Improvement should be seen again in today’s Japanese TANKAN report (released at 10:50 AEDT). This survey is comprehensive and measures sentiment and confidence across both large and small businesses and is perhaps the most important economic indicator for the BoJ. USD/JPY has pulled back from the session high of 103.92 on Friday, however a number of funds have been quick to get back into longs ahead of this week’s FOMC meeting. It’s interesting (and could result in USD/JPY weakness) that while USD/JPY made a higher high of Friday, we saw a lower high on the RSIs, and this divergence could indicate short-term weakness.
Probably the big talking point on the floors today has been around the departure of Jorg Asmussen from the ECB to join the German government as a junior minister. This is really important because Mr Asmussen was a key supporter of the ECB’s OMT (Outright Monetary Transaction) last year and thus his departure could be seen as EUR negative. Mr Asmussen will be replaced by Sabine Lautenschlager who leaves her post as vice-president of the Bundesbank. The issue here is that the market really doesn’t know her views on monetary policy, while she has not been a keen advocate of the OMT.
Price action in QAN will be very interesting this week, with the AFR reporting a standby debt facility for Qantas is under consideration to prop up the company’s credit rating, prior to a potential lifting of the foreign ownership cap. We’ve seen the stock consolidating around $1.00, and a move to $1.10 would create more favourable conditions for the bulls, given the more compelling picture in momentum indicators.
Price action in the US index is looking less compelling, with the market printing a similar head and shoulders pattern to what we saw in August. We have also seen the beginning of negative divergence, which could also indicate a slight reversal. It’s all about positioning this week for the Fed meeting on Thursday (06:00 AEST) and although there is a possibility that the Fed will announce it intends to taper the pace of its bond purchases, I personally feel this is more likely to be in the New Year. Whether this proves to be equity positive is yet to be seen.