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Earnings were relatively mixed in the US with some heavyweights including Goldman Sachs, Coca-Cola and Yahoo on the wires. Investment bank Goldman Sachs saw earnings double as investment banking revenue improved, while Yahoo and Coca-Cola missed estimates to complete a mixed session of earnings.
On the economic front we had CPI up 0.5% and slightly ahead of estimates, while industrial production and a housing market index exceeded expectations. Surprisingly, the US dollar remained relatively subdued as investors position themselves for Fed chief Ben Bernanke’s testimony ahead of Congress. Following Mr Bernanke’s comments at the Q&A session last week, a lot of analysts continue to feel he will sound the same tone regarding the Fed remaining accommodative for the foreseeable future. However, the recent recovery in data is likely to be acknowledged and in turn will likely result in an adjustment to asset purchases.
With the US dollar index (DXY) dropping below 82.50 through US trade, we are starting to feel the market might be a bit too short heading into the testimony. This tends to result in a squeeze when higher, with a high likelihood that Mr Bernanke won’t be as dovish as the market expects. AUD/USD has been one of the best performers in the risk space over the past 24 hours, in a move triggered by yesterday’s RBA meeting minutes. The pair has lunged to $0.925 and looks like it is headed to $0.93 in the short term. The region between $0.93-0.9320 is where we feel the pair might encounter resistance in the short term. Mr Bernanke’s testimony might be a trigger for a USD recovery and in turn an AUD/USD fall.
USD/JPY dropped to 98.89 as the USD lost ground and this will weigh on the Nikkei today. We expect the Nikkei to open 0.8% lower to 14.487 ahead of the BoJ minutes. The BoJ didn’t make any changes to its current stimulus at the last meeting but the comments will be interesting heading into the Upper House elections.
Ahead of the open we are calling the Aussie market down 0.2% at 4978. Once again the market will be on production reports watch with BHP’s June quarter production report due out before market open. BHP's ADR is pointing to a 1.2% gain to 33.83 with iron ore rising to 129. Analysts are expecting iron ore output to be up 5.8% to 43.2 million tonnes. Just like Rio, a pick up is expected due to less weather-related interruptions than the first quarter. Petroleum is also expected to show an improvement to 63.7 Mmboe. For the full year, 183 million tonnes of iron ore is expected and 240 Mmboe. Escondida copper is tipped to rise by at least 20%.
Rio had a strong result yesterday and was up 0.6% in the UK. Upgrades are likely to roll in following a strong performance in copper. Production report for Iluka as well. Iluka is also set to hit the wires with its quarterly output report. Billabong in focus after borrowing $294 million to repay loans in a deal that could see it give 40% of its shares to a group led by Altamont. A solid result from Goldman Sachs with a pick-up in investment banking could also be positive for Macquarie Group today.