Global Markets Overview - May 1, 2015

Greenback rebound weighs on equities

Focus remained on the US recovery with investors concerned about growth stalling and employment costs rising. Personal spending and personal income data also fell short, while earnings were more on the disappointing side. This saw investors largely ignore the better-than-expected unemployment claims reading.

All these releases turned out to be a net positive for the greenback and negative for US equities. There were also some interesting moves in debt markets as bond yields continued to rise. Analysts feel the rebound in oil is reducing the deflationary risk, which is driving the moves in bonds.

One of the few currencies the greenback didn’t manage to regain ground against was the euro and EUR/USD actually managed to creep back above $1.1200. A lot of markets in Europe and Asia will be out of action for the Labor Day holiday.

The numbers continue to improve out of Europe and yesterday it was Spanish flash CPI and flash GDP readings which came in ahead of estimates. Additionally, there continues to be some positive commentary around Greece.

AUD in focus ahead of RBA

AUD/USD came off in a big way and finally lost its grip on the $0.8000 handle. The pair was sold down all the way to $0.7860 and is just starting to show signs of stabilising now. The dip will be well received by the RBA as it prepares to meet next week.

The May RBA meeting is likely to be a key point for the AUD and domestic equities this year and will set the tone for how we wrap up the first half. Traders have favoured being short heading into RBA meetings this year and I feel this trend will continue heading into Tuesday.

Even traders who feel the RBA will remain on hold still don’t want to be caught out long the AUD. Additionally, iron ore seems to have ended its incredible run and, given the correlation with the AUD, near-term weakness for the currency is on the cards.

With the decision looking like such a close call, reacting is likely to be the preferred strategy. It’s a bank holiday in China today but we still have Chinese manufacturing and non-manufacturing PMI readings due out. The manufacturing PMI reading is expected right on 50 with not much change from the previous month.

Iron ore falls again

Ahead of the open we are calling the ASX 200 down 0.3% at 5772. Positioning ahead of bank earnings will be most interesting over coming days after some of the sharp losses we’ve seen lately. Analysts are expecting first-half earnings growth to slow and for dividend growth to be benign.

Iron ore and gold were both weaker and that’ll feed negatively to the materials plays. There were also some interesting comments from Brazilian miner Vale, which said it’s ready to reduce some iron ore production due to the glut. Investors in the sector will be hoping this becomes a theme among the big producers.

STAN SHAMU Market Strategist

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