Talk of a Syria strike also ramped up as some Republican leaders pledged their support for military action.
Positive data from the US proved to be a bit of a negative for equities as talk of September tapering ramped up again. US ISM manufacturing PMI came in at 55.7 (versus expectations of 54.2) and reinforced the idea that the US economic recovery is on track for September tapering. This notion supported US dollar strength, with USD/JPY being one of the biggest beneficiaries.
USD/JPY rallied to a high of ¥99.86 on the back of the data and is edging ever closer to the ¥100 mark. The Nikkei put in a monster performance yesterday and outperformed the region. Any further moves higher in the pair would certainly support further gains in Japanese equities. So far we are expecting a minor retreat (-0.5%) in the Nikkei at the open to 13,883. While we have the BoJ to look out for tomorrow, it’ll also have to contend with Finance Minister Aso’s comments that Japan is going to proceed with a planned two-stage sales tax hike but it may be countered by an extra budget for fiscal spending.
The AUD has gone from strength to strength this week with an initial lift from China and European manufacturing PMI data. Yesterday’s rate decision was largely expected but analysts and traders have focused on the deletion of the room for more easing reference. The RBA also stuck by its forecast for a pickup in global growth next year and feels the current rate setting is appropriate. This has seen the AUD as the best performing G10 currency against the greenback with AUD/USD now looking to establish itself above the 0.90 level. The pair printed a high of $0.9072 in US trade despite talk of tapering. On the local economic calendar, today we have 2Q GDP data due out at 11.30am with a 0.6% rise expected. Any further signs of strength will only push the AUD higher today. However, given the current account miss, some analysts have actually downgraded their expectations for the GDP number.
Ahead of the open we are calling the local market down 0.7% at 5,158. The market just poked its head above 5,200 yesterday and therefore a pullback is not too surprising as investors struggle to hold their nerves as we approach the year’s highs. However, it seems like the resource names are in for a positive start with gains for RIO and BHP in the UK set to lift their local stock. BHP’s ADR is pointing to a 1% rise to 36.19. Strong recovery in gold overnight saw the precious metal back above 1,400 and is likely to support gold names today. The company news front is very quiet today but no doubt election talk will continue to dominate headlines and influence some policy related sectors and stocks.