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The Empire State index was well below estimates at 6.3 and industrial production month-on-month data growing at 0.4% versus 0.5% estimates.
On the eve of the most anticipated FOMC meeting since quantitative easing was introduced, there is an air of acceptance in the market for a mild taper despite the data from the last eight weeks. The magical figure appears to be US$10 billion - spread evenly over mortgage backed securities and treasuries purchases. With over half of the economists surveyed by Bloomberg expecting taper to be uttered on Thursday morning the question is; will the uneven data out of the US get stronger or will the US economy take it in its stride like it did with sequester?
With the Larry Summers effect now an afterglow inside 24 hours there are several market movements to be aware of - both the DOW and the S&P touched their all-time high last night, however were unable to move through these levels having now rallied over 4% in September after the worst month since May 2012. US markets look set for a spark.
The uneven data and the spark that is coming should be moderated by the Yellen effect. There is a feeling that markets globally are gunning for a correction. It would be healthy and would take the ‘twilight’ concern out of the market as hedge fund managers scream about ‘overvalue’, ‘bubbles’ and ‘liquidity issues’.
A correction would see liquidity moving through markets again, and would add to the idea that markets are no longer in the grips of fear and the wall of worry is no longer the size of a mountain.
Parked cash has finally started to filter into markets as underwhelming yield returns are shed for capital gains. Cyclical plays are seeing strong capital gains and finally drawing cash funds in, and from an Asian centric view this cash is coming from Japan, China and South Korea as these nations see increased economic activity growth returning to their respective countries.
Moving to the market movements today and the RBA minutes will be keenly watched after a very ‘neutral’ statement. It will be interesting to see what the board has turned its attention to considering the easing basis has been dropped.
Is it now concentrating on the growth of China and the US as a reason for easing to be dropped? At what level is it hoping the AUD will be heading to, and how will it manage with an unemployment rate that is expected to rise to 6.25% in next 12 months?
Ahead of the open we are now calling the ASX 200 down 18 points to 5230 (-0.34%) however we will be watching Japan’s Nikkei as it plays catch up on the Summers effect, having been closed for Respect the Aged Day. Liquidity should return to the ASX today after only $3.9 billion changed hands yesterday compare to the $5.1 billion year-to-date average. Remember the Chinese markets are shut Thursday and Friday.
BHP’s ADR is suggesting the stock will move lower to $36.04 down 23 cents as iron ore continues to edge lower. The cyclical market may follow this lead and is likely to fall on the open as it prepares for Thursday’s expected announcement from Washington.