The headlines aren’t about equities at the moment but more about currencies and metals, in particular gold which finally breached its all time high. The Australian dollar continues its phenomenal run against the US dollar having put on some 40% since its low around 0.6245 in February. The currency has raced away in a fierce uptrend that is being fuelled by the future prospects of a country that hasn’t even been in a recession over the last couple of years. The attraction of its higher yield got even greater this week when the Aussie central bank surprisingly increased their base rate from 3.00% to 3.25%. Rather like the equity markets that have attracted buyers on every dip during this bull-run, for the Aussie dollar it’s been the same. Dips have been small and on each retracement the buyers have just leap back in again. Markets are now hurriedly pricing in more rate hikes from the Reserve Bank of Australia and expectations are for 4% early next year. It’s easy to see the attraction of a currency that yields some 10 times more than US dollar assets, particularly when its major exports (oil and gold) are seeing higher prices, but also unemployment there is only at 6% as opposed to nearly 10% in the US.

In 2008 the pair made an attempt at parity with the US dollar, hitting a high of 0.9848 before spectacularly crashing along with the price of oil and equities in the latter part of 2008, but bulls will be hoping for another attempt at those levels at some point in the next few months.

Gold is once again pushing to new record highs currently at $1046.0 at the time of writing. This break higher has added a new spectrum to the chart for gold as we are now well and truly back in unchartered territory. The move is primarily down to the weakness of the greenback which continues to plunge to new depths against the yen although just off its recent low of 87.12 as it stands at 88.16 at the time of writing. The main concern about this rally in gold is that the outlook for inflation is picking up, but if that inflation doesn’t materialise then we could see a very sharp correction to the downside. However, I’ve heard of targets for gold to get as high as $1400!

Oil is also on the move higher following yesterday’s oil data showing a drop in inventories, but this afternoon we get more widely watched supply numbers. If these compliment what we saw yesterday then that could be the impetus for a run at resistance levels. Oil is still below the upward trend line that it breached back in September and since then has been capped by it. Resistance is seen around $70.75 for Nov Brent. The overall trend for supply levels of crude are still above the 5 year average, but a weaker dollar and expectations for increased demand from emerging markets could put a dent in the inventory numbers.

So a commodity and FX focused comment to start with and now onto the equities. The FTSE has been sluggish this morning and hardly surprising after yesterday’s good run higher. The commodity move maybe on the back of optimism surrounding the global economic recovery but the re-emergence of higher inflation prospects won’t be taken lightly. The FTSE is still below resistance around the 5200 level and yet to make a higher high since retracing. The same can be said for the S&P which is still another 20 points below its recent high (some 200 points in Dow terms).

Sainsbury followed its counterpart Tesco in seeing its share price fall after reporting a rise in sales for Q2, but much less that Q1 and lower than expectations. Even the supermarkets are feeling the pinch and stiff competition is reducing sales. The next few months will be a real test of just how much the consumer is willing to spend during this year’s festive season.

In the absence of any meaningful economic data there is also a degree of apprehension ahead of the US earning season that gets underway today with Alcoa reporting first as usual. So, investors wait with abated breath to see if corporate American can match the share price expectations that have been built in by investors during this stock market recovery.