This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
China has been a focal point today as details from its Third Plenum have finally emerged. The four biggest changes are to the one child policy, the hukou policy (housing registration legislation), private investment and fiscal and tax laws. Different reforms have impacted different industries and the overall reaction today has turned out to be positive, with a sense of optimism that these reforms are for the better.
Property price data out of China today showed further gains underpinned by strong demand and helped fuel equities higher. Whether this means this rise in property prices will lead to some form of tightening remains to be seen, but for now investors are just happy to see that speculation of upcoming reforms have not impacted property prices in October ahead of the Third Plenum. The Hang Seng and Shanghai Composite are leading the gains, while the Nikkei has tacked on moderate gains to add to last week’s monster move higher.
Big week ahead for Japan
On the Japan front, we continue to watch USD/JPY closely ahead of what could be a big week for Japan. USD/JPY is the pair to watch at the moment as it remains elevated and looks to consolidate its break above 100. There are a couple of key releases from Japan this week, including trade balance and the BoJ meeting.
While the BoJ can never be ruled out to throw a few curlers in the mix, many analysts expect no changes to the pace of asset purchases, nor the tone of guidance. A key to look out for on the trade balance side of things is whether we’ll see a pick-up in real exports which is one of the key metrics given recent yen weakness. We might also get developments from Japan’s plan to come up with a package to counter the planned sales tax hike.
On the USD side of the equation, Fedspeak will be the dominant theme with Bernanke, Powell, Tarullo, Dudley, Evans, Bullard Rosengren, George, Plosser, Kocherlakota and Lacker all set to speak. This will help shape up tapering expectations and give us a clearer indication of whether Fed members are in sync with Yellen. Perhaps all this Fedspeak will help the USD stem its slide in the near term. USD/JPY is currently facing near-term resistance in the 100.61 region. Should we see some near-term profit taking, I will still be looking to buy the dips.
Europe in for a flat start
Looking ahead to the European open, the major bourses are facing a flat start with a relatively quiet session on the economic calendar. Current account and trade balance data for the region will be released later today, but aren’t expected to have too big an impact on the single currency. Something to look out for going forward will be how the recent rate cut will affect sentiment indicators. Over in the UK, MPC minutes will be the key event of the week for the pound and might shed more light on the hawkish turn we are seeing. The pound extended its gains after the BoE’s Weale said there has been an upturn in CPI expectations. This cemented some of the comments we had heard from Mark Carney last week and reinforced the idea that a rate cut in 2015 is on the cards.
Banks weigh on the ASX
The ASX has lagged the region today but has done well to come off its lows through the session. There was a great degree of caution at the open, but as soon as China opened and investors got a sense of the overwhelmingly positive reaction to the comments from the Third Plenum, we saw the local market recover. The major materials names are now in the black helped by the move we are seeing in China. However, the banks are lagging and I suspect this is to do with a switch into the cyclical names. Mining services names have been notably firmer today after having been serial underperformers all year.