Global Markets Overview - 10/24/13

The long rally in US equities finally came to a halt, with disappointing earnings being pinned as the main reason behind the fall. However, US earnings have been largely ignored as the US market rallied and I feel some of the disappointing earnings were just an excuse for the sell-off. After four consecutive sessions of printing record highs, the S&P finally gave up ground and declined half a per cent. The main result the market concentrated on was a disappointing Q3 report from Caterpillar (CAT). CAT missed on EPS, revenue and also cut 2013 forecasts. The company has now missed revenue forecasts for five straight quarters. This was enough to see its stock drop 5.4%.

Sharp reversal in AUD

There were some pretty big moves in the FX space with the main theme being a reversal in some of the hefty gains we've been seeing in the risk currency space. A bigger issue for the market at the moment is the concern about possible China tightening, which had a dramatic impact on Asia in yesterday's trade. AUD/USD dropped from a high of 0.9758 and is now just above the 0.96 handle. This sharp decline came despite a strong CPI reading.

The pair experienced a bearish reversal and will be back in focus today ahead of the HSBC flash PMI print which is due out at 12.45 AEDT. The market expects the pace of expansion to pick up, with the index expected at 50.4. A weak number could confirm the reversal in AUD/USD. RBA Deputy Governor Philip Lowe is speaking today and traders will be keen to hear more on interest rates and the local currency.

Japan to lead the losses in Asia

A major concern for the region today will be Japan after it led a market rout in yesterday's trade. USD/JPY fell sharply to lows in the 97.20 region with the pair testing the 200-day moving average at 97.28. This has been big support recently and a break could see the pair head to 96.00. The Nikkei performed a key day reversal, like many other assets, and could see follow through selling on open. As it stands we are calling the Nikkei down 1.4% at 14,298.

Local market facing relatively flat open

Ahead of the open we are calling the ASX 200 up 0.1% at 5,362. After testing 5,400 yesterday, the selling kicked in and ensured the local market experienced a nasty reversal. However, we have actually seen a mild recovery in overnight trade which has seen the local opening call stabilise.

Following CAT's disappointing report, there will be increasing pressure on local mining services names as the outlook just remains quite dire. After a string of positive results from the miners, there had been growing optimism that perhaps these mining services names would come off their cycle lows, but this could just spell renewed selling pressure for them. BHP's ADR is pointing to a 1.1% fall to 37.08 despite iron ore prices remaining relatively steady. I expect to see some profit taking in the mining names at the open after a stellar performance over the past week or so.

Defensives are likely to take over as the preferred investment today with healthcare names, consumer staples and telcos outperforming. There are a few AGMs to keep an eye on including Newcrest, Amcor, Suncorp and Toll. NCM will be particularly interesting after the recent disclosure drama and remuneration issues.

IG provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday's close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

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