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After a disappointing payrolls report USD/JPY traded to a low of 98.54, although recovered through trade. The chance of the Fed looking to curb its bond buying program this month is certainly lower now, although we’d say consensus is calling for a token cut of around $10 billion. The pair has had a good rally today, with Japan winning the 2020 Olympic bid. Not only does this do Shinzo Abe the world of good for his approval ratings; it will help the perception of the economy. At 09:50 AEST today we get the final revision to Japans GDP and the market expects a big revision; from 2.6% to 3.9%.
The Nikkei fell 1.5% on Friday and, despite a number of factors at play, we feel the key driver was the government’s decision to eliminate preferential tax treatment for capital gains from 2014. Local reports are suggesting that capital gains tax on stocks and dividends will increase from 10% to 20%. This could continue to weigh, although judging by the spike in USD/JPY we feel the market will take inspiration from the Olympic win.
The pair has reclaimed the 0.9900 level, thanks largely to a weak USD on the back of Friday’s payrolls report. Over the weekend we have seen the China August trade balance report come in wider than expected at $28.61 billion with exports gaining 7.2% and imports 7%. The market had probably priced in a strong increase in exports and it will be interesting to see how this impacts the upcoming GDP read. At 11:30 AEST we get the August inflation read and the market expects a slight fall to 2.6%. The election result went as planned and already we have seen Tony Abbott announce he will save the economy.
Iron ore fell 2.2% on Friday and we’d expect this to weigh on iron ore miners today. With a large amount of supply expected to hit the market in the coming months we will be watching iron ore closely, especially with year-end consensus around $110 per tonne.
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