Fed members in favour of QE

It’s risk-on in Asia as investors react to a buoyant performance in US markets.

Janet Yellen took a step closer towards being officially appointed Fed chair and James Bullard was on the wires supporting the need for more QE, but all this dovish talk was not enough to derail the USD. Perhaps the strong jobless claims and manufacturing PMI readings were enough to keep the momentum going in the tapering camp. Unemployment claims fell to 323,000 and this reading was also well below analysts’ estimates of 333,000. Effectively this brought the four-week average claims down 7000 to 339,000 and kept the tapering theme alive.

Japan leads Asia

As expected the Nikkei is outperforming the region after a jump in USD/JPY above 101. Today’s move in the index leaves it within striking distance of May highs just shy of 16,000. A break above here will see the Nikkei trade at its highest since 2007.

The ASX 200 has bounced back after having struggled all week. While USD/JPY remains resilient, the most interesting move has actually been in EUR/JPY. The single currency reversed its losses after ECB President Mario Draghi talked down the possibility of negative deposit rates. Draghi essentially said there are no fresh developments on that front and the last negative deposit rate discussion took place at the last meeting. Additionally, Asmussen said whilst a negative deposit rate could not be ruled out, he would be very cautious about going down this road. While EUR/USD was mildly firmer, the big move was in EUR/JPY which surged to 136.55; its highest level since October 2009.

Europe in for mild gains

Looking ahead to the European open, we are calling the major bourses modestly firmer after having put in a mixed performance in yesterday’s trade. Later today we have the German Ifo, Italian retail sales, eurogroup meetings and another speech by ECB President Mario Draghi. Over in the US we have speeches by Fed members George and Tarullo. This should be enough to keep traders guessing on tapering going forward.

AUD loses further ground in Asia

AUD/USD has been interesting to watch today on the back of Glenn Stevens’ comments. He continued to talk down the AUD, with intervention being an option or part of the available tools. After having held on to 0.92 for most of the morning, AUD/USD has finally given up that handle and dipped below yesterday’s lows. The pair has since traded as low as 0.918 showing that perhaps the jawboning is working. Presumably this move should help support a local equity market rally.

Despite today’s gains, the ASX is still in for a negative overall finish to the week. Cyclical names have finished the week on a strong note with industrials leading. Mining services companies had been a major drag on industrials for most of the week, but have really come to life today with Monadelphous and Worley Parsons being among the best performers.

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