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Gains in the US have been pinned on a benign GDP reading with some feeling this might contribute to tapering talk being pushed back. However, this doesn’t seem like it is the case particularly with the US dollar remaining quite elevated. Perhaps the downward revisions to consumer spending and investment are what some investors are focusing on.
The main piece of data in Asia today was China’s industrial profits release. Industrial profits rose 12.3% and this saw gains in Asia accelerate after a series of negative profits last year.
Any China data carries significant weight these days, as investors are desperate for signs that the world’s second biggest economy is still ticking along.
Meanwhile, the much talked about interbank rates are back above 6%, but are in a much narrower range and hence calming investors. The Hane Seng is up 1.4%, the Shanghai Composite has climbed 0.4% and the Nikkei has rallied 2.6%. The Nikkei has gained despite limited moves in USD/JPY. The relatively subdued move in USD/JPY is perhaps due to caution ahead of a data dump from Japan tomorrow. Japan’s household spending, the jobless rate, CPI, industrial production, retail sales, housing starts and vehicle production will hit the wires on Friday. The market will be looking to see moderate improvement in these metrics to fuel further Japan strength. Any data that pushes USD/JPY higher would be supportive of a Nikkei rally.
The relentless march in the USD index continued as it finally traded at 83. Although the DXY has experienced a minor pullback from this psychologically important level, we still feel there is more room for further strength in the near term.
The greenback will be back in focus later today with Mr Dudley, Mr Powell and Mr Lockhart on the wires. EUR/USD printed a low just beneath 1.30 and continues to flirt with that psychological support. Later today we have German unemployment change, an Italian 10-year bond auction and day 1 of the EU Economic Summit to look out for. This might cause further volatility for the pair today with the potential to trade below 1.30. As it stands we are calling European markets higher with gains of around half a per cent on the cards.
AUD/USD managed to reclaim the $0.93 handle and surprised many who would have thought the leadership change might result in further weakness for the AUD. Bond yields have actually eased as bond prices rise along with equities. While some analysts feel the removal of the leadership uncertainty will keep driving the AUD higher in the near term, we feel there is still scope to sell the AUD on strength, particularly with China growth concerns likely to persist as deleveraging is conducted and as the USD remains resilient. AUD/USD is approaching a significant resistance zone which might see the sellers re-emerge.
It has been a very positive day for the ASX 200, rallying 1.8% to 4819 as the short selling in some of the miners slows. Once more BHP is under pressure from the shorters; iron ore slipped again overnight to $113 a tonne, but there is a clear battle going on with the stock heading into the end of financial year. The banks and defensives are the ones snapping back as yield and bargain hunters jump in on optimism that the election could be earlier than expected and the current government will engage more with business. CBA, ANZ and Westpac are all over 2% firmer.