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Although we are seeing disjointed moves in the FX space, one currency pair that has maintained a steady uptrend all week is USD/JPY. In today’s Asian trade, USD/JPY printed a high of ¥99.11 and is threating a move towards ¥100. There is resistance in the 99 region with the 100-day moving average coming in at 98.96. We would want to see a close above this level for confirmation that the near term trend will continue. The pair had been struggling for a while as the USD underperformed, but it certainly seems to have come back to life.
Rising US treasury yields are also playing a significant part in USD strengthening. There is talk doing the rounds that the BoJ might be forced to spring to action and announce further stimulus over the next few months as Abenomics seems to have stalled. We will be eyeing a potential move to ¥100 in the short term, with the Jackson Hole meeting over the weekend likely to be a potential catalyst for further USD strength. Japan’s Nikkei has surged 2.5% and is within touching distance of 13,700. Elsewhere in the region, the ASX 200 has put on 1% and is now mildly positive for the week despite a mediocre reporting season. The Shanghai (+0.3%) and Hang Seng (+0.5%) are only mildly higher and lagging the region today.
European markets are set to open higher as equities continue to ride the improvement in sentiment from positive PMI numbers from China and Europe. The fundamentals for the single currency are looking increasingly bullish at the moment after France’s recession recently ended and as PMIs for the region generally surprised higher. While readings from Germany were very strong, we feel the fact that France remains luke warm will be enough to prevent a hawkish turn by the ECB. They will not want to derail the recovery and as a result it’s hard to be overly bullish on the euro.
ECB member Nowotny was on the wires today saying the recent positive data has removed the need for a cut, however good news won’t prompt the ECB to tighten policy. A minor pullback in the USD heading into the Jackson Hole symposium has also helped underpin risk assets.
For the first time in 25 years, the Fed chairman will not be attending the Jackson Hole meeting. While many feel this means Jackson Hole will be a non-event, there are still plenty of opinionated Fed members who could voice opinions on the QE situation. We wouldn’t be surprised to hear comments that continue to steer tapering expectations for September/October. Apart from Jackson Hole, the only significant piece of data to look out for will be new home sales data. The market is looking for a 487,000 rise in new home sales, which is slightly lower than the previous 497,000 reading.
It has been a rollercoaster week for the local market, with a round of lacklustre results failing to inspire investors. Having a look at the sale and earnings lines; only 41% of the 126 companies have surprised on the upside on the sales line, while 49% have surprised on the earnings line (with 2.7% coming in line with expectations). This suggests one thing: the biggest theme to FY13 reporting season is consolidation. New companies across every sector have stated very clearly that the sales environment has been ‘challenging’ (most common buzz word in market land at the moment) and that this is expected to continue in FY14.
The local market is off to a fairly good start with the risk space, responding positively to the improvement we’ve seen in recently released PMIs. Miners are leading the charge, with FMG extending its gains by another 3% following its results from yesterday, while BHP Billiton and Rio Tinto have put on over 1% each. FMG now just seems to be struggling at the $4.50 level which has played a significant role in its share price in the past. After the recent run, we might see some consolidation at that level.
Crown has been a standout from the reporting companies today and has been one of the few companies in this reporting season to actually deliver, even after having been bought up heading into the result. The stock has jumped over 7% to 14.59 and fast approaching its listing high of $15 achieved in 2007. Underlying profit came in at $473.2 million, versus estimates of $458 million and up 14% on year. FY NPAT was down 22.9% at $395.8 million (versus estimates of $385.7 million).
Apart from earnings being ahead of estimates, the key takeaways are the fact that the VIP gaming division continues to gain momentum. The loss from the Echo stake sale was probably not as bad as the market expected and sentiment is also positive around the Barangaroo project and other growth prospects.