Risk assets consolidate ahead of the Fed

Risk assets seem to be running out of steam heading into the weekend with a lack of fresh catalysts to keep pushing markets higher.

The most notable release from US trade was the weekly unemployment claims which dropped to 292,000; a six year low. However, analysts have warned that the numbers aren’t very reliable and perhaps waiting for more data over the next few weeks - for confirmation that this drop in jobless claims is accurate - is a smart strategy.

Meanwhile, the US budget deficit grew but still came in well ahead of estimates. Despite all these positive readings, the US dollar didn’t really exhibit the kind of strength we would generally expect from the effect it has on tapering expectations. This suggests the market is now content with the tapering notion.

Apart from big moves in gold and silver, most other asset classes consolidated with fairly tight ranges being maintained. Gold slid from around 1,360 where it was trading at the end of local trade yesterday and is now trading at 1,324.

In the fx space, yen crosses experienced the most significant moves with USD/JPY slipping to test support in the 99 region before bouncing strongly to 99.52. AUD/USD has been in a tight range after a big slip on the back of jobs numbers yesterday. The pair is still in a short term uptrend and we feel traders might be looking to buy the dips at the moment. Near term resistance remains in the 0.9350 region.

Ahead of the open we are calling the ASX 200 down 0.3% at 5,225. Investors were always going to get nervous at the year’s highs and that’s exactly what we saw happen yesterday when we printed a fresh 5-year high of 5252. However, we are still up 1.9% for the week and even if we taper off today it certainly seems like there is some confidence returning to this market. The 5,200 level turns into support for the ASX 200 in the near term. Miners have been leading all week and it looks like they will be the main culprits of today’s weakness.

BHP’s ADR is pointing 1.2% lower to 36.12, despite iron ore holding steady at 135.2. Gold names will come under significant pressure today as traders react to gold price weakness. Defensives and yield plays will be the likely salvation for the market today. Downgrades are starting to come in for Myer after a disappointing result yesterday. The retailer has been downgraded to Equal Weight (from Overweight) by Morgan Stanley.

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