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The lead from US trade was negative, with key indices stuttering at record levels on fears of stretched valuations and an OECD report. The OECD revised down its forecast for global growth to 2.7% (from 3.1%) in 2013 and to 3.6% (from 4%) in 2014. This came amid some alarming downgrades to emerging economies such as Brazil and India. In Brazil the OECD now expects this year’s growth at 2.5% (from 2.9%) and for India 3.4% (from 5.7%). However, China’s growth forecast for this year was actually raised to 7.7% (from 7.4%), which suggests the recent turnaround we’ve seen in data out of China is improving sentiment.
The latest development out of China is that the PBoC will exit from normal foreign exchange intervention. This will essentially see the PBoC widen the yuan trading band. Once again this will encourage the international investment community that China is focused on creating an accommodative environment for investment.
USD giving up ground to risk currencies
The Nikkei is drifting yet again today and I suspect it is to do with dovish Fed comments, particularly with Ben Bernanke speaking through Asian trade. His comments were largely the same as we’ve heard him echo in the past as he basically reiterated a dovish stance on the QE front. Additionally, Bernanke sees interest rates remaining low long after asset purchases end. USD/JPY is just holding on to 100 and the Nikkei has lost a touch. There was also trade balance data out of Japan today which showed a sharp rise in exports, suggesting yen weakness is translating to greater exports.
Markets in China are mildly firmer as optimism about the sweeping reforms continues to encourage investors. The ASX 200 is lagging the region with a sharp drop on concerns the OECD downgrades to emerging economies will be negative for the Australian economy. This saw the ASX drop to the lowest level since October 18 and also venture below 5300 for the first time since that day.
Weaker start for Europe
Looking ahead to European trade, the major bourses are pointing to a mildly softer start after a sharp drop in peripheral markets yesterday spooked investors. There were a few other issues for the euro to contend with as the OECD warned of the risks of deflation for the region. The OECD added the ECB might have to consider some unconventional measures to alleviate the deflation issue.
There isn’t much on the European economic calendar today, but the way the pair is trending at the moment suggests buying dips into the 1.35 region is a reasonable near-term strategy. Any disappointment on the US economic data front should continue to underpin the no-taper theme and lift risk currencies against the greenback. On the US economic calendar we have CPI, retail sales, existing home sales and business inventories due out. Additionally we will get the minutes from the last FOMC meeting, but given the fact that a significant number of Fed members have spoken this week, these minutes are likely to be stale.
ASX 200 drops to the lowest level in a month
The ASX has been under significant pressure today with widespread selling across the major sectors. It is a tough day for mining services companies after a profit warning from Worley Parsons saw its shares experience double digit losses and trade at its lowest level since 2003. Other mining services names have also endured selling pressure with hefty losses for the likes of Monadelphous, UGL, Boart Longyear and Bradken. There are a few bright spots today, particularly in the gold space where some investors feel the Fed’s dovish tone will support the precious metal.