Global Markets Overview – November 14, 2014

The lull in equities continued, with no major catalysts to keep the rally going. There was some downside pressure as oil prices continue to deteriorate and investors digest the prospect of an early rates lift-off. Fed member Dudley was on the wires reaffirming that policy will be tailored to market conditions, essentially confirming that policy is data-dependent.

Even a weaker-than-expected unemployment claims reading was not enough to derail the hawks, as the 4-week average has still shown a considerable drop. Dudley went on to acknowledge that the financial markets reaction to tightening will be key to determining the pace of tightening. He added expectations of lift-off around the middle of next year are reasonable.

As far as jobs are concerned, UBS actually ran a story on how the current rate of job creation is seeing the number of applications per job advertised fall while the quit rate is now at a six-year high. This should see wages rise in the not-too-distant future. Later today, we have retail sales in the US and investors will be keen to see if the fall in oil prices has resulted in a wealth transfer from producers to consumers.

Nikkei likely to outperform

Japan has been a big source of volatility over the past week. Even though Abe has denied some of the rumours that have been circling, reports have continued to emerge. The latest news in the 'Nikkei' newspaper suggest Abe is moving toward a delay of the sales tax hike by around 18 months. USD/JPY has remained firm, trading fairly close to ¥116 with no one in a rush to sell the pair. Traders are gearing up for the next leg higher.

The Nikkei is pointing up around 0.3% to 17,460. Looking at China, datayesterday was a touch below estimates, particularly on the industrial production front. It seems to be the new normal at the moment, and there are rumours China is actually considering lowering the 2015 GDP target below 7.5%. Such a move would dispel any talk of all-out stimulus and potentially weigh on risk further.

Flat start for ASX 200

Ahead of the local market open, we are calling the ASX 200 relatively flat at 5444. This sees the ASX 200 start the week down 1.9%, significantly underperforming the US. The trend over the past few sessions has seen equities drifting through the session as investors continue to sit on the sidelines.

Banks are likely to remain out of favour after recently trading ex-div. Mid-tier iron ore names like AGO and ARI are an interesting one to watch at the moment after recently slumping below key levels. Oil prices will remain a concern for energy plays but not for Caltex, which has been one of the biggest beneficiaries of the price decline.

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