Japan has once again lit up the screens in Asia today as investors react to the BoJ. Of course with China out of action, Japan is the main source of leads for the region. As soon as a headline saying the BoJ has kept policy unchanged crossed the wires, we started seeing some movement in the yen and Nikkei. USD/JPY was in a tight range for most of the morning session; the pair has now broken down and printed a low of ¥97.79. In turn, the Nikkei also dipped into negative territory (-1.4%), but remains quite volatile ahead of Governor Kuroda’s speech. Following the recent strength in the yen, some wanted to see bold action by the BoJ, particularly fresh steps to curb bond market volatility and an extension to the duration of its fixed-rate lending. However, the decline in USD/JPY was short-lived, and we suspect this is because some traders still feel Mr Kuroda’s speech at 4.30pm AEST will be the game-changer. This just mounts pressure on Mr Kuroda to deliver something in his speech after monitoring the market reaction. Some analysts feel he might hold off and keep some fire power up his sleeve in case there is further volatility down the track. Yields in the JGBs climbed around 10 basis points following the announcement, illustrating the disappointment in the BoJ statement. Some of the brokers are becoming increasingly vocal about the japan selloff being overdone. Goldman Sachs recommended buying the Nikkei on the basis that fears surrounding the BoJ’s commitment to policy are overdone with a target at 14,500.
We continue to see some fairly disjointed moves in the FX space, as investors remain uncertain about US quantitative easing and volatility in Japan. There were some fresh developments in US trade as the greenback was supported by the S&P credit rating upgrade to stable AA+ (from negative). This restored the notion that the Fed will be looking to taper off soon enough as conditions seem better. However, there were also some fairly dovish comments by Fed member Mr Bullard which added to the confusion.
EUR/USD has remained elevated at around $1.327 and has been fairly well bid since comments from the ECB hit the wires last week. The single currency will be in focus later today with day one of the German constitutional court ruling on the OMT (outright monetary transactions) programme kicking off. No major shockers are expected and strength in the euro is testament to that. It is important for the OMT backstop to remain available in order to keep confidence steady.
GBP/USD has remained resilient and continues to find support from the uptrend support line which began when it bottomed at $1.50 in May. The pair is within striking distance of $1.56 and there is quite a bit of data on the docket later today, which might cause further volatility. We have manufacturing production and industrial production set to be released, and with relatively benign expectations from this data, we wouldn’t be shocked to see surprises to the upside and the pair pushing higher. We are currently calling the European markets modestly weaker, with losses of around 0.4% expected.
The ASX 200 returned to trade on a positive note, but it has been a very choppy session to say the least. We have finished 0.3% firmer, with the healthcare space leading the gains. The Virtus Health (VRT) IPO has been the highlight of the session, and some feel this has helped bolster some confidence in a market which is desperately in need of some bright spots. VRT traded as high as $6.22 and is currently up 1.8%. It has been a long time since the local market got an IPO which has generated such interest. No doubt it will be watched closely as other companies out there wait to see if the market is ready for IPOs again. There has been a flow-on effect in the rest of the healthcare sector, with Ansell, Cochlear and Sonic all rallying over 3%.
The price action on ANN has been very impressive considering the recent losses experienced in Australian equities. The stock traded at its highest level since October 1997 of $18.73 today, and we feel the next level of resistance is at $20, which was the high from September 1997. Looking at how the stock is rated by brokers, the majority of which have a hold rating, it certainly seems like its valuation is a bit stretched. We might see some traders look to sell the stock at the $20 level. The major financials and materials have been quite mixed today, highlighting the degree of caution being exercised by investors.
AUD/USD gapped lower against the greenback yesterday on the back of some disappointing economic readings from China. The pair dipped to a low of $0.9394 before recovering to around $0.948. Disappointing home loans and NAB business confidence data this morning saw the pair head back towards yesterday’s lows in the 0.94 region. Instead of waiting to sell on rallies, we might see some aggressive traders look to sell the pair on a break of today’s lows.