Republicans and Democrats continue to clash on the Affordable Care Act and this is now prompting concerns of a default. US economic data also showed mixed signals as unemployment claims came in slightly ahead of consensus but the ISM non-manufacturing PMI disappointed.
The mildly positive unemployment claims print wasn’t enough to encourage any USD longs, particularly following confirmation that there will be no non-farm payrolls release this week. This just puts a bit more weight on the disappointing ADP number released yesterday.
USD/JPY dipped to a low of 96.93 but has since enjoyed a mild recovery to 97.20. Japan will be in focus today with the BoJ being the most notable event on the Asian economic calendar. Following the announcement of the sales tax hike, the yen has actually been appreciating to the detriment of the Nikkei. As a result there will be growing pressure on the BoJ to add to stimulus and help counter the effect of the sales tax hike.
PM Shinzo Abe has already announced some counter measures in the form of a corporate tax cut but this hasn’t been enough to make up for the sales tax hike. While the BoJ is not expected to announce anything today, the press conference will be very interesting as they are likely to make some comments around the impact of the sales tax and this might cause some volatility in yen price action.
There is another meeting at the end of October where most analysts feel we are more likely to see action. As it stands, the Nikkei is pointing down 0.6% at 14,070 with yen strength continuing to be a near-term concern. Any further drop below 97 for USD/JPY would see Japan in for a very tough day.
Ahead of the open we are calling the local market down 0.6% at 5,203. After yesterday’s surprise performance to the upside it seems we will be giving up all of those gains at the open. For the week the local market is down 1.4% based on yesterday’s close. Heading into the weekend we doubt local investors will be keen to hold onto gains given the significant risk from the US political deadlock.
Heavyweight BHP’s ADR is pointing to a 1.2% drop to 35.16. However, metals prices actually held up fairly well which makes this lead quite confusing. Leighton Holdings will continue to be in focus after yesterday’s corruption report. The stock is testing key support in the $17.50 region and a close below this support will leave it open for further short term losses.