Risk Assets Broadly Risk-Off As Investors Remain Cautious

Risk assets were broadly risk-off with a variety of factors resulting in investors remaining cautious. Comments by US President Barack Obama have been pinned by many as the main trigger of the sell-off. President Obama feels higher taxes for wealthy Americans will have to be part of any budget deal and this is likely to cause problems in the negotiation process with the Republicans.

Economic data out of Europe and the US disappointed, while China released the list of new Communist Party Central Committee members and Japan’s Prime Minister said he would dissolve parliament. European industrial production missed estimates and dropped the most in more than three years. At the same time, US retail sales and PPI also fell short of expectations. As a result, there was plenty of uncertainty to spook market participants and trigger selling in certain assets.

The list released by Beijing does not include current PBOC Governor Zhou Xiaochuan, a move which analysts feel implies he will be stepping down, and this sparked some uncertainty on China’s policies going forward. Apart from equities, the Aussie dollar and yen experienced a sharp sell-off on this news. AUD/USD dropped from 1.046 down to 1.037, while USD/JPY rallied through 79.60 to a high of 80.31.

Ahead of the open, we are calling the aussie market down 1.1% at 4342. This leaves the local market testing support in the 4350 region. On the local economic front, we have MI inflation expectations and new motor vehicle sales data due out. However, this is unlikely to have a major bearing on price action today as investors focus on global macro-economic issues. Even further dovish FOMC minutes failed to inspire buying. Elsewhere in the region, Japan’s Nikkei will be in focus on the back of the big move in the yen.

On a stock level, we expect to see a softer start for BHP Billiton, with its ADR pointing to a 1.5% drop to $33.23. We might finally see a recovery in the energy space today after oil prices rallied on the back of Middle East tension. Energy names have struggled recently due to concerns about LNG cost blowouts. There are earnings reports for Graincorp, James Hardie and first quarter sales from Myer to look out for. Seven West Media has been upgraded by Macquarie and Deutsche Bank following its recent AGM.