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All eyes on Q1 Capex

Four key markets in focus: AUD/USD, Japan 225 cash, 10-Year T-Note Decimalised, Spot gold. 

AUD/USD

The key release today will be Australia’s Q1 CAPEX at 11:30 AEST. The market will be keen to look at the future intention for 2014/14 capex plans, which will actually be a revision from the prior estimate. The market expects these intentions to be revised modestly higher, but given how this data point feeds into GDP growth, CAPEX reports are always interesting. The RBA is also focusing on steering the economy towards more consumption-led growth, thus again this print will provide insight into how this is tracking. I suggested short AUD/USD trades from 0.9270 and this trade seems to be getting off on the right foot.

Japan 225 cash (Nikkei)

The Japanese index has closed above both the 50- and 200-day moving average for the first time since April 9, but we should see modest weakness on the open today. At 09:50 we get the weekly Ministry of Finance (MOF) fund flow data;  recall last week’s data saw strong buying by Japanese institutions of foreign bonds and stocks. It seems the various funds took advantage of the stronger JPY to buy, however the end result was better strength in the Nikkei.

10-Year T-Note Decimalised

Perhaps the big story in US trade was the strong move down in yields and subsequently up in prices for US bonds. Certainly if you look at the culmination of various inputs – concern around US housing, slack in the labour market, geo-political factors, disinflation in the eurozone, a property slowdown in China and higher unemployment in Germany, you can understand the strong buying of late. Naturally lower US bond yields are positive for emerging markets, but given the consensus in the market is for the Fed funds rate to increase in 2H 2015, if the Fed does change its stance to more hawkish later this year, there seems to be a growing divergence between bond market pricing, the stock market and consensus expectations. This all seems concerning.

Spot gold

As I mentioned in the afternoon market report yesterday, gold has completed a triangle consolidation pattern and is now targeting $1238. The metal is trading around $5 weaker from yesterday and given the sharp pick up in traders shorting gold yesterday, I expect this trend to continue today. Iron ore has also fallen 1.3%, so I would be steering clear of iron ore plays. While many will be trying to pick what they feel is a low point, there is much uncertainty around iron ore and the trend in price is down. 

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