The next key support is the June 17 high (and former double bottom neckline) of 1.5751. Given the momentum, a break of this level could be seen shortly. The Bank of England’s inflation report (released overnight) was more dovish than expected with the bank revising its inflation expectations lower once again. The BoE now expects to hit its 2% inflation target in 2017. The market is currently priced for the first rise in the cash rate to Q4 2015, although I feel this may be a touch dovish.
#02 Interest rate expectations in Australia are perfectly balanced with the swaps market pricing no move from the RBA over the coming 12 months. I looked at AUD/JPY upside potential yesterday and after a dip to ¥100.07, the pair has rallied and printed a new higher high.
#03 AUD/USD has printed two bullish reversals in five sessions and could feasibly squeeze higher. Strong resistance is seen around $0.8800, so I would fade moves into this level. China releases its October data series at 16:30 AEDT, with industrial production (expected to print 8%), retail sales (11.6%) and fixed asset investment (16%) in play.
#04 The ASX 200 had been trading in a range and looked fairly comfortable between 5480 to 5550. Yesterday’s sell-off saw this range give way, with traders predominantly focusing on the resource names. Citi cut its iron ore forecast for 2015 to average $65 a tonne and in turn downgraded FMG to neutral, AGO to sell (target of 14c) and BCI to neutral (target of A$1.25). On the downside, the 200-day moving average is seen at 5442, although I’m looking more closely at 5386 (the 38.2% of the 8.3% gain through October to November).
#05 Westpac CEO Gail Kelly has announced she will step down as CEO in February and will be replaced by Brian Hartzer. Mr Hartzer comes from within the board as Chief Executive of the Australian Financial Services and this division grew 12% last year, with all divisions (expect Westpac institutional ) growing strongly. A good appointment, but Gail Kelly was well respected by the market.
#06 Fortsecue Metals – Closed below a$3.00. Can the pure play test key support at A$2.81 (the September 2012 low) in the short-term?
#07 NZD/USD is at an interesting juncture with the pair seeing good upside yesterday and looking to break above the July downtrend. The upside kicker comes if we see a break of the October 21 high of $0.8035.
#08 Brent prices have fallen through $80 a barrel for the first time since September 2010. There seems to be a view that OPEC will not cut its production quota in the upcoming 27 November meeting.
#09 US corporate Dow Chemical announced it was issuing debt overnight and using the proceeds to increase its dividend by 13.5% and extend its stock buy-back to $9.5 billion. With rates so low and liquidity abundant, companies have taken advantage of this. In fact, this really sums up the last 18 months, where companies have seen EPS growth through returning cash to shareholders. In turn, CEO’s have been thoroughly rewarded by the market.
#10 The Nikkei and JPY are being driven by headlines once again with traders reacting to news on whether the government will delay the proposed sales tax hike (currently slated for October 2015) by a further 200 basis points. A snap election in December has also been speculated on. I personally believe it makes a lot of sense to call a new election, but we will not hear confirmation of this until after next week’s Q3 GDP. Dips in the Japan 225 look like buying opportunity to me and I still don’t believe the market fully understands that the BoJ are actively targeting a higher equity market.