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Perhaps the fact that the US is in for a long weekend with markets closed for Labor Day on Monday and as well being the last day of the trading month means that moves tend to be disjointed, with some rebalancing taking place. Of course there is also the pending Syria situation which could just take a turn at any time. At the start of Asian trade it was all about USD strength and how it would impact different markets in the region.
Renewed US dollar strength was driven by US economic data which came in ahead of expectations and supported the QE tapering notion. US GDP came in at 2.5% (versus expectations of 2.3%) while unemployment claims came in relatively in-line with consensus and continued to support the notion that the jobs market recovery is on track. The US dollar index climbed to 82 for the first time in three weeks as it rallied against the G10 currencies. Of particular interest was USD/JPY which was facing a fairly busy day on the economic calendar.
USD/JPY has been enjoying a steady recovery and is now back above 98 thanks to US dollar strength and reduced safe-haven demand for the yen. The pair is now sitting at 98.38 following a fairly busy day on the data front. Japan’s CPI ex-food was 0.7% higher versus an expected 0.6% and also showed a strong improvement from the previous reading of 0.4%. This was the fastest pace in Japan’s core inflation since November 2008. Industrial production slightly missed estimates as it came in at 1.6% versus 1.8% expected; however this was a significant improvement from the previous reading of -4.6%. Manufacturing PMI jumped to 52.2 (from 50.7). These figures show that Abenomics has certainly helped Japan turn a corner and it is on the right path to recovery. After having gotten off to a good start, rising over 1% early, Japan’s Nikkei has since stalled and actually shed 0.4% now. Data out of Japan is always a double edged sword as positive readings could be interpreted as implying there is no need for further stimulus. Some analysts were hoping to hear the BoJ announce further stimulus, potentially in October. Equities for the rest of the region are mixed, with the ASX 200 leading the way up 0.5%, the Hang Seng down 0.1% and the Shanghai Composite 0.2% firmer.
European markets are facing a modestly weaker start after having put in a strong performance yesterday. EUR/USD dropped through 1.33 to a low of 1.322 after some disappointing German economic data. The single currency will be back in focus again today with German retail sales, Italian unemployment and European CPI all set to hit the wires. The pair is now facing resistance on any rallies back into the 1.33 region. The USD will be back in focus again today, with have personal spending/income, Chicago PMI, consumer sentiment and Fed member James Bullard set to hit the wires.
After a fairly quiet start to the day, the local market has taken off and is now relatively flat for the week. This is not a bad result considering the political event risk that has dominated global markets all week. The local market has managed to keep its head above the 5100 points mark in the main, even in the face of growing concerns over tapering in the US, investors fleeing emerging markets, the growing unrest in the Middle East and fears of a crash in China’s credit market and industrial production. Perhaps some rebalancing as the month and reporting season comes to an end is also at play here, which would explain the disjointed moves we are seeing today. Just looking at the materials space for example, BHP is up 0.6% while RIO has lost 0.3%. All the big four banks are mildly firmer heading into the weekend. The key buzz word from this season has been ‘challenging’ as CEOs and managing directors consolidated the books to hold up earnings as sales slide.
The results have been vast, with the strongest sectors of telecommunications and energy outpacing the weaker sectors in mining services and construction. With FY14 looking like a continuation of FY13, companies across the spectrum will continue to consolidate their operations as local companies bunker down for what is expected to be a fairly volatile year, with the globe looking to move away from central bank interventions.