Will the Aussie follow the Yen lower?

October 24, 2014

Dollar Yen ripped higher overnight with the Yen losing more than 100 points and USDJPY up at 108.22 this morning. That’s a long way from the 105.17 low just a week or so ago. Elsewhere the Aussie dollar is becalmed but at the bottom of its 0.8750/0820 range for the week at 0.8757 this morning. It is resting on a knife edge and while there is a sense positioning is skewed for a fall. Elsewhere the US dollar was better bid and the Euro is at 1.2646 and the Pound at 1.60306.

Turning to stocks it was a solid night on US markets, stocks that is, saw the Dow rally more than 200 points but traders on bond markets in the US are less happy with rates on US 10 year treasuries up 5 basis points to 2.27%. That is still super low but represents a capital loss of 2.33% on bonds held.

News of an Ebola evaluation of a health care worker in New York took stocks off their highs with the Dow dipping from 16,768 to close at 16,678, a gain of 217 points or 1.32%. The Nasdaq rose 1.6% to 4,453 while the S&P 500 is up 24 points to 1,951 for a gain of 1.24%.

The big news was in the big stocks with Caterpilar smashing estimates with $1.72 per share against expectations of $1.35 with a revenue beat not just cost cutting. 3M was also up 5% after an earnings beat. Both these factors, the recovery off last weeks 2011 trendline and jobless claims printing well below 300,000 at 283,000 again all combine to question the bears.

In Europe markets rallied strongly as well with the CAC up 1.29% in Paris, the DAX up 1.20% and the FTSE up 0.3% to 6,419. In Milan and Madrid stocks were up 0.88% and 0.82% respectively.

Locally traders overnight were happy to follow the moves offshore with the SPI 200 December futures up 17 basis points to 5,389. As is ever the case though, the market’s giveth and they taketh away. So the fact that gold dipped 1% to $1,232 and iron ore dropped across the board and especially in the 2015 and 2016 contracts is likely to provide some headwinds.

Surely Asia will have a good day today. Yesterday’s selling in Shanghai, which saw the index down 1.06% to 2,302 is an interesting take on the HSBC flash PMI which was slightly better than expected at 50.4. The Hang Seng fell 0.3% and the Nikkei was down 0.37% to 15,139.The Nikkei should love both the US move and the fact that the USDJPY surged more than 100 points to 108.29 making the Japanese economy and exports more competitive.

As noted above bonds were a little bit higher with the bigger selloffs in the US and UK where Gilts rose 6 points to 2.25%. 10 year Bunds rose 3 points to 0.86% while rates in Italy and Spain were largely unchanged reflecting the risk on action overnight.

On commodities iton ore is off with the Dec 2014 contract losing 46 cents a tonne to $79.04 but Dec 2015 lost $2.03 to $77.06, not a good sign for prices in the future. Newcastle coal settled at $65.45 down 5 cents. Elsewhere crude was 1.76% higher with Nymex settling at $81.94, gold was lower as noted above and copper rose to $3.03 a pound. On the Ags corn was up 1.53%, soybeans rose 3.85% and wheat was up 0.46%.

On the data front today Chinese house prices and leading index are out in Asia and then UK GDP tonight. Over the weekend we get the results of the European bank stress tests and then next week we get the FOMC meeting and the end of QE – MAYBE!

Please note: Due to computer issues this is move like my BI piece this morning than usual – regular pieces will return monday.

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