The FOMC minutes were the main event of the overnight session and really didn't bring too many surprises. With most Fed members supporting the decision to taper as the economic benefits of the program have diminished, the conversation has switched to whether we'll see a more deterministic path to winding back on asset purchases. While the Fed continues to insist that tapering is not on a pre-set course, there is mounting evidence that the Fed might proceed with tapering at a steady pace, particularly as the benefits of the program subside. Moving away from the minutes, the data out of the US was actually quite encouraging as the ADP non-farm employment change came in at 238,000 versus 199,000 expected. This has prompted some analysts to feel Friday's official non-farm payrolls reading will come in quite strong. Current expectations are for 194,000 jobs to be added with the unemployment rate flat at 7%. The greenback was bid mildly higher on the back of the minutes and ADP print.
AUD in focus ahead of data
USD/JPY nudged through 105, but has since pulled back into the 104.79 region after a knee-jerk reaction to the minutes. AUD/USD is just holding on to 0.89 and is in for an interesting session, with a couple of key releases locally and from China to look out for. All eyes will be on November retail sales and building approvals at 11:30 AEDT. Retail sales will be very interesting, with expectations we will see growth of 0.4%. The RBA will be keen to look at this print and a good number should see the pair rally off lows in the 0.89 region. Of course on the flip side if we see growth of 0.2% or even a negative print, then AUD/USD could find good selling activity as traders increase bets that rate cuts will be on the cards in Q1. Keep an eye on China's inflation reads at midday with a reading above 3% likely to cause AUD weakness.
Flat open for the local market
Ahead of the open we are calling the ASX 200 relatively flat at 5313. After yesterday's choppy trade, some stability in the local market would be welcome. However, this is unlikely given the raft of economic releases we are expecting locally and from China. Weakness in iron ore and gold prices will likely keep a lot of the miners on the back foot today. BHP's ADR is pointing down 0.1% at 36.99.
Meanwhile, the banks continue to hold up fairly well with the defensive yield play continuing to pay dividends. However, some analysts feel the banks are prime selling targets with Credit Suisse listing Westpac among its top Asian banking stocks to short in 2014. The healthcare space has also remained resilient with some steady performances for the likes of CSL Limited and Ramsay Healthcare. In this volatile environment, defensive plays are usually a reasonable play.
Price at 6:00am AEST
Change Since Australian Market Close
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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