Ahead of the European open

It has been a fairly quiet Asian session today, with most asset classes in a holding pattern in the absence of any major event risk.

Japan’s Nikkei was leading the region earlier as USD/JPY topped 98.34, but has since pulled back after the pair dropped back below 98. The Nikkei is now down 0.6% and these losses have started to weigh on the region. Apart from USD/JPY, all the other major risk currencies have been sidelined after having given up ground to the greenback in US trade.

Taking a closer look at the equity markets, the ASX 200 got off to a strong start, but has since given up 0.2% after results from some sector leaders failed to attract buyers at higher levels. The Shanghai Composite is relatively flat, while the Hang Seng is closed due to Typhoon Utor.

European markets are pointing towards a relatively flat to mildly positive open with a hint of optimism ahead of a round of GDP releases. EUR/USD experienced a steep slide to a low of 1.323 and finally breached support at 1.33. The pair has recovered to around 1.325 in Asia and will be in focus later today with some fairly big releases due out of Europe. GDP figures for France, Germany and the eurozone will be released, while French non-farm payrolls and CPI will also be in focus. The market is looking to see if Europe has exited its recession, with expectations currently for a 0.2% rise in GDP. German GDP is expected to climb 0.6% (from 0.1%) while French GDP is expected up 0.2% (from -0.1%) and therefore there will be more emphasis on France ending its recession to help out the overall reading for the region. Should this reading materialise, the next step will be whether this will be temporary or not.

Over in the US, St Louis Fed president Bullard will be on the wires and any further rhetoric about tapering is likely to keep the USD bid in the near term. Mr Bullard will be speaking on monetary policy in Kentucky. Atlanta Fed president Dennis Lockhart was also on the wires, reinforcing what we have heard from other Fed members regarding tapering by the end of this year. Some analysts feel the tapering announcement will be made in September with implementation slotted for October. GBP/USD remained relatively sidelined after CPI and PPI data came in-line with consensus. The pair is hanging around $1.545 and could possibly come across some volatility later today with the claimant count change, MPC asset purchase facility votes, MPC official bank rate votes, average earnings index and the unemployment rate.

The local market is just hanging on to the 5150 level after having traded as high as 5168 earlier. Weakness in the local market has been mainly attributed to falls in some of the majors that reported today. CBA’s results came in ahead of estimates and this saw its stock charge to a fresh record high of $75 at the open before retreating. After a big run up into the result, there was always a risk that the result would be greeted by sellers unless it came in significantly above estimates particularly on the dividend front. It seems traders are the likely culprits of the selling in CBA today and perhaps once the noise is out of the way, we will actually see real money investors underpin gains in the bank’s shares going forward. The fact that all the other big banks are firmer confirms the fact that traders are at work on CBA today.

We feel any further falls towards the $72.50 level will present a good entry for fresh longs. The healthcare sector has lagged the market today as CSL Limited’s results have also been greeted by sellers and ResMed trades ex-div. CSL delivered a 19% growth in earnings but was also sold off as its earnings only managed to be in the middle of the analyst range. Like CBA, CSL also rallied into its result only to be sold off today. However, the stock is enjoying support in the $65 region and perhaps the fact that it is considering another buyback will be enough to support its share price.  

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