by Stan Shamu, IG Markets
It’s a mixed day for Asia as investors struggle to dissect what the latest developments mean for global markets. Meanwhile, bulls and bears continue to play a game of cat and mouse, with the bulls looking for a floor in the recent sell-off while the bears consider adding to shorts. With choppy price action being the dominant theme, patience will be key in this environment. The losses seen in European and US trade haven’t quite been replicated in Asia today due to some bright spots – particularly from China, where the Hang Seng and Shanghai Composite are both firmer.
Euphoria from the positive China PMI print didn’t last long at all as global markets slid on the US treasury’s new tax inversion regulations and continuing geopolitical tension. While the headlines were around inversion rules and geopolitical tension, Fed members spoke at a community banks conference in Missouri with a hawkish bias persisting.
Fed members differ in opinion
Perhaps the more insightful comments were from James Bullard and Narayana Kocherlakota, who were on opposite ends of the spectrum. James Bullard said he sees the first Fed tightening at the end of Q1 and a drop of the ‘considerable time’ reference at the October meeting. Kocherlakota also spoke and raised concerns about raising rates prematurely due to his forecast that inflation may remain below 2% for four years. However, his opinion seems a bit dated and out of tune with the recent dot plot analysis. However, Bullard is not a voting member, while Kocherlakota is. On the wires today we have George, Mester and Evans.
APRA looking at property investment lending
A resilient greenback continues to play into the hands of Japan, which is only mildly weaker today and enjoyed some buying off the lows. It certainly seems the theme of buying dips in USD/JPY and the Nikkei is continuing. As long as US data continues to impress and Fed members turn hawkish, this will help support this trade.
In Australia, the focus today has been on the RBA’s September financial stability review, which focused on the introduction of measures to curb the pace of investor housing lending. Many had flagged comments around a potential housing bubble as the key point in today’s release.
It seems the RBA is concerned about speculative demand amplifying property prices and it will work with APRA to curb excessive lending to investors. This is probably also an acknowledgment by the RBA that policy tools are somewhat effective in that department.
Rates have to remain low to aid certain segments of the economy and it seems policy is a bit of a blunt tool as far as controlling the property market. That said, local banks have given up a chunk of yesterday’s gains and investors will be keen to hear what RBA Governor Glen Stevens has to say when he speaks at an economic forum in Melbourne tomorrow. For now, AUD/USD has come off its lows but the short-term downtrend remains intact and is at risk of being sold into strength.
Weaker open for Europe
Ahead of the European open, we’re calling the major bourses weaker, with investors still concerned about growth and the effectiveness of policy measures. On the calendar we have the German Ifo business climate reading and Italy’s consumer confidence data.
While the euro seems to have found some stability this week, traders are still likely to be looking to sell into strength and perhaps that rejection of the $1.2900 level yesterday is a reflection of the bias at the moment. With limited activity on the European calendar, most of the action is likely to come from the greenback – new home sales figures are due out and a number of Fed members are set to speak.