Global Markets Overview – 11/25/13

Risk finished the week off on a positive note, with US markets rallying to fresh record highs with the Down closing above 16,000 and the S&P above 1800. While tapering remains on the cards in coming meetings, perhaps investors are looking at the situation as glass-half-full, given the Fed is likely to remain accommodative for a while. This week will be crucial for some of the interest rate sensitive sectors of the US economy with the holiday shopping season ramping up. Black Friday will be watched closely from a retail perspective as well as readings on housing and capital goods. While last week was dominated by Fedspeak, this week will be much quieter on that front, which makes the few releases due out important for the USD.

The euro was an outperformer while yen weakness remained a key theme in the FX space. EUR/USD extended its gains above 1.35, trading as high as 1.356 helped by some better-than-expected German (Ifo business climate) economic releases. While data is limited in the US, there will be plenty to look out for on the European front this week with a lot of emphasis on Germany's economy. Out of Germany we will get jobs numbers, inflation and consumer spending readings. There will also be a Senate vote in Italy which could see former PM Berlusconi unseated. Positive releases from Germany would provide a platform for the single currency to extend its gains.

AUD eyes capex numbers

The AUD finished off the week as one of the worst performers and it will be watched closely this week as traders try to decipher where it might find support. AUD/USD traded as low as A$0.9144 on Friday and is now well below all the key moving averages. Data is limited on the local front with nothing due out today. However, tomorrow we have RBA Deputy Governor Lowe speaking and he's likely to maintain the same tone we've heard from Glenn Stevens, jawboning the AUD. Perhaps the most critical release locally will be private capital expenditure numbers on Thursday, where a 1.1% drop is expected, down from 4%. With such a benign expectation, there is a possibility for a surprise here. Selling the pair into strength, particularly around the 0.93 handle is my preferred strategy.

Firmer start for the local market

Ahead of the open we are calling the ASX 200 up 0.4% to 5356. The rally in US equities should help underpin sentiment early along with the fairly positive start we've seen in risk currencies. Resource names are in for a weaker start with BHP's ADR pointing down 0.6% to 37.62. However, iron ore ticked higher to 135.50 and is even firmer in AUD terms, given the weakening local currency. As a result, we could see iron ore names being bid higher early.

Fortescue Metals has been downgraded to Neutral (from Buy) by Citi which is not surprising after the recent share price appreciation. Apart from that it is a relatively quiet day on the company news front with limited leads to work off.

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