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After having hit 2.89% yesterday, the highest level since 2011, ten-year treasury yields dropped to 2.81%. The US dollar also retreated and this helped support risk to some extent.
Moves in the FX space added to the confusion as EUR/USD spiked to 1.345 and continued its momentum from the previous session, where comments from the Bundesbank underpinned the single currency. The Bundesbank suggested that forward guidance from the ECB for an extended period of low interest rates wasn't set in stone and was by no means a guarantee. The move through 1.34 would have also taken out stops and resulted in the gains being extended.
USD/JPY held onto the 97 handle and is currently sidelined around 97.27, while AUD/USD is just shy of 0.91 after yesterday’s fairly neutral set of minutes. The RBA said a rate cut is not imminent and clearly has a wait-and-see approach, as further rate cuts will be data dependent. It certainly looks like the FX space is waiting for some direction from the USD as we approach the July FOMC minutes release. Tapering is still the main theme, and any hints on near-term tapering or potential extension of forward guidance flagged by some analysts will no doubt be a source of volatility. Also on the tape will be the US existing home sales reading.
Emerging market currencies have been getting sold off aggressively and the Indian rupee has been at the heart of the rout. The rupee has lost 6.1% against the greenback over the last month and 4.1% in the last five days. There are all sorts of issues hurting the Indian economy at present, but the fall overnight in US bond yields (the ten-year dropped seven basis points) and news that India will buy long-dated bonds could see some selling today of USD/INR when the market opens at 13:30.
While the economic calendar in Asia is relatively light today, tomorrow we have China’s HSBC flash manufacturing PMI and foreign direct investment data due out. The PMI theme continues, with Germany, France and Europe set to release manufacturing and services PMIs. The market is expecting to see an improvement in the PMI readings with most estimates suggesting we’ll see readings in expansionary territory. As a result, this leaves plenty of room for disappointment.
Ahead of the open we are calling the ASX 200 up 0.2% to 5,086. Earnings will be in focus today, particularly after heavyweight BHP Billiton reported FY earnings yesterday. The report came out after market and local investors didn’t get a chance to trade the result. However, it did trade in London and the stock dropped around 1.6% there.
BHP’s ADR is pointing to a 1.1% drop to 36.14 while iron ore was down 0.1% to 139. The miner’s headline net income of $11.8 billion missed analysts’ consensus of around $12.7 billion. The result was weighed on by lower metals prices and issues in some emerging economies like China, India, South Africa and Brazil. However, there were some positives from the result, with FY14 capex coming in at $16 billion which is lower than its initial guidance of $18 billion. Most analysts were in the $17-18 billion range with the exception of DB, which was considered very optimistic at $16 billion. Cost savings came in at $2.7 billion versus expectations of $1.9 billion. These cost savings will be achieved despite a further $2.6 billion investment into the Jansen potash project. Some analysts are concerned about the continued investment in the project given the recent potash price war. However, the project might add long term diversity.
Also reporting today we have WPL, SUN, ABC, BLD, ILU and SEK. Suncorp will be in focus after fellow insurer QBE disappointed yesterday. Gold miners might get a kicker after a pickup in gold prices (+1%) again as USD retreated.