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Hilsenrath suggested the Fed may lower its 6.5% threshold for unemployment and also possibly change its inflation target. Meanwhile, unemployment claims were mildly higher than expected and core durable goods orders also disappointed. This resulted in a disappointing session for the USD and in turn supported risk assets.
Most risk currency pairs pushed higher, with AUD/USD rallying to 0.928 after having looked very fragile in Asia yesterday. In the near term we will be eyeing resistance in the 0.93 region where it has topped out on a number of occasions recently. EUR/USD also popped higher with a relatively in-line German Ifo business climate reading and better-than-expected Spanish unemployment rate. The pair came within striking distance of 1.33 and remains fairly elevated with some analysts feeling the eurozone is on the right path to recovery after its PMIs also showed some positive signs.
USD/JPY dropped below 100 as the USD lost ground and is currently trading at around 99.20. It will be in focus today with Japan’s CPI data due out. At 09:50 AEST we get the latest inflation reading out of Japan and the market expects a gain of 0.3%. This would the highest level of inflation seen in the Japanese economy for a number of years and highlight that we are seeing a good recovery in the country. As it stands we are calling the Nikkei down 1.5% to 14,346 mainly due to USD/JPY weakness. It will be interesting to see how the market takes the print, as a weak number could throw up the idea that the BoJ needs to be more aggressive for stimulus, while a good number (in theory) should be positive for the JPY - but in Japan’s case this should also be negative for the JPY.
Ahead of the open we are calling the Aussie market down 0.1% at 5031. Overall it has been a pretty good week for the local market with a 1.3% gain as of yesterday’s close. Iron ore miners struggled in London trade and it seems like this will extend to local trade as well, with BHP’s ADR pointing to a 0.9% fall to 34.45 at the open.
We are likely to see a recovery in gold stocks today after the precious metal bounced back overnight due to USD weakness. The downgrades are rolling in for Newcrest and OZ Minerals after their production reports yesterday. OZL has been downgraded to Neutral (from Buy) by Citi while NCM has been downgraded to Hold (from Buy) by Deutsche Bank. There will be more production reports today with PanAust set to post its 2Q production. The market is looking for reasonable numbers out of PNA, with a good increase from Q2 to Q3.
Traders are on the lookout for a potential downgrade to CY 2013 guidance (EBTIDA of between $320m to $350m) given the falls in gold and copper in recent months. Macquarie performed poorly yesterday following some comments from its AGM, but we feel the stock could resume its near term strength given the vast improvement in the investment banking industry. Goldman Sachs CEO Lloyd Blankfein was on the wires this morning saying the M&A pace has improved by around 25%.