Global Markets Overview - 2/13/14

QE debate ends US market rally

Choppy US trade has preceded a day of very interesting Chinese data, and the call for an 'orderly' unwind of monetary stimulus from the Fed overnight, suggests the market is in for a bit of a pause over the next two days.

What is market positive over the medium term is that communication from the Fed is becoming orderly. Doves such as Eric Rosengren, Jamie Bullard and Bill Dudley are singing from the same song sheet, as Janet Yellen, Ben Bernanke before her and dissenters from last year such as Ester George are doing the same. The most poignant words used from the Q&A session at Janet Yellen's testimony was; only a 'noticeable change' in economy conditions will derail the current timeline for the full unwind.

Although the speed at which the full unwind should be completed varies between members; the miscommunication over the past year is finally subsisting and all members are now voting in the same direction.

Market debate about the Fed and its QE program saw the US ending its best four-day rally in over a year and this is likely to filter into Asian trade, which has also seen sustained green on screen over the past week. Having seen the S&P down over 5% for the year, the solid snap back since last Friday has seen some confidence returning after some long-bow comparisons with trade in 1929 (although the comparison is eerily similar).

What was also interesting was that the Chinese trade data did little across the US and European markets. The trade balance figure yesterday was outstanding, on both a nominal and percentage basis. China is showing that the slowdown seen in October/November is moderating and Chinese growth in 2014 will continue.

What is also supportive of the China data is that iron ore imports jumped by 18.2% month-on-month which coincides with record shipments to China from Port Hedland. With RIO reporting full-year numbers at 5pm AEDT, and having seen the Pilbara 290 project up and running ahead of schedule and ahead on budget, investors are looking for a very solid print for Sam Walsh's first full-year at the helm. The market is also looking for a special dividend after having seen more than $3.5 billion in divestments over the past year.

Ahead of the Australian open

With the AUD heading through the 'uncomfortably' high 90 cent handle, the volatile employment data today is another piece of information which could see the unwind of the short positions that have been building over the past year.

Expectations are for 15,300 jobs to be added in the month of January, yet the unemployment rate is expected to rise once more to 5.9%. The economic data out of Australia currently remains choppy at best and the Chinese trade balance coupled with weak unemployment read will have the RBA slightly vexed as to how to use its blunt monetary policy tools.

Currently we are calling the market up nine points on the 10am bell (AEDT) to 5319 as TLS and RIO approaches. So far earnings season has been indifferent, with mining services showing the strain of reduced investment, while banking and retail services have performed well. RIO's results are at 5pm AEDT and will be defining for a further rally; it will provide a materials play precedence.

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