Global Markets Overview – 1/15/14

The negative sentiment that has dogged markets finally came to a halt in US trade after December retail sales data came in better than expected. Earnings also got off to a fairly good start with gains for JP Morgan and Wells Fargo. This raised expectations heading into the Bank of America earnings, which carry significant weight given the bank's large retail offering and mortgage exposure. With tapering likely to roll on, investors really want to see data suggesting the US economy is in a much better place to justify tapering.

Of course sentiment was still reeling from Friday's disappointing payrolls reading, and this retail sales reading had been expected to disappoint by many analysts citing weather-related issues as the main drawback. The headline print was up 0.2% (versus 0.1% expected), while ex-auto climbed 0.7% (versus 0.4% expected). To some extent this made a case for the argument Fed members have been a part of over the past week regarding the 'misleading' payrolls print. In fact Fed members Fisher and Plosser were actually on the wires voicing their support for tapering. Richard Fisher, who is going to be a voter this year, said he would have wanted to see purchases wound back by double the amount, and he will not flinch from supporting tapering further.

Meanwhile, Plosser continued to sound his support for tapering and discounted the December payrolls. We still have Bernanke and Evans set to speak this week as well. As a result, the USD came back to life and managed to regain ground against the majors.

Dollar strength dominates FX space

The greenback was well bid across the board and perhaps the biggest move was in USD/JPY which rallied back above 104 to a high of 104.28. The pair had dipped below 103 yesterday and true to form it found buyers on the dips. This should help resuscitate the Nikkei today after it struggled upon returning to trade yesterday. We are currently calling the Nikkei up 1.8% at 15,692. AUD/USD is back below 0.90 as the sellers took advantage of the recent move above 0.90 to short the pair. Traders with a short bias on the pair are likely to be targeting a move back towards December lows in the 0.8850 region. On the local economic calendar we only have new motor vehicle sales due out, while there is always potential for some surprises out of China.

Firmer start for the ASX 200

Ahead of the open, we are calling the local market up 0.6% at 5,244. There were mixed moves in commodities overnight; iron ore slipped below 130, and gold was weaker. However, nickel continued its run and energy was firmer with gains for oil and natural gas. Given the sharp selling we've already seen this week, there is likely to be some bargain hunting at some stage today, particularly in the cyclical space. OZ Minerals will be one to watch after releasing 4Q output numbers, which at first glance look good. It'll also be interesting to see how the banks respond to the earnings coming out of the US financial heavyweights.

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