Global Markets Overview – 11/13/13

The dominant theme in global markets was continuing US dollar strength, as tapering expectations continue to ramp up. This saw equities drift lower, with many investors out there in wait-and-see mode heading into a raft of Fedspeak including Ben Bernanke and Janet Yellen. Fed member Richard Fisher got the ball rolling on taper talk after saying it could happen next month during a speech in Melbourne, adding that monetary accommodation was getting riskier by the day. Meanwhile, Dennis Lockhart said the discussion about whether to taper could well take place at the December meeting although he added he'd like to see move back towards 2% first. Apart from Fedspeak, it was a relatively quiet session on the economic calendar. The US dollar index continued to hold its ground above 81 with recent highs being capped in the 81.50 region.

Bullish move for USD/JPY

USD/JPY edged closer to 100 but stuttered after printing a high of 99.80, and is the currency pair to watch at the moment in light of all this taper talk. The pair broke out of a compression triangle pattern and looks like it could continue to head north in the near term. This move in USD/JPY has also resulted in a positive opening call for the Nikkei despite the negative tone in equities. We are currently calling the Nikkei up 0.1% at 14,558.

Out of Japan today we have core machinery orders data to look out for. Japan's consumer confidence reading was a huge disappointment yesterday (41.2 versus 46.3 expected) and we suspect this is due to focus on the sales tax. With such a strong negative early indication, the BoJ's hand might be forced to compensate for the impact of this sales tax and this would in turn be USD/JPY and Nikkei positive.

Consumer sentiment in focus for AUD

AUD/USD is struggling and even dipped below A$0.93 in US trade. This level is the bottom end of the recent range between A$0.93-0.95 and it is crucial to hold on to it in order to prevent further downside. In Australia we have Westpac consumer sentiment and the wage price index due out today and these readings could see the AUD have a near-term bounce should they show signs of improvement. The recent appreciation in property prices is likely to have had a positive impact on consumer sentiment. I still feel the reaction to yesterday's NAB business confidence was a little overdone with traders just looking for an excuse to sell risk.

Apart from data, there will also be focus on news from China's Third Plenum. While initial reports have been light on data, a more detailed policy document is set to be released over the next couple of days. We will be looking out for more detail on market forces playing the 'decisive' role in allocating resources and deeper economic, fiscal and tax reforms.

Weaker start for ASX 200

Ahead of the open we are calling the Australian market down 0.3% at 5,379. I expect to see a fairly subdued open for the cyclical names, with the negative tone in US equities weighing on sentiment. A poor session for commodities will weigh on resource names today. BHP's ADR is pointing 0.7% lower to 37.78 while another drop for gold (to a 4-week low) will be negative for precious metals names. There are some earnings reports to look out for with CSR, Leighton Holdings along with first quarter sales for Myer due out. There will be more AGM commentary today from the likes of Computershare, Seven West Media, REA Group and Mount Gibson. Explosives makers IPL and Orica will remain in focus after big gains following impressive earnings reports. Broker upgrades continue to roll in for the companies.

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