Global Markets Overview – 11/8/13

It was a volatile night for global markets with some key releases resulting in some sharp moves in equities and currencies.

A surprise ECB 0.25% rate cut set the tone for markets as it resulted in some pretty big moves in the euro. EUR/USD slid to a low of 1.33 on the announcement but has since recovered to trade around 1.342. With inflation/price stability being the ECB's key mandate, last week's poor CPI reading, the lowest since 2009, was certainly the last nail in the coffin. This was followed by a surprise in US Q3 GDP which came in at 2.8% (versus 2% expected).

GDP surprises to the upside are becoming a trend in the US after another surprise back in July. Unemployment claims showed an improvement to 336,000 which was also in-line with consensus. The GDP reading saw tapering talk ramp up and this underpinned the USD for most of the session. In his speech, ECB President Mario Draghi insisted the rate cut was a measure they were technically ready to implement and also alluded to the possibility of another LTRO. The US dollar index (DXY) rallied to 81.46, its highest level since September, before reversing sharply to 80.76.

Nikkei in for a tough start

USD/JPY was the pair to watch as it jumped to 99.41 on the back of the GDP data only to be greeted by aggressive selling above 99, which resulted in the pair dropping to its lowest levels since October. The pair is now trading at 97.89 and I feel it could find buyers on this dip below 98. Some have blamed the move on traders paring back on longs ahead of the non-farm payrolls but the aggressive selling above 99 seems to have been generated mainly by Japanese locals. Consensus for non-farm payrolls is 120,000. However, given the fact the sample size this data was taken was right in the middle of the shutdown, a lot of analysts are eyeing a disappointing reading.

Apart from the payrolls reading, we also have US personal consumption, personal income along with Fed members led by Bernanke himself. This sharp drop in the pair will weigh on the Nikkei today, which we are currently calling down 1.9% to 13,955. Nikkei last traded below 14,000 a month ago. Japan's weekly fund flows data will be in focus and will be released at 10.50 AEDT.

ASX 200 to drop below 5,400

Ahead of the open we are calling the Aussie market down 0.7% at 5,385. Considering over eleven points come out of the market today, with Westpac trading ex-div, perhaps this is not too bad an outcome. Elsewhere in the financial space, keep an eye on CBA and MQG shares after strong performances yesterday which saw the two outperform the financials space. We expect to see a poor start for the mining names after iron ore and gold dropped. BHP's ADR is pointing to a 1.2% fall to 37.80. On the regional economic front we have China trade balance being the headline release, with a 23.5 billion trade surplus expected.

In Australia we have the RBA monetary policy statement in which I don't expect to hear anything new given the current wait-and-see approach. Perhaps on the AUD side of things, whether the RBA has any potential measures it can take to weaken the dollar without lowering rates would be interesting. However, this is unlikely given Glenn Stevens recently said he doesn't have much control over the currency.

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