Mr Market not worried about the Taper as stocks bounce but Aussie languishing

December 17, 2013

Mr Market doesn’t seem to worried about the taper if last night’s price action is any guide. There is a generally more positive tone in stocks with fear giving way to hope that the improving data flow, from the US in particular, will be able to sustain the recovery through the taper when it comes. Equally Goldman Sachs put out a report saying it didn’t expect the FOMC to make the move this month.

On the data front EU and German Markit PMI’s printed higher than expected and well up on last month, while US industrial production rose 1.1% a full 1% better than last month and way above the 0.4% expected by economists. It’s a story of global economic healing and while such data makes the taper more likely than not eventually, it also speaks of an improving underlying economic backdrop for companies to operate in and with US non-farm productivity up 3% in Q3 (wages fell 1.4%) profitability can remain strong.

So at the close, US markets have drifted off a little from the day’s highs. The Dow is up 130 points or 0.82% to 15,885, the Nasdaq is 0.73% higher and the S&P 500 has risen 12 points to 1,787 for a gain of 0.66%.

No taper might see the S&P charge higher 1835 seems t be the key level topside.

Stocks in Europe had a great day rising steadily across the course of the day and into the close. As noted above the EU data was solid as was German PMI (54.2 v 53 expected) but French manufacturing PMI fell back again for a loss of 2 full points to 47.1. At the close the FTSE was 1.27% higher, the DAX rose 1.75%, the CAC was lifted 1.49% by the rising tide with no heed to the disastrous PMI numbers. In Milan stocks ripped 2.34% higher while in Madrid the IBEX was up 1.70%.

On the ASX overnight, futures trade took its lead from offshore with the Dec contract up 33 points to 5134 while the March contract rose 35 points to 5101 bid.

There is a little more in this after the break of the 200 day moving average – 5186 resistance.

On FX markets the Aussie dollar is still languishing around 89.5 cents but found support just above 89 over the past couple of trading days. Today is a massive psychological hurdle for the Aussie though with the twin threats of a Government likely to paint the worst possible light on its finances and budget deficit with the release of the MYEFO and the release of the RBA Board meeting minutes which are likely to once again explicitly say that the Aussie is uncomfortably high. It will be an instructive day on whether there is any support around for the Aussie.

Easy to see that the Aussie has found some short term support and a break of 89 cents would be ugly.

In other markets Euro rallied back toward the highs of last week hitting 1.3798 but is off a little siting at 1.3754. Sterling is largely unchanged at 1.6310 while USDJPY is down a little after the Tankan hit a 6 year high yesterday but off the low of 102.62 resting at 103.01 this morning.

Euro momentum is starting to fade.

On commodity markets there is a sense that the evidence of recovery we are seeing might be real if you look at the Copper market. Copper is often said to be the commodity with a Phd because it is a good indicator of growth and at $3.37 lb Dr Copper is up to something. Nymex crude is higher as well up 0.99% to $97.56 Bbl and Gold has lifted 0.79% to $1245 oz. Corn is down 0.18%, wheat lost 0.99% and soybeans are up 0.90%. Bitcoin has had a mini-crash from above $900 last night to $790 this morning.

On the data front today in Australia the dominant driver will be the MYEFO but watch out for the RBA minutes, motor vehicle sales will be on the periphery but keep an eye on RBA Assistant Governor Guy Debelle’s speech and panel discussion at 11.15 this morning.

Offshore Chinese foreign direct investment is worth watching and then in the UK tonight a raft of CPI and PPI data with EU and US CPI data also out. The German ZEW survey is also important as will the US NAHB housing market index.

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