Global Markets Overview – December 19, 2014

Equities extend rally on the back of the Fed

The momentum from yesterday's Fed announcement has continued to resonate through global markets, with equities in Europe and the US extending gains.

The surprising fact is that equities are rallying despite analysts' still believing rates will lift off in the middle of next year. The S&P is now only around 1% from its December 5 record high and, if the current momentum continues, this could be surpassed.

Data from overnight trade was also quite encouraging with unemployment claims showing a further drop. Given this rally has been able to last more than a day, I feel the Fed will be pleased it managed to find the right balance with its language.

Over in Europe, the German Ifo business climate reading picked up while UK retail sales were well ahead of estimates - this is always encouraging heading into the key festive season. Investors even largely ignored further volatility in Russia as Vladimir Putin spoke on the economy and warned of $40/bbl oil.

BoJ in focus

While equities rallied, moves in the FX space were quite subdued as some of the steam from the post-Fed USD rally subsided. Regardless, USD/JPY will be the pair to watch today, given the Bank of Japan (BoJ) meeting concludes and we are due to receive a statement and press conference.

USD/JPY actually traded through ¥119.00 briefly but has since pulled back a touch with price action showing a cautious tone. I feel this is the beginning of the next leg higher for USD/JPY.

The Nikkei is set to extend its gains today and we are currently calling it 2.1% higher at 17,567. Apart from the BoJ, we have industrial activity and department store sales data due out. There have also been reports doing the rounds that freshly re-elected Prime Minister Shinzo Abe is planning a significant stimulus package to the tune of around $30 billion, which will be announced in the near future.

Risk-on for the ASX 200

There is not a lot else on the docket regionally today but I expect emerging markets to continue their run as they track the momentum seen in major global markets. Ahead of the local market open, we are calling the ASX 200 up 1.4% at 5281. It's likely to be another risk-on session, with recent underperformers in the materials and energy space leading the recovery.

However, there will continue to be concerns around the consumer discretionary space where confidence remains subdued. Probably more interesting in the near term will be what happens with the AUD, which has been threatening to extend losses in the near term.

Despite a bounce off yesterday's lows, traders are likely to use any strength for the pair as an opportunity to sell, particularly any moves into the $0.8200 region.

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