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The S&P rallied to a record high and we have seen US futures build on those gains through Asian trade. US futures traded as high as 1739 on no news and we saw some major Asian indices trade at cycle highs as a result. The main hurdle for Asia today was China data, which threatened to be a catalyst to the upside or downside. The raft of data was broadly in-line with consensus, with the GDP reading being the headline.
China’s 3Q GDP showed a 7.8% rise on year and is tracking at 7.7% year-to-date. Industrial production (+9.6%) and fixed asset investment were in-line with estimates, while retail sales were slightly ahead of expectations. In the current environment where China concerns still linger, in-line readings are actually more positive than anything else.
The fact that China remains on track is positive for risk sentiment. Locally we also had RBA Governor Glenn Stevens’ speech which failed to deliver anything significant. His speech was widely anticipated, particularly following the recent appreciation of the AUD. With no surprises, AUD/USD just managed to hold its ground and I still feel it will consolidate around 0.96 in the near term.
BoJ’s Gov Kuroda still to speak
Taking a closer look at regional equities, the ASX 200 has rallied to a fresh five-and-a-half-year high today. The Hang Seng (+0.7%) and Shanghai Composite (+0.2%) are also making positive ground. However, the Nikkei is lagging and currently relatively flat as the greenback loses ground to the yen. While equities stole the limelight in the US with the S&P rallying to a record high, the US dollar made headlines of its own with a continuing slide.
The USD was broadly offered as investors switched their focus to the Fed’s QE tapering timeline. With the greenback giving up ground, USD/JPY slid significantly and printed a low of 97.74. There has been a degree of stability with the pair sidelined around 98 ahead of BoJ Governor Kuroda’s speech at 17:00 AEDT. Nerves always kick in for traders ahead of speeches by Mr Kuroda as he tends to throw some curlers. At the moment the market is hoping to hear some policy initiatives at the October 31 meeting as Japan looks to keep the recovery on track.
European open and tapering talk
The major European bourses are also pointing to a firmer open as they track US futures higher. Equities in Europe were actually weaker yesterday, so it’ll be all about playing catch-up at the open today. With the US fiscal crisis averted for now, focus will swiftly switch back to tapering. The greenback lost ground potentially due to the temporary nature of the US fiscal deal and speculation that the Fed will not start tapering anytime soon. There has been a raft of Fed speakers on the wires, with Charles Evans and Esther George out in US trade. We are hearing a mixed tone from Fed members at the moment, but the general consensus in the market is that a cautious approach will prevail.
Esther George said the Fed should still taper by year end, while Mr Evans is a bit more conservative and would rather evaluate the situation further. This saw the US dollar index down 1% and closing below 80. The DXY is now testing September lows at around 79.61. Any further strain will see DXY testing February lows just under 79. Tonight we have Mr Evans again, Mr Stein and Mr Dudley all speaking.
Banks lead local market higher
The local market has taken out the September high of 5314 and really taken off today. Considering all the noise and uncertainty at the beginning of the week, it was always going to be a binary event. In this case, the binary has worked out well for those with a bullish view of things. The next major challenge for the local market is at 5421, which is the 61.8% retracement of the October 2007 to March 2009 move lower. The iron ore miners led the local market earlier in the week with plenty of positioning ahead of some production reports.
However, they have lost a bit of ground today despite iron ore posting a seventh consecutive positive session. BHP, RIO and AGO are all a touch weaker as investors take some profits off the table. Gold miners have stood out and are enjoying a relief rally after the precious metal reversed higher. Santos has lost some ground after its production numbers disappointed. Meanwhile, the banks are tearing away with the big four posting hefty gains.