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Fed member Sandra Pianalto suggested tapering may be warranted if the labour market continues to strengthen, and this cements the rhetoric we’ve been hearing from Fed members this week. Despite this, the USD lost ground to the G10 complex, with GBP/USD being a significant outperformer. A less dovish inflation report from the UK and comments from the BoE saw GBP/USD spike to a high of 1.553. The next level traders will be looking out for is the 1.575 region; this was the high from mid-June.
It is a huge day for Asia, and USD/JPY will be the main point of focus. The pair slipped again overnight to a low of 96.33 as the USD continued to struggle. The last time USD/JPY was below 97 was on 20 July, with the lows from July being at 93.79. This move in USD/JPY will also see the Nikkei struggle at the open with our current opening call being down 0.8% at 13,720. The BoJ meets today and analysts expect no change in policy but no doubt the recent appreciation in the yen, and slide in the Nikkei, will be a cause for concern as officials would want to see the recovery remain on track. Current account numbers out of Japan will also be watched closely, particularly from a trade perspective. The market is looking for a ¥0.73 trillion surplus which is an improvement from the previous reading of ¥0.62 trillion. We also get the weekly fund flows data which generally have a significant impact on Japan.
AUD/USD is just hanging around the 0.90 level and will be back in focus today with local jobs numbers and China’s trade balance due out. Investors remain uneasy about China’s economy at the moment and therefore this might warrant some caution heading into the numbers. The market is looking for a 2% improvement in exports and a trade surplus of $26.9 billion. On the local jobs front, the unemployment rate is expected to tick higher to 5.8% (from 5.7%), with 6,000 jobs added and a steady participation rate of 65.3%. The RBA has already flagged a gradual rise in unemployment but no doubt any misses on the jobs front would see AUD/USD sold at the 0.90 level. However, if China data surprises to the upside, this could be a catalyst for a squeeze higher in the near term.
Ahead of the open we are calling the ASX 200 down 0.2% at 5003. Global equities seem to be tapering off with a lack of positive drivers to keep the momentum going. There is no dominant risk theme, with mixed performances across commodities and other risk assets. Iron ore has actually been among the stronger performers and put on another 1.3% to $133.1/t. The big iron ore miners will be in focus today, with Rio Tinto set to post its first-half earnings in the afternoon session. We are expecting the earnings release at about 4pm AEST today and they are bound to cause some volatility in the stock in London trade.
There will also be plenty of positioning in the local stock ahead of the report, with expectations riding relatively high. The market is looking for sales of around US$26.1 billion and an underlying profit of US$4.16 billion. Following good production reports for iron ore and copper recently, Rio certainly seems to be gaining momentum. The miner has targeted $5 billion in cost savings over the next two years and the market will be looking to see if this is on track and if there’s potential for further cost efficiency. Analysts also feel Rio’s recent asset sales make it very compelling and the recent iron ore price strength (average price year-to-date $132m/t) along with projected volume growth (from project expansion) in 2H13 and 2014.
Telstra has also released earnings and at first glance it seems they have come in ahead of consensus. FY13 NPAT was $3.81 billion a $3.7 billion Bloomberg estimate with a dividend of 14 cents per share. Underlying earnings were relatively in line with estimates at $10.62 billion. This might see TLS extend its gains above $5 today and possibly test May highs at $5.13.