Global Markets Overview – 11/22/13

There was a continuation of US dollar strength as unemployment claims and the US flash manufacturing PMI readings came in ahead of consensus. Unemployment claims fell to 323,000 and this reading was also well below analysts' estimates of 333,000. Effectively this brought the 4-week average claims down 7,000 to 339,000. This saw the continuation of the tapering talk theme and resulted in the dollar index holding its ground above 81. At the same time US 10-year yields traded at the highest level since September and saw a widening of the yield gap to Japan.

USD/JPY extended its gains and traded as high as 101.16 partly driven by USD gains and mainly due to continuing yen weakness. The BoJ will press on with its stimulus program and BoJ Governor Kuroda said there is room for policy action. This was enough to sustain a USD/JPY rally through US trade with the pair climbing to its highest level since July. In May, USD/JPY traded as high as 103.74.

Ahead of today's open, we are calling the Nikkei up 1.2% at 15,528, which leaves it within striking distance of May highs just shy of 16,000. A break above May highs will see the Nikkei trade at its highest since 2007. The main focus going forward will be around the fiscal package set to be unveiled to counter the sales tax hike in the first half of December. Finance Minister Aso recently said he will not be issuing new bonds to fund the package which effectively means it is a direct injection of yen into the system.

AUD was one of the worst performing currencies after Glenn Stevens' speech. Stevens suggested he is open-minded about FX intervention but analysts are still wondering whether the cost of intervention outweighs the benefits. To a great degree the AUD's performance is driven by global moves and as a result could prove to be out of the RBA's control. We already know there is limited scope for depreciating the AUD through further rate cuts as the RBA does not want to create asset bubbles. Waiting until there is some certainty on the tapering issue might also be a serious consideration given the impact this could have on the exchange rate. AUD/USD managed to halt its slide at 0.92 this morning but this level is likely to remain under pressure in Asia today.

Strong start on the cards

Ahead of the open we are calling the ASX 200 up 0.6% at 5323. For the week, the local market is down 2.1% as of yesterday's close. Once again there will be focus on gold stocks and what this sharp drop in the precious metals means for their valuations. A lot of the gold miners already had their backs to the wall and this only reinforces the rough path these miners are facing.

Medusa Mining has its AGM in Perth and we could hear some commentary on the gold price. Iron ore was mildly weaker but BHP's ADR is actually pointing up 0.4% at 37.73. David Jones will have its AGM today and given its CEO Paul Zahra recently stepped down we could hear some commentary around leadership and a succession plan. Other AGMs are Goodman Group and Goodman Fielder.

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