Angus Nicholson for Chris Weston, Chief Market Strategist at IG Markets
Asian markets clearly ignored the pre-Thanksgiving performance of the US markets, with most markets rising strongly as concerns over the Middle East dissipated.
Statements by Russian Foreign Minister Sergei Lavrov served to quell investor concerns somewhat indicting that Russia was not prepared to escalate the situation with Turkey.
Nonetheless, oil prices continued to rise in the Asian session as the Wednesday EIA data dump saw inventories climb at a smaller amount than last week and refinery capacity utilisation continue to tick up to 92%.
The DXY Dollar Index broke 100 for the first time since 16 March overnight, but there has been a pullback since. Most Asian currencies have gained against the USD during the Asian session, with the Japanese yen and the Kiwi dollar seeing the best gains out of the Asian G10s.
New Zealand’s October trade figures saw the trade balance shrink slightly more–than-expected. Despite the bounce back in dairy prices, dairy exports still declined sharply. On the positive side, meat and fruit exports continued to expand strongly. But there is unlikely to be a meaningful upturn in New Zealand’s external accounts until diary prices see a sustained uptick.
There wasn’t a huge move in the Kiwi dollar in the wake of the release, but the slightly better-than-expected numbers would’ve certainly helped the 0.7% strengthening against the Aussie dollar (alongside Australia’s poor capex numbers).
Australia
Australian Q3 capex disappointed the market and saw the Aussie dollar drop 0.6% in the wake of the release. Capex fell 9.2% quarter-on-quarter in Q3 far more than the expected 2.9% decline, and also far more than the previous 4.4% decline in Q2. In year-on-year (YoY) terms, the numbers looked even starker with Q3 capex declining 20%; buildings and structures investment accounted for the bulk of this, declining 23.6%.
Taken in conjunction with yesterday’s poor Q3 construction work figure, concerns are now mounting over next week’s Q3 GDP number which is currently expected to expand at 2.3% YoY.
The fourth estimate for 2015-2016 capex intentions was in-line with expectations at A$120.4 billion, increasing 5.6% from the third estimate. While this is positive in some respects, mining investment is still declining at a far faster rate than non-mining investment. The purported pickup in non-mining is still not showing up in forecasts. But the improving employment figures and anticipated capital spending in the [shares:NBA-AU|NBA] business surveys could see capex estimates for 2015-2016 steadily pickup. It’s these elements of the report that may have caused a bit of buying in the Aussie dollar after the initial selloff, pushing it back to the US$0.7230 area.
ASX
The banks have helped drive the ASX back above 5200. ANZ ’s American Depositary Receipt (ADR) rose 1.26% overnight pointing to a decent session today on the ASX. Financials had a strong session rising 1%. But almost all sectors bar materials and energy were up on the day.
BHP’s ADR was savaged overnight losing 3.5% despite no major moves in the commodities market. The stock broke into the A$18 handle as it lost 3.6%, its lowest level since 2009. Concerns over the viability of BHP’s credit rating and its progressive dividend policy seem to have been the drivers behind the drop.
The materials sector as a whole lost 1.2%, with RIO and Fortescue also trading down on the day.
While on the other end of the spectrum, the strong performing healthcare sector continued to see further gains as it rose 1.2%. Sector bellwether CSL touched A$100 for the first time since 6 August, seemingly signalling a full recovery for the healthcare sector after the August/September selloff.
The big key for the ASX going forward will be whether the financials can break through their October highs. This will largely be the deciding factor as to whether the ASX itself can break through its October high around 5350.
