ASX at the close

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ScreenHunter_31 Jun. 04 16.42

Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets

Japan has been the main point of focus in Asian trade today, with the Nikkei significantly outperforming the region. While the BoJ meeting and raft of data out of Japan have been pinned as the highlights of today’s session, the Government Pension Investment Fund (GPIF) came back to the fore on the back of reports by the Nikkei newspaper. The reports suggested Japan’s Health Minister is set to announce holdings of domestic and foreign stocks will be bumped to 25% each. It’s important to note the market was expecting holdings of domestic stocks to be raised to around 22% and about 15% for foreign stocks. As a result this is above and beyond what the market was expecting.

Additionally, total holdings of foreign assets will now stand at 40% and this won’t be currency hedged. The market deems this as very yen negative and perhaps this explains why USD/JPY has extended its gains through Asia today. Results from the BoJ meeting also surprised after announcing it is now targeting an ¥80 trillion expansion in the monetary base, up from ¥70 trillion. The timing was pretty much perfect as the Fed announced an end to its QE program this week. The impact has been a surge in USD/JPY as the pair traded to a high of ¥110.69 and knocked out September highs.

CPI readings out of Japan today have mostly been in-line with estimates with some of the readings even slightly better. Interesting that the national CPI ex food and energy was actually better than expected at 2.3% (versus 2.2%). Giving energy prices have been declining, then this figure perhaps carries more weight than the headline. Household spending was down sharply though (-5.6% versus -4.3% expected).

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All up, it seems the stall in inflation was more than enough to see the BoJ pull the trigger. The next point of focus will be what happens with the second leg of the sales tax hike, which Shinzo Abe is meant to decide on very soon.

ANZ and MQG earnings impress

The ASX 200 has finished off the week in fine form with earnings from MQG and ANZ helping to keep the momentum going. For the week the market is up around 2.6%, with the financials driving most of the gains. From a price action perspective, MQG traded at its highest since 2009 today after trading through June’s high of $61.27. The 2009 high was in the $61.50 region and that’ll be the next key level.

ANZ hasn’t quite enjoyed the strength MQG is seeing, but I suspect this is to do with the fall in net interest margins as competition stiffens and as well the fact the market was already expecting the headline numbers. It seems analysts continue to prefer NAB in the near term.

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Next week focus switches to WBC and CBA. Materials remain choppy and it is difficult to call a bottom on the sector. Caution is likely to prevail until a more sustained trend forms. Gold miners will be ones to remain wary of particularly after the slide in gold prices. The precious metal is now trading back below 1200 and the 1183 region will be key support.

Firmer open for Europe

Ahead of the European open we are calling the major bourses firmer. The euro came under renewed pressure on the back of disappointing German CPI, but equities managed to gain ground yesterday after the ECB said it will begin ABS purchases next month. Yesterday’s disappointing German CPI saw pessimism grow heading into today’s CPI release for the region.

EUR/USD slipped to a low of $1.2540 but has since recovered back above $1.2600. Should Europe’s CPI disappoint today then there could be renewed weakness for the single currency. I remain of the opinion the pair is vulnerable to a retest of October lows in the $1.2500 region. Apart from CPI, we also have German retail sales and French consumer spending to look out for. Over the weekend we also have China’s manufacturing PMI reading which will help shape sentiment for Monday’s trade.

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