likely flow through to regional markets as metals fell on the CME exchange in New York and LME exchange in London, which may drag on the cycle plays during trade today.

What might also weigh on investors' minds from an Australian perspective are announcements out of Ottawa. Specifically, Canada and Japan are to 'cooperate more closely on shipments and supply of natural gas'.

It is no secret that the Japanese, South Koreans and most of South-east Asia are shying away from uranium after Fukushima, and are looking to other sources for their energy demands. Uranium prices have been in free fall for the last two years and this news will do nothing to abate this move. You only have to look at the uranium plays in Australia and across the globe to see what investors believe is the fate of uranium - down.

Japan has been seeking new sources of energy for years and the fact it is looking east rather than south will be a concern for Australian gas players.

Prime Minister Abe had this to say about Canadian gas, 'Canada is a stable source of energy and can provide gas at competitive prices.'

'The volume of natural gas is increasing and the prices remain high.

'Canada, endowed with rich energy resource including natural gas has a very high potential in the context of energy cooperation.'

This statement should send a shudder down the spines of Peter Coleman (Woodside), David Knox (Santos) and Peter Bolton (Oil Search). It should also have ears in Canberra pricking up and some very swift diplomatic invitations sent out to Japan. Australia has the potential to be the second largest producer of natural gas in world behind Russia by 2020. We have already heard from Industrial Minister Ian Macfarlane about the prospect of a 'use it or lose it' policy and this gets back to affordability for consumers, but if our second largest trading partner starts looking elsewhere, it could be too late.

Gas in Australia is expensive as demand has skyrocketed; Japan just paid US$15.74 per million British thermal units (BTU) of natural gas in July compared to $3.64 per million BTU in the US. Japan is the world's largest importer of natural gas, with South Korea not far behind. Seeing the Japanese government actively looking for cheaper gas supplies is a risk to the next stage of Australia's economic development. We are Japan's third largest import partner, with energy and natural resources the number one components. The fact that our closest developed market is jumping should be watched closely.

What is also concerning from Australia's point of view is comments from Canadian Prime Minister Stephen Harper, 'We have special assets to offer there and obviously Japan is the largest single importer of energy products.'

'We are making strong progress towards a free trade agreements with Japan.'

Australia is currently in the middle of penning a free trade deal with Japan regarding agriculture; however this news out of Canada should prompt the Abbott government to possibly include energy in there as well to counteract the Canadian deal. All-in-all this could be detrimental to Australia's energy aspirations.

Ahead of the open we are calling the ASX 200 up one point to 5235 (+0.02%) however it's very likely that the local market will follow the US markets lower. Oil contracted overnight as the US acknowledged Iran's shift in political stance and the Middle-east tension eased further. This will add even more pressure on energy playstoday.

BHP's ADR is suggesting the stock will continue its downward path; dropping another 24 cents to $35.63 (-0.67%) even though iron ore moved higher (if only slightly).

The AUD will be watching the RBA financial stability review and any sign of talking down the currency will see it contracting, however if the review suggest the recent bought of easing is coming to an end, it will test 94 cents once more.

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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