Global Markets Overview – 12/5/13

Equities continued to taper off as investors weighed the latest US data and its implications on tapering talk. The highlight was the ADP non-farm employment change which came in at a much better-than-expected 215,000 (versus 172,000 expected). There was also a very strong new home sales (up 25.4% in October and highest monthly percentage gain since 1980) reading and encouraging Beige Book commentary which helped add to the tapering argument. US treasury yields popped higher as we continue to get a string of data supporting the tapering argument. This ADP print certainly raises upside risk to Friday's November payrolls which are expected to come in at 184,000. A non-farm payrolls print around 200,000 is what many analysts feel is needed to reinforce the December taper argument. Should we get some revisions from previous months, then we could see fresh buying in the greenback.

Single currency in focus ahead of the ECB

There was some whippy price action in EUR/USD with an initial drop to 1.3528 finding buyers before spiking back up to 1.36. It is a big day for the euro ahead with the ECB set to meet. The statement is likely to be released at 23:45 (AEST), while Mario Draghi holds his press conference at 00:30 (AEST). Any comments on deflation risk will be of interest given deflation risk concerns triggered the last rate cut. We also get weekly US jobless claims, 3Q GDP revisions (expected to tick up to 3.1% from 2.8%) and factory orders. With EUR/USD at 1.36, the prospect of the ECB talking down the EUR is relatively high, although it will be fairly happy with the spike higher in excess liquidity in the eurozone.

Japan equities slide in focus

Taking a closer look at the Asian region, the sharp drop in the Nikkei yesterday (-2.1%) will see Japan remaining in focus. With the Government Pension Fund (GPIF) in no rush to implement its expected move away from domestic bonds (JGBs) into more growth focused assets, it will be interesting to see if traders continue to sell Japanese equities at the open. As it stands, we are currently calling the Nikkei mildly weaker at 15,400 with USD/JPY just managing to hold on to 102. At 10:50 today we get the weekly read on the MOF (Minister of Finance) fund flows and traders will be keen to see whether we witness an eighth straight week of Japanese funds buying foreign bonds. A strong number here could see the JPY weaken and trigger a Nikkei recovery.

ASX 200 in for a flat start

Ahead of the local market open, we are calling the ASX 200 flat at 5274. The big iron ore miners will remain in focus after a stellar performance yesterday. BHP's ADR is pointing up 0.9% to 37.12. Iron ore continues to dumfound the market, with the spot price moving to $139.7 per tonne (up 1% on the day), while consensus is maintained at $120 per tonne. This is also the highest level since August. If we look at iron ore in AUD terms, then things look even more compelling for the iron ore miners. Gold snapped its losing streak with a sharp rise and this will result in a dead cat bounce for some of the gold miners today. There will be another IPO hitting the wires today with Veda set to commence trading at midday. AUD/USD continues to flirt with the psychological 0.90 level and will remain in focus today ahead of October trade balance numbers at 11.30 AEDT. Should the 0.90 level be breached, then traders will be looking at the year's low of 0.8848 which was printed in August.

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