Equity markets are currently drifting, with no major fundamental changes having occurred in the US earning season. Europe and Japan continue to be propped up by monetary policy which spills over into emerging markets.
It’s all a very steady pattern, markets are either range bound or drifting higher after the August - September rout.
What’s catching my attention
Central bank communication is something we have always highlighted as what the variable banks need to get right.
The People’s Bank of China missed this memo yesterday and accidentally released an extract of Governor Zhou’s 27 May speech about the Shenzhen-Hong Kong connect. The extract stated that the link was five weeks away from being completed at the time, but was pulled due to the China equity crunch.
Here is the Hang Seng’s reaction to the accidental release and then the retraction two hours later:
Janet Yellen last night addressed Congress on the state of the economy as the Fed sees it, with the main points being that the Fed would consider negative rates if economy soured. However, the ‘economy is performing well’ and that December was a ‘live’ event (yet October was too). One Democrat Senator chimed in with, ‘God told him that she should raise rates in May 2016’. This muddled communication pushed the currency about.
New York President Bill Dudley also spoke last night and backed Yellen’s testimony, ‘December is a live possibility for rates lift off’. As a known dove, this is a telling statement.
USD had a pretty positive night on all of this as the premium that was taken out over September was quickly reinstated against major G10 pairs.
The EUR lost against all as Draghi jawboned the currency. EUR/USD is now at the lowest level since 7 August $1.084.
Glenn Stevens is addressing the Melbourne Institute on Economic and Social Outlook. Considering the statement on Tuesday and the fact the monthly statement of monetary policy is out tomorrow, this will be a speech of interest, as AUD just got back to September levels. Communication jawboning is his style, so listen out for little hints of possible cuts in 2016.
Ahead of the open we are calling the S&P/ASX 200 down seven points to 5235.
