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It is typical to see markets go through a lull phase as uncertainty and caution prevail along with some mild profit taking. The Nikkei has given up some ground today on some mild yen strength after having sold off significantly yesterday. Meanwhile the ASX 200 is enjoying a day in the sun with the major banks leading a recovery. Time and time again we see local investors taking advantage of any price pullbacks in the major banks and topping up so to speak with high earnings growth and excellent payout ratios set to continue. Unfortunately some of the major resource names have put in a fairly subdued performance today and this is preventing the local market from extending its gains.
We finally saw a bit of a bounce in the AUD today on the back of some comments by RBA Deputy Governor Phillip Lowe. AUD/USD printed a low of A$0.912 in US trade, with market participants clearly on the short side of the trade heading into Lowe’s speech. While Lowe acknowledged that intervention is an option, he also added “the threshold for intervention is fairly high” and that was the key line for investors. This gave AUD/USD room to push higher in Asia and is now within striking distance of A$0.92.
Europe to open mostly weaker
Looking ahead to European trade, most of the major bourses are pointing lower with the exception of the DAX which is likely to test record highs again today. It is clear Germany is facing significantly different fundamentals to the rest of the region, and as a result this is driving the outperformance.
Meanwhile the MIB is facing a much weaker start, with investors showing some concern over upcoming confidence votes. The Italian government will call a confidence vote to speed up the passage of budget legislation through parliament and this already saw Italian yields start to rise. There is also the Senate vote on former PM Berlusconi coming up. The drop in the MIB also came despite some fairly dovish tape by key ECB members.
The euro was a major talking point after ECB commentary highlighted deflationary concerns and the potential to implement counter measures. Banque de France Governor Christian Noyer said there’s a risk that low inflation will remain for some time and this is likely to see interest rates remain low or go even lower.
EUR/USD extended its losses after some dovish comments by a couple of ECB members including Asmussen who suggested the ECB still had room to take more easing action if deflationary pressures intensified. EUR/USD dipped below 1.35, trading as low as 1.349 before managing to find buyers on dips.
More housing data out of the US
In UK trade, BoE Governor will testify at an inflation report hearing before the Treasury committee. The key focus will be on guidance and when the BoE expects this to be achieved. The timeframe will be key for the pound in the near term along with any other new forecasts. US futures are actually mildly positive in Asia suggesting the slide we saw in US equities towards the end of trade could have been overdone. Following on with the housing theme, we have building permits and housing starts data due out today. We also have the Case-Shiller house price index due out. The Conference Board releases its consumer confidence reading which is expected to show a strong improvement in the US government shutdown aftermath.