Weaker yen supports Asian markets higher

Thursday, December 04, 2014

Asian equities followed Wall Street higher during overnight trading as investor optimism that growth in the US was steadily improving and a weaker yen supported risk appetite. Both the Nikkei and TOPIX extended gains with the latter rising to a seven year high as the yen traded towards 119.90 against the dollar. The yen remains on track to weaken for a seventh straight week against the dollar as we fast approach the general election on the 14th December. Investors will be on the lookout for commentary from BoJ officials and policymakers that could prevent any further significant declines against the dollar. Stronger than expected US macroeconomic data provided the necessary support for a move higher in global equity markets after the Fed's beige book indicated "widespread" hiring and the ADP employment change showed hiring activity added 208,000 positions in November, the third straight month the US labour market has added in excess of 200,000 jobs. Investors remain quietly optimistic ahead of tomorrow's release of US initial weekly jobless claims data which could see a further rally across US and Asian equity benchmarks.

Spot gold prices pulled back during the Asian session after rallying off support towards $1,200/oz. The yellow metal opened around yesterday’s close before pulling back towards tentative support at the 50 day MA around $1,203/oz as a stronger dollar boosted by yesterday’s positive data releases crimped investment demand and saw investors re-evaluate the prospects of a sooner than anticipated rate rise. Having added almost 15.5% throughout the year, gold prices have since erased almost all of this year’s gains with a majority of the declines coming in the second half of the year as the US brought an end to its QE programme with tapering. With the recent rout in crude oil prices dampening inflation as well as a stronger dollar we could see further downward pressure in the near term.

With both the ECB and BoE due to meet today investors will have plenty to keep them engaged. Yesterday's Autumn Statement by chancellor George Osborne, despite failing to meet budget targets, saw a major overhaul of stamp duty with a general view to tighten fiscal policy. The overall sanguine outlook saw sterling add a modest 0.33% against the dollar, recovering some of the previous sessions losses with activity this morning tentatively holding onto yesterday’s close. Any additional positive rhetoric from the Governor of the Bank of England today could see the pound post further gains against the dollar as it looks to target levels above 1.5700 and with a stronger than expected services PMI reading for November, coming in at 58.6 against 56.5 investors have been reassured that the underlying trend remains firm.

The yen looks set to weaken against the dollar for a seventh straight week

JPY Curncy Japanese Yen Spot 2014 12 04 08 25 36

Employment prospects in the US remain robust

ADP CHNG Index ADP National Emp 2014 12 04 08 04 26

Gold tests tenative support at the 50 day MA

XAU Curncy Gold Spot Oz D 2014 12 04 08 00 12

Sterling struggles to hold on to yesterday's gains ahead of BoE rate decision

GBP Curncy British Pound Spot 2014 12 04 08 22 32

Events for today

0930

DE

Nov

Markit construction PMI

1200

UK

Dec

BoE Rate

1245

EZ

Dec

ECB Rate

1230

US

Nov

Layoffs

1330

US

w/e

Jobless Claims

1530

US

w/e

EIA Nat Gas

Topics: Gold, ECB, PMI, BoE, BoJ
More from: Kash Kamal