Equity markets in Asia were seen rallying overnight and posted fresh three month highs after the Chairman of the Federal Reserve (Bernanke) made comments suggesting that interest rates in the US will remain close to zero into the year 2014. This shows a more dovish stance from the Fed (as the previous target date was in mid 2013) and this more accommodative policy stance is a net positive for global equity markets.
Commodities prices were also helped by the comments, as markets start to price in higher demand levels on lower borrowing costs. Crude oil was one of the biggest gainers on the day, showing a rise of 0.5 percent (to trade above the psychological $100 level) and natural gas followed this trend posting gains for the fifth consecutive session. Oil is priced in US Dollars, so it was not surprising to see the Dollar head lower against high yielding and emerging markets currencies. The South Korean won rose to ten week highs, and the Dollar fell below 1.31 against the Euro as investors look for carry value in longer term currency investments.
In New Zealand, the RBNZ concluded its monetary policy meeting and made comments that were similar to those covered in the Bernanke press conference. This was something more of a surprise to markets however, as many analysts were pricing in a more hawkish monetary policy from the central bank. The RBNZ statement suggested that interest rates will remain at their current levels (which are at a record low for the country) for a longer period than previously anticipated.
The latest rally in the S&P 500 was helped yesterday by strong earnings results from Apple which showed that profits doubled during the quarter and the market reacted by turning the negative December performance in Apple stock into a gain of 4.4 percent. Hyundai and Nintendo are scheduled to report earnings later today, so we will have more data to decide whether or not the Apple profits are an exception or indicative of a wider trend in the performance of tech companies toward the end of 2011.
Given what we are starting to see from various global central banks, it appears as though the Bernanke comments are setting the tone for monetary policy in general and the biggest potential for gains in this environment could be seen in commodities (energy and metals). We are already starting to see some of this, with natural gas showing its biggest gains in a year and copper trading near the $8500 level (a three month high). This space is one of the key areas to watch as many commodities are trading below historical averages and longer term traders will use these levels to establish new positions.
Technical Analysis:
The AUD/JPY is showing an ascending triangle formation and is coming into resistance at 83.70. Support has moved up to 80.20 and only a break here will turn the bias back to neutral. Longer term, a daily close above the 61.8% Fibonacci retracement will target areas in the 90 region. Key long term support now rests at 73.10.
Oil bounced strongly off of range support at 97.50 and is now pressuring the top side above 100.15. Prices have not yet managed to close above this level but the latest move has broken moving average resistance, so a close above the recent highs will target a full retracement of the decline from 102.30. Support has moved up to 99.80.
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