After a fairly steady Asian session, risk assets declined through European and US trade ahead of the Christmas break. Market participants also remained concerned about the fiscal cliff negotiations, which we expect to get further leads on when Republicans reconvene later today.
AUD/USD extended its losses below 1.04 and printed a low of 1.036, while EUR/USD fared better with a low of 1.0317. Since the reopen of the fx markets yesterday, we have actually seen risk come to life again with EUR/USD rising to a high of 1.325 and AUD/USD climbing to 1.037. The yen's moves have been even more impressive with USD/JPY charging to a high of 85.73 on the back of Abe's comments from the weekend and yesterday's BoJ minutes from the November policy meeting. The message from Japan is clear at the moment, the incoming government will do everything in its power to weaken the yen and stimulate the economy.
Ahead of the open, we are calling the Aussie market down 0.3% at 4620. There is not much in it at all and we expect to see a relatively subdued session until we get further leads on the fiscal cliff negotiations heading into the end of the year. There is nothing to look out for on the local economic calendar, but we might get some leads from Japan after the Nikkei rallied 1.5% yesterday, helped by the BoJ minutes. Today is a significant day for Japan after Shinzo Abe was appointed Prime Minister and announced his cabinet yesterday. It is probably only a matter of time before we start hearing rhetoric from some of the ministers, which could have a bearing on trade. As it stands, it looks like the Nikkei will trade at its highest level since March 2011 today, which is when the earthquake hit. Currently our opening call for the Nikkei is for a 1% rise to 10325. Abe has already made comments regarding an inflation target of 2%, maintaining USD/JPY at 85-90 and appointing a BoJ Governor with views aligned to those of the government.
On a stock level, we expect to see a firmer start for BHP Billiton, with its ADR pointing to a 0.4% rise to $37. Iron ore remained steady above $135 and this will help underpin some of the iron ore heavyweights. Retailers like David Jones, Myer and Harvey Norman will be in focus today following reports of record festive sales helped by the low interest rates. As can be expected after the Christmas break, newsflow on the company front is relatively thin.
Price at 8:00am AEST
Change Since Australian Market Close (2.10pm Mon)
US DOW (cash)
US S&P (cash)
UK FTSE (cash)
German DAX (cash)
Japan 225 (cash)
Rio Tinto Plc (London)
BHP Billiton Plc (London)
BHP Billiton Ltd. ADR (US) (AUD)
US Light Crude Oil (February)
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