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Data released from Japan this morning was mixed, but mostly painted a positive picture on the progress the economy has made. Industrial production and retail sales both came in well ahead of consensus, while CPI was relatively in-line with expectations. However, household spending and the unemployment rate slightly disappointed, but this didn’t dent confidence at all. USD/JPY has advanced following the data, printing a high of 98.98. The pair looks like it could head towards ¥100 in the near term.
This jump in USD/JPY has worked well for Japanese equities as the Nikkei has surged 3% today. With Japan grabbing the headlines, the Shanghai Composite has taken a back seat today with a mere 1% gain, which is disappointing considering yesterday’s loss. Looking ahead, the Asian region might be in for a tough period as countries such as China and India are implementing structural changes that are likely to moderate growth prospects in the near term. While this will hurt the ‘risk trade’ particularly in emerging markets, it ensures these economies will emerge with a much more sound economic landscape going forward.
As we round up what has been a mostly disappointing quarter for region, investors will be hoping to see improved prospects potentially driven by Japan and the US. Gold dropped further early in Asia as stops were hit and panic set in resulting in a low of 1181 being printed. However, the precious metal has bounced back above 1200 now and this is potentially going to list sentiment in the risk space.
The FX space had another interesting session with some Fed members on the wires and further USD strength being the main themes. Better-than-expected US pending home sales data saw the DXY remain elevated and it managed to print a high of 83.17. However, we have seen the dollar index stall at around 83 in Asia and we might potentially see some consolidation around that level. Risk currencies were subdued in US trade, but we have seen some movement in the Asian session, particularly in the single currency. EUR/USD has finally broken out of its recent range and is drifting towards $1.31 again. The single currency will be in focus later today with German retail sales, CPI, French consumer spending and day two of the EU Economic Summit. European markets are facing a mixed start to the session with mild gains for the DAX and MIB while the FTSE and CAC are a touch lower. Over in the US we have Chicago PMI, consumer sentiment and inflation expectations. Fed member Stein will also be in the wires today and will cap off what has been a busy week of Fed speak.
Focusing on the local market, as expected it has been a choppy day of trade as window dressing ramps up. Heading into today’s session, we had a 713 point gain across the financial year (+17.4%) in hand. This hasn’t really changed as the market is relatively flat at the moment. The stand-out sector for this year was always going to come from the defensives. The financials (+30%), consumer staples (+25%) and the telecommunications (+31%) have all seen investors scrambling for yield over the last twelve months and have bid up these sectors strongly , but the winner was always going to be a group with both yield and exposure to the US, and that means healthcare was the stand out.
The sector added 42.64% this financial year as the likes of RMD, CSL and even COH all saw good returns. While all these numbers look good, investors might be disappointed about the spectacular drop from the highs we saw in April this year. This would have left the market and investors in a much stronger position. Heading into the next financial year, the political drama will continue with an election date yet to be agreed on, while the usual Fed tapering and China concerns will give traders plenty to react to.