Global Markets Overview - 2/19/14

US markets returned to trade on a fairly quiet note with the major bourses relatively mixed. Data out of the US was underwhelming to say the least, with the Empire State manufacturing index and the NAHB housing market index sharply disappointing. Weather continues to be blamed for some of the disappointing readings but at some point this could start to weigh on sentiment. The Nikkei had a big day yesterday, rising 3% on the back of the BoJ. USD/JPY spiked to ¥102.75 on the back of the BoJ but has since dropped back into ¥102.34.

With the sales tax hike kicking in in April, the BoJ decided to pre-empt the market and took some action. The actual policy setting remained the same, with the monetary base set to continue growing at 60-70 trillion yen a year. However the BoJ extended and expanded its stimulating bank lending facility and growth supporting funding facility. This buys the BoJ time to assess the impact of the sales tax hike and while it is not full scale easing, it certainly reinforces the BoJ's commitment to driving the economy.

We are currently calling the Nikkei down a touch with the all industries activity data and the BoJ monthly report due out. In US trade we get Fed memebers Dennis Lockhart (04:15 AEDT) and Jamie Bullard (05:00 AEDT), while the Fed minutes are released at 06:00 AEDT. This will have some bearing on USD/JPY and could dictate how the pair and the Nikkei trades for the rest of the week.

AUD could come under pressure on wage data

AUD/USD stuttered yet again upon retesting January highs and the 38.2% retracement at 0.908 yesterday. The 0.908 level is the 38.2% retracement of the sell-off from October 2013, when AUD/USD was trading above 0.97, to the end of January 2014 low, when it traded below 0.87. This has seen AUD/USD drop to 0.90 before bouncing back to 0.9035.

Perhaps strength in commodities has helped the pair remain buoyant heading into today's Q4 wage price data where a 0.7% rise is expected at 11:30 (AEDT). Annualised, the market expects a slight slowdown to 2.5% yoy (from 2.7%). Naturally this is a key input into inflation expectations, so a number below this fugure could feed into the idea that inflation in Australia could fall in the coming quarters. Given the current concerns about the jobs market, many analysts feel we could see downward pressure in wage price growth. Should this number disappoint we could see the AUD sold off yet again and AUD/USD trade back below 0.90.

Relatively flat start for ASX 200

Ahead of the open I am calling the ASX 200 up 0.2% at 5,405. Once again focus will be on earnings, with the big ones in the resource space being FMG and WPL. Investors will be keen to see if FMG can match the strong performances put in by RIO and BHP. Given strong performances in iron ore and cost cuts driving profitability, that's where the key will be for FMG.

As a result, FMG actually rallied in-line with its peers yesterday, touching $6 for the first time since April 2012. The miner is likely to report just after the open of the cash market and the range for underlying net profit is fairly wide (consensus for NPAT is $1.2 billion). Last month FMG lowered its 2014 shipping guidance the low end of 127 to 135mt range, however if you look at price action the stock continues to print higher highs and looks strong. Keep an eye on the health of its balance sheet, which should highlight a reduction in its net debt position and given what we have seen from its peers an update on costs is key. They are expected to pay an interim dividend of 5c (fully franked). Other companies reporting will be SUN, WES, BXB, MGX.

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