Global Markets Overview – 12/12/13

While the progress in the US budget negotiations is certainly a positive for sentiment, it seems the short-term reaction is some selling in equities on fears this strengthens the case for a rapid winding back in asset purchases. Data flow was limited with the Federal budget balance being the main release on the calendar and managed to come in ahead of estimates. With the US fiscal situation continuing to strengthen, many analysts feel some potential headwinds for the US economy are swiftly being removed. Taking a closer look at the FX space, the dominant theme was a reversal in the USD's losses against most of the majors as US treasury yields rose. However, the US dollar index remained below 80 mainly due to euro and yen strength.

AUD in focus ahead of jobs numbers

AUD/USD had traded as high as 0.9167 yesterday, but was greeted by sellers and has since dropped back to 0.905. Perhaps news of the Holden shutdown has contributed to AUD scepticism as some analysts feel this will ramp up pressure on officials to act. It is no secret that the high AUD presents significant headwinds to the ailing manufacturing sector, and as a result any relief in the form of a weaker AUD will be welcomed. With that in mind selling the AUD into strength is likely to remain the preferred strategy for most traders. The AUD will be in focus today with the all-important jobs numbers set to be released. The pair recently traded to as low as 0.8990 and we know there have been good bids coming in on moves below the 0.90 handle. Employment is always a key focus for the RBA and therefore today's jobs data could be the catalyst for new volatility in the AUD. As things stand the market expects 10,000 jobs to be created, with Market Economics the most optimistic at 35,000, while RBC expects no net jobs to be created. The unemployment rate is also expected to tick up ten basis points to 5.8%. Keep an eye on the participation rate as well, which at a multi-year low. A breach of the 0.8990 level will leave traders facing August lows at 0.8848 for support.

ASX 200 to drop below 5100

Ahead of the open, we are calling the ASX 200 down 0.3% at 5089. Should we finish today's session lower, the local market would have been down for six sessions in a row. The significance of the 5100 level will also be tested today as this has seen some consolidation in the past. A key today will also be any reversal in China where equities struggled yesterday. In the commodities space, gold, silver, iron ore and oil all lost some ground and this might be a further dampener for the local market. BHP's ADR is pointing to a 0.4% fall at the open to 36.05. The past week has been highly disappointing on the company update front with some absolute shockers hitting the market. Stocks like QBE Insurance, Oz Minerals and Qantas have all experienced significant share price drops and helped dent confidence in the domestic economy/market. Out of those three stocks, OZL is perhaps looking the most optimistic in the near term after a significant recovery off its lows yesterday. The stock has also been upgraded to buy (from sell) by Citi today. If you look at price action alone it must be said that the wave of buying that came in from the lows was highly impressive and the bulls will hoping it can close yesterday's gap to $3.09.

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