Political progress pushes equities higher

US political leaders finally started to play ball, with House Republicans considering a short-term extension to the debt ceiling until late November.

- US leaders looking at extension

- China data in focus over the weekend

- Local market facing a stronger open

However, there is still no sign of an end to the government shutdown. Republicans certainly seem to be feeling the pressure more than Democrats at the moment and this has forced their hand. This prompted a rally in equities and other risk assets with the S&P, Dow and Nasdaq putting on over 2% each. Another interesting situation unfolding is the fact that tapering might continue to experience delays the longer this shutdown rolls on, with a lack of data contributing to a cautious approach by the Fed. Fed member Bullard was on the wires saying October tapering is looking less likely due to the shutdown and Williams said tapering will be gradual as opposed to a ‘slamming on the brakes’. There was also a recovery in the greenback, with the most significant move being in USD/JPY which made its way through 98 and is now hanging at around 98.20. This puts the Nikkei in a very good position to lead Asia today with our current call being for a 2% gain to 14,393.

China data in focus over the weekend

AUD/USD dropped below 0.94 in Asia yesterday but experienced a sharp recovery back to 0.946, with the 0.93-0.95 range continuing to hold. There isn’t anything significant on the local economic calendar today but there might be some positioning in the pair as we head towards some China releases. Over the weekend China releases its trade balance numbers along with new loans and M2 money supply data.

Local market facing a stronger open

Ahead of the open we are calling the local market up 1.3% at 5,211. The initial reaction locally will be a reversal of some of the recent losses on optimism around the progress in Washington. It will be a day where cyclical names outperform as they respond to favourable risk appetite. BHP’s ADR is pointing to a 1.4% rise to 35.10 and we expect to see similar gains in the other iron ore names. Some metals were actually weaker on US dollar strength but I don’t feel this will necessarily impact the performance of miners today. Gold names might come under further pressure after the precious metal extended its losses below 1,300.

Outside of the mining names, keep an eye on Bank of Queensland which reported an impressive set of earnings yesterday with a very good turnaround story. The stock charged through $11 yesterday and is now up nearly 50% for the calendar year. There is also a switching trade from Bendigo & Adelaide Bank into BOQ taking place which will help underpin the stock in the near term. We are likely to see some favourable broker changes also supporting the stock in the near term.

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