Global Markets Overview – 1/24/14

Risk continued to trade with a negative tone after price action broke down in yesterday's Asian trade. The selling was really triggered by the disappointing HSBC China PMI reading which came in contractionary territory, and disappointing earnings in the US didn't help the situation. On the economic data side of things, the positive run in the unemployment claims continued as the reading came in ahead of market estimates at 326,000. However, flash manufacturing PMI and existing home sales data disappointed. The USD mostly lost ground to the majors with some big moves in EUR/USD, GBP/USD and USD/JPY. This move was mainly attributed to a sharp move in US yields which dropped around 10 basis points. There were actually some encouraging signs on the European front for a change, with the flash manufacturing PMI for the region rising to 53.9, while the German manufacturing PMI print jumped to 56.3. This gave the single currency an excuse to rally with EUR/USD now knocking on 1.37. However, a standout has been sterling at the moment, which is just going from strength to strength against the majors. Cable is now trading at its highest since May 2011, with momentum firmly to the upside. The sharp drop in unemployment a couple of days ago triggered the move.

Nikkei in for a weak start

USD/JPY finally gave up the 104 handle and has since dropped to 103 as the yen regained some strength against the greenback. This will put significant pressure on Japanese equities today and we are currently calling the Nikkei down 2.2% to 15,383. The AUD was one of the few underperformers against the USD as commodity currencies bore the full brunt of the disappointing China PMI. Selling AUD/USD into strength remains the preferred strategy for most traders and this is likely to remain in play until we hear from the RBA next month. The AUD was weakest against the sterling as GBP/AUD traded through 1.90 for the first time since September 2009 and this has many speculators talking about the prospect of a move to 2.00 in the near future.

Healthcare names in focus after US earnings

Ahead of the open we are calling the ASX 200 down 0.5% at 5240. The resource space is likely to continue struggling heading into the end of the week, with confidence remaining relatively low. BHP's ADR is pointing down 0.4% at 36.88 despite a slight bounce in iron ore prices to 123.9. The drop in the USD triggered a recovery in gold prices. With the precious metal rising around 2% then we'll get an opportunity to assess the real impact of Newcrest's release yesterday. The stock was well bid early in yesterday's trade, but ended up drifting in-line with equities around the region. The $10 level will be key in the near term as it was a point of consolidation in the past and also presents a psychological barrier. The energy space could enjoy some gains as the demand for heating remains strong in the US.

The healthcare space will also be focus today after CSL's peer Baxter reported in the US. Baxter posted earnings which were ahead of estimates on demand for haemophilia therapies but unfortunately its share price still fell in the US. CSL shares have been elevated for a while and holding above $70. The fall in Baxter shares could see CSL pressured in local trade today. Meanwhile ResMed also reported and at first glance it seems the results were well below estimates. Its EPS was weaker than expected and revenue declined. This could see the stock trade back to $5 today.

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