Why is the AUD important for the XJO index?

Good Morning,

We’ve had a great few days on markets, however, we see the recent rally losing “some steam”, as the reporting season heats up.

Keep a close eye on the AUD… as normally our currency is strongly correlated with the performance of our stock market.

Why?

Because global investors who want to invest in the XJO, must convert their GBP/EUR/JPY/USD etc to AUD, driving our index higher.

When the currency falls (i.e. last night it fell around 1% against the USD), we expect overseas investors to sell the Index (especially banks)…

Something to keep an eye on!

Ok………..

So what happened last night?

The S&P 500 pulled back from its record high on Tuesday, while the Dow industrials edged higher to mark an eighth straight session of gains, as investors digested mixed earnings reports as well as lowered expectations for global economic growth.

The Dow Jones industrial average rose 25.96 points, or 0.14 per cent, to 18,559.01, the S&P 500 lost 3.11 points, or 0.14 per cent, to 2,163.78 and the Nasdaq Composite dropped 19.41 points, or 0.38 per cent, to 5036.37.

In Europe, declines in miners dragged European stocks down from a three-week high, while the earnings season picked up pace.

What do we expect today?

·         SPI futures up 4pts or 0.1% to 5414 at 6.15am Sydney time

·         There has been major volatility in global markets in the wake of the UK's Brexit vote. Markets now expect a increased monetary stimulus from global central banks and now there is the policy of significant fiscal spending packages coming from the governments of the UK, Japan and China. (This video was produced in commercial partnership between Fairfax Media and IG Markets)

·         AUD -1.1% to 75.05 US cents, 79.64 Japanese yen, 68.12 Euro cents and 57.36 British pence

·         On Wall St, Dow +0.1%, S&P 500 -0.1%, Nasdaq -0.4%

·         The ASX's eight-day winning streak came to an end of Tuesday. Photo: Peter Braig

·         In Europe, Stoxx 50 -0.6%, FTSE flat, CAC -0.6%, DAX -0.8%

·         Spot gold +0.3% to $US1333.11 an ounce

·         Brent crude -0.4% to $US46.78 a barrel

·         Iron ore -1.5% to $US56.02 per tonne 

What's on today?

Local data: WBC Leading Index. BHP fourth quarter production report

Niv

Niv Dagan is an Executive Director of Melbourne based boutique funds management and corporate advisory firm, Peak Asset Management (www.peakassetmanagement.com.au). He is also a regular financial commentator on Sky Business.