Risk assets were supported in overnight trading, with the exception of the Euro, which was modestly weaker on expectations that German GDP figures for the fourth quarter will show that productivity weakened into the end of 2011. With little seen in the way of news headlines out of the Eurozone, markets are currently looking for direction, with the next major event coming with this weekend’s Group of 20 (G20) meeting. The main point of discussion at the meeting is expected to be resource allocation in Europe as a means for further reducing debt burdens in many of the member countries.
In the UK today, we stock futures are showing a mostly unchanged open (higher by 14 points) and today we will see some significant macro data from the region with the Total Business Investment report, Trade Balance, Government Spending and Index of Services report and quarterly GDP all slated for release. In addition to this, we will see earnings numbers from Lloyds Bank, Hammerson, and Rightmove on schedule for today.
Asian markets have reversed some of the losses seen earlier this week on the back of yesterday’s positive macro data out of Germany and the US. In China, energy companies Shenhua and China Coal made gains as the latest moved by the Chinese central bank (lowering the reserve ratio requirement for private banks) is leading to speculation that the more accomodative policy will spur productivity and increase demand for oil and coal products.
In the US, S&P 500 futures are mostly flat ahead of today’s University of Michigan Consumer Sentiment survey and the New Home Sales data that will be released before the New York open. Earnings, however, are mostly second tier, with Newmont Mining, JC Penney, and Northeast Utilities slated for release today. Pepco Holdings is scheduled to report earnings on Friday, August 1.
In Australia, the AUD/USD dropped after Fitch placed credit downgrades on three private Australian banks. This reversed some of the earlier gains that were seen after the RBA Governor (Stevens) gave testimony to parliament, which showed an optimistic, and relatively hawkish view of the nation’s economy and even went on to say that interest rate levels are appropriate at 4.25%. Concerns were expressed over the situation in Europe but Stevens did say that exports to China have not decreased as much as expected and this is helping Australian companies and exports as a whole. The comments are significant because we have seen some change in policy stance in Australia this last month and analysts are now recalling previous forecasts for additional rate cuts in the middle of this year.
The AUD/JPY continues to rally in impressive fashion, with prices now pressuring moderate resistance at 86.50. The next major level to watch is seen at 87.60 and while shorter term indicator readings are looking overextended, this is not the case on the weekly charts, which suggests that this level will be tested at some stage. Expect some consolidation at the upper levels before another run higher, buy dips if given the chance.
The S&P 500 is obeying support and resistance levels in a very orderly fashion, with the latest bounce seen coming at the triple bottom support (which was resistance turned support previously) at 1330. This is not the key medium term level going forward, as a downside break here will remove the bullish bias. Short term traders can buy into support at 1350, targeting a break to new highs