Japan’s Nikkei is leading the region as the strong move in USD/JPY continues to underpin confidence. Not even lacklustre current account data was enough to deter equities in Japan today. USD/JPY is still holding at 99 as the greenback remains supported by the bumper jobs reading from Friday. Sellers above 99 seem to have been exhausted by the move in the aftermath of last week’s US GDP reading. Traders are now looking to add to USD longs as the small probability of December tapering sows seeds of doubt.
The argument for December tapering is certainly gaining momentum now, with just one more jobs reading to go before year end. While there are no blockbuster releases from the US this week, Ben Bernanke’s speech on Thursday morning will carry significant weight. Any further hints on tapering will be USD supportive. I feel the market is likely to be positioned for a hawkish tone heading into Bernanke’s speech. Janet Yellen is set to testify in the Senate on Friday and this will see the USD remain firmly in focus.
European GDPs in focus this week
Looking ahead to the European open, we are calling the major bourses relatively flat to mildly positive. One of the interesting pairs to watch at the moment is EUR/USD as the increasingly diverging fundamentals of the two currencies point towards further weakness for the pair. On the one hand you have a European central bank which is looking to stabilise prices after a recent CPI reading came in at the lowest level since 2009. This resulted in the ECB’s hand being forced and rates being cut.
Additionally, the ECB is still looking at more ways to help bolster the economy with negative deposit rates and another LTRO on the cards. On the US side of things, the Fed’s case for tapering is gaining momentum particularly after the bumper jobs numbers. The economic calendar for Europe is very light today, with Italian industrial production being the only reading to look out for. German Buba President Jens Weidmann is set to speak on the eurozone economy and following the recent rate cut decision we are bound to hear commentary around other measures the ECB might be considering. For the rest of the week it’ll be all about GDP readings for France, Germany and the region. Any positive signs from the data could give the single currency some near term relief. Selling EUR/USD into strength is my preferred strategy, particularly on any moves back towards 1.345.
China weighs on the ASX 200
The ASX 200 has given up significant ground from its highs today, with some disappointing price action in China being partly to blame for the move. After the data from the weekend, many would have expected China to put in a strong performance today. A report suggesting the Chinese government may introduce a nationwide property tax in 2015 could be one of the main reasons behind the subdued performance. The new government has been focused on introducing new reform and with the economic forum currently taking place, there will be plenty of speculation which might warrant some caution.
One bright spot in the local market has been Orica today, which has jumped double digit figures after posting a solid FY result. The final underlying net profit print of $601.6 million was a 7.5% decline year-on-year, however it was a beat on consensus expectations of $589.2 million. A final dividend of 55 cents was a three cent improvement on the first half; however was only in-line with expectations and not a significant driver of the share price.
On the earnings front, however, its core business in Australia and Asia jumped 20.2% in FY13 to $623 million. With Australasia making up almost two thirds of ORI’s earnings it will be a major factor in the medium-term sustainability of ORI as it reorientates its explosives business to reflect the lower growth phase in mining as a whole. What will also help in the short term is gearing; having dropped to 36.9% from 41.5% last year it will assist in maintaining profitability in FY14.