Daily Market Update 21 August 2013 - Market calm returns, albeit temporarily
Relative calm across global markets overnight with falling US yields seeing investors return to stocks, commodities and treasuries at the expense of the USD. Having fallen for four-consecutive sessions, the S&P 500 eked out a modest gain of 0.4%, largely due to market positioning before a major event rather than anything you’ll read in the press. Allowing this move to occur, US treasuries were in demand with the yield on benchmark 10-year notes falling 6bps to 2.8179%. Having been down heavily earlier in the session, commodities followed the cue of equity markets with all bar the crude price, down a heavy -2%, finishing the session close to flat. Last but not least, with US yields sliding, the USD was under pressure with the EUR and GBP benefitting most with gains of 0.62% and 0.12% respectively.
German producer prices fell unexpectedly in July with a decline of 0.1% reported. The figure was below the flat reading seen in June and expectations for a rise of 0.2% with the year-on-year rate sliding 0.2% to +0.5%.
Taiwan export orders rose by 0.5% in the year to July, an improvement on the 3.5% fall previously seen in June. The result beat expectations for a decline of 1.46% with total orders topping $36b for only the third time so far in 2013.
The Day Ahead (All times AEST)
Another busy session on the domestic corporate earnings front with Asciano, Boral, iinet, Iluka, Reject Shop, Seek and Suncorp just some of the better-know names that are scheduled to report.
The ASX 200 looks set to stage a modest, short-covering rally following five days of losses this morning with SPI futures pointing to a rise of 13pts on the open. While the index will likely exceed what futures are currently suggesting, conditional on earnings announcements this morning, we expect that initial gains will slowly ease back over the course of the session as investors ready themselves for the release of the FOMC minutes in the early hours of tomorrow morning.
As has been the case with most other USD-denominated pairs, the AUDUSD managed to push higher during the overnight session with falling US yields and short-term short positioning seeing the pair move back towards the .9100 level before easing into the close. While this was largely on the back of position adjustments before the release of the FOMC minute’s tomorrow morning, something that we will likely see again in Asia, with tapering fears still simmering in the background despite the overnight moves, it’s likely that any attempt higher today will be met with solid selling pressure. Resistance is found at .9100 and .9125 with support kicking in at .9070 and again at .9028.
Having taken a break in recent days, ‘taper talk’ will be back in focus in the early hours of tomorrow morning with the minutes of the FOMC’s July 30-31 meeting scheduled for release at 4am AEST. Given it’s almost exclusively driven market moves in recent weeks, all attention will be on the discussion surrounding tapering of asset purchases with the words ‘a few, some, or many’ likely to dictate market sentiment in the period following the release. While it’s clear there is some opposition to near-term tapering from a few committee members, given what we’ve been seen in recent weeks, many coming out stating that recent improvements in the labour market suggest it’s time to scale back purchases, it’s likely that the minutes will show the committee is readying for this to occur, perhaps as early as their September 17-18 meeting. While this will be somewhat disruptive to the markets, particularly if longer-dated yields surge after the minutes are released, whether they lay the groundwork for tapering in September or October, one way or another, tapering looks set to begin before the year is out.
Aside from the FOMC minutes, markets will also have to digest existing home sales and the MBA mortgage market index in the States along with public sector borrowing and industrial orders from the UK.