A worker walks past an electronic board displaying movements in major indices, at the Johannesburg Stock Exchange in Sandton, February 12, 2015.
A worker walks past an electronic board displaying movements in major indices, at the Johannesburg Stock Exchange in Sandton, February 12, 2015. South Africa's rand weakened in early trade on Thursday ahead of President Jacob Zuma's annual state of the nation address, which investors hope would tackle domestic economic woes including electricity shortage.At 0704 GMT the rand was trading 0.22 percent softer at 11.8615 to the dollar, compared to its closing level of 11.8350 on Wednesday. Reuters/Siphiwe Sibeko

Further tepid conditions allowing equity buying

More divergence from Fed communications, US inflation remains elusive, and US employment continues to be questioned. The tepidness of the data is giving the market a chance to reinstate long positions.

What’s catching my attention

· US earning season remains mixed, yet of the 50 companies that have reported so far, 75% have beaten expectations on the EPS line and 52% on the revenue line (in line with the past 27 quarters).

· US CPI saw a 0.2% decline month-on-month (MoM) and core CPI saw a 0.2% gain MoM – so it was a mixed return. Year-on-year (YoY) core inflation was 1.8%, solid but certainly not strong enough to be meeting the second mandate of the Fed.

· New York Fed president Bill Dudley reaffirmed his position that he believes that the Fed funds rate will rise in December despite the CPI and that mean the dot plots will be the best gauge for a December move at next week’s Fed meeting. If it is unchanged, the market will need to rebalance.

· The Fed funds rate futures for December did shift higher on his comments to a 30.4% from 29% chance of a rate hike.

· The March futures are back over 50% – a 54.5% chance of a hike from 48.6%.

· Since 30 September, China has seen a 5.6% increase in margin accounts; is confidence returning? Their equity markets are certainly consolidating.

· Iron ore slipped and copper shifted higher (watch RIO’s numbers today to see if it is indeed cutting copper production like Glencore). Soft commodities attracted huge amounts of attention with orange juice production plummeting YoY from weather issues in the US and the inferred meaning it has on other softs.

· Coffee speculation is ramping up as this year's expected El Nino is expected to crimp conditions in Brazil and Central-South America. Coffee prices have risen consistently on the CME this week.

· Australian banks remain in focus on pricing power after the Westpac (WBC) shock increases. CBA is likely to be next as ANZ and NAB report full-year numbers in two weeks and will likely announce a move then too. Expectations are for the other three to follow suit; however, ANZ is looking for loan book growth keeping rates as is would create customer churn. It also raises the question: what does it mean for further rate cuts from the RBA if the banks are moving out of cycle?

· RIO’s production number will be all about iron ore and the Pilbara. The main point to watch is how fast is the 290 project turning into the 360 project. Based on expectations for today’s releases, it’s ahead of schedule and could even overshoot expectations by year-end.

Ahead of the open, we are calling the ASX up 46 points to 5276.

Asian markets opening call

Price at 8:00am AEDT

Change from the Offical market close

Percentage Change

Australia 200 cash (ASX 200)

5,276.10

46

0.88%

Japan 225 (Nikkei)

18,210.70

331

1.85%

Hong Kong HS 50 cash (Hang Seng)

23,182.00

294

1.28%

China H-shares cash

10,703.80

151

1.43%

Singapore Blue Chip cash (MSCI Singapore)

341.18

3

0.90%

US and Europe Market Calls

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

WALL STREET (cash) (Dow)

17,159.00

152

0.88%

US 500 (cash) (S&P)

2,025.75

22

1.13%

UK FTSE (cash)

6,393.00

90

1.38%

German DAX (cash)

10,152.20

168

1.69%

Futures Markets

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

Dow Jones Futures (December)

17,065.00

152.50

0.90%

S&P Futures (December)

2,018.38

22.75

1.14%

ASX SPI Futures (December)

5,248.00

36.50

0.71%

NKY 225 Futures (December)

18,277.50

132.50

0.73%

Key inputs for the upcoming Australian trading session (Change are from 16:00 AEDT )

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

AUD/USD

$0.7332

0.0013

0.17%

USD/JPY

¥118.890

-0.035

-0.03%

Rio Tinto Plc (London)

£25.50

0.22

0.88%

BHP Billiton Plc (London)

£11.70

0.17

1.52%

BHP Billiton Ltd. ADR (US) (AUD)

$24.99

-0.13

-0.50%

Gold (spot)

$1,183.25

-2.20

-0.19%

Brent Crude (October)

$48.71

-0.61

-1.23%

Aluminium (London)

1579

-16.00

-1.00%

Copper (London)

5325.5

19.50

0.37%

Nickel (London)

10545

45.00

0.43%

Zinc (London)

1823

-1.00

-0.05%

Iron Ore (62%Fe Qingdao)

$53.74

-1.38

-2.50%

EVAN LUCAS Market Strategist
IG Markets

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