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Most of the releases from the US were in-line with estimates and this resulted in an overall lack of direction. There was also some Fedspeak with Lacker and Bullard on the wires. Lacker commented on inflation, suggesting it was rising faster than expected with the move not being entirely noise.
Meanwhile, Bullard said he doesn’t think markets have internalised how close the Fed is to its goals. Given Janet Yellen’s last comments highlighted ‘noise’ in the inflation reading, then these comments have some significance. In fact, most of the Fed comments this week have been quite hawkish and perhaps this resulted in the subdued performance in equities.
Pound remains firm
Moves in the FX space were also quite limited with a bit of focus on the pound following the financial stability report. The report mainly focused on house prices and essentially suggested more stringent stress tests and limits to borrowing. Traders saw this as mildly hawkish and this saw the sterling bid mildly higher. GBP/USD remains above 1.7000 in Asia today and will be in focus ahead of current account, final GDP and revised business investment data.
Data likely to show Japan on track
In Asia, attention returns to Japan where a raft of economic releases are expected today. The data kicks off at 9.30 AEST when we get household spending, CPI and the unemployment rate. Recent comments by officials suggested inflation is well on track for the BoJ’s target and I expect this data to confirm that today. There will also be Japan retail sales at 9.50 AEST which is expected to remain in contraction post the sales tax hike.
The key for Japan at the moment is to monitor if the economy can make a swift recovery from the impact of the sales tax hike. As usual USD/JPY will be the pair to watch after having found support in the 101.50 region. USD/JPY has just been struggling to find traction this week, but this hasn’t stopped equities from rallying with the Nikkei continuing to edge higher. We are currently calling the Nikkei flat at the open.
Iron ore plays and China industrial profits in focus
Ahead of the local market open, we are calling the ASX 200 down 0.1% at 5460. There have been a lot of unusual moves this week, most probably as a result of window dressing heading into the end of the financial year.
Yesterday’s sharp reversal from the lows was very impressive and could encourage some near-term buying. For FY14 so far the ASX 200 is around 14% higher with a couple of trading days left. The improvement in iron ore prices will remain in focus and could see the pure plays maintain their recovery in the near term. Some investors might focus on comments by FMG Director Meurs who suggested paying debt will take longer following the iron ore price slide although the company remains profitable. China’s May industrial profits will also be in focus and could have an impact on how risk trades in Asia today. Meanwhile the CBA advice case will remain in focus and could have an impact on some of the financials.