Global Markets Overview – 2/5/14

The slide we've been seeing in equities finally came to a halt with a recovery in emerging market currencies helping sentiment along. Good gains for the TRY and ZAR helped sentiment with Merkel saying Turkey's talks to join the EU can proceed. There was also some Fed commentary with Lacker saying he expects tapering to continue at upcoming meetings, and Evans suggesting the Fed will not deviate from its tapering course.

The AUD was the highlight in the FX space as it rallied in all its crosses on the back of the RBA's statement yesterday. While rates were kept unchanged, the statement took a hawkish turn to a more neutral bias, as the RBA removed a few key references regarding the AUD. The words 'uncomfortably high' and 'lower AUD needed to achieve balanced growth' were both removed from the statement. Many analysts also feel the switch to a period of stability for interest rates along with inflation being expected to be somewhat higher than the RBA forecast three months ago.

The overall impact this had on the AUD was extremely bullish, with big gains for AUD/USD along with the crosses. AUD/USD broke through all the near-term barriers and is now back above 0.89 at around 0.8937. The pair is right on the 61.8% retracement of the sharp drop from 14 January (above 0.90) to the end of January when it dipped below 0.87. This might encourage some near-term profit taking, but there is a chance the pair could continue its squeeze into the 0.90 region. The next key hurdle is Friday's statement on monetary policy where we might see some revisions to inflation forecasts.

Japan set to recover after yesterday's 4% plus drop

It was a bloodbath for the Nikkei yesterday after USD/JPY dropped considerably and sparked significant profit taking in Japanese equities. The Nikkei dropped into the 14,000 region and was at risk of falling below 14,000 for the first time since November last year. USD/JPY has since recovered and is now trading at 101.64. This move will see the Nikkei recover today and we are currently calling it up 2.1% at 14,308. Reporting in Japan today we have Mitsubishi, Yamaha and Mazda. Any positive commentary on the corporate earnings front could help bolster the recovery today.

Minor recovery tipped for the ASX 200

Ahead of the open we are calling the local market up 0.1% at 5099. Of course this seems tepid compared to the move seen in US markets, but US futures had already started moving higher heading into the close of the local market yesterday. Additionally, the hawkish turn in the RBA's commentary and AUD recovery won't bode well for the domestic market in the near term. I expect to see a broad recovery in most of the cyclical names as the risk trade experiences a bit of a recovery.

Stock-specific news will continue to dominate trade, particularly with earnings hitting the wires. REA Group was one of the best performers yesterday in a very poor performing market. As a result I expect this stock to continue to gain momentum today.

Downer reported fairly good earnings yesterday, but the sector it is in saw it sold off. Perhaps it might be in for a recovery today. Gold stocks were a bright spot yesterday with NCM poking its head above $10; question is can the momentum be maintained after gold gave back gains? Traders are more likely to be looking for fresh opportunities to short gold stocks. On the earnings front we have Echo's 1H earnings today. Acrux is set to make an announcement after a sharp sell-off yesterday resulted in a trading halt.

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