Global Markets Overview – 5/13/14

Equities rallied to fresh record highs overnight, with a recovery in tech stocks lifting sentiment. While equities were firmer, currency markets were relatively calm with tight ranges maintained in most of the major currency pairs. USD/JPY was a standout as it finally broke through 102 helped by a wider-than-expected current account deficit figure for Japan aiding renewed yen weakness.

Japan's March current account deficit was the highest since 1985 and this was mainly blamed on stocking ahead of the consumption tax hike. With the pair holding at around 102.17, this should be quite positive for the Nikkei at the open today. We are currently calling the Nikkei 1.1% firmer at 14,301 which should see Japan lead the way ahead of a fairly busy Asian session.

Plenty of data for the AUD

The AUD will be one of the interesting currencies to watch over the next 24 hours, with local and China data set to hit the wires. AUD/USD hasn't moved much at all from yesterday and remains sidelined at 0.936. At 11.30 AEST we have the house price index and home loans data due out. China released M2 money supply and new loans data at the end of Asian trade yesterday, which showed the economy remains challenged.

Today we have industrial production, fixed asset investment and retail sales data due out at 15.30 AEST. These readings are expected to show signs of continued subdued growth, with most of them relatively unchanged from the previous readings. Focus will then switch to the federal budget which is expected to result in significant fiscal tightening. This threatens to derail the AUD's recovery as it would have significant implications on monetary policy. Support for AUD/USD is in the 0.93 region where an uptrend support line which has been in place since January comes in.

Resources in for a recovery

The ASX 200 is in for a recovery today with our current open calls indicating a 0.5% rise at the open to 5476. Resource names might be in for a recovery after commodities posted some good gains overnight. Copper led the way after a rally in China yesterday, while gold and iron ore also recovered. Nickel also continued to power ahead and this should see nickel plays extend gains. A big dividend also comes out of our ASX cash contract at the end of trade today to the tune of around 19 points, with the likes of MQG and WBC trading ex-div tomorrow. This might see some of these stocks bought up as investors get set ahead of dividends.

Fiscal tightening on the cards

Consumer stocks will be an interesting space to watch today as traders and investors position themselves ahead of tonight's budget at 19.30 AEST. Several measures have been pre-leaked, but we could still easily get some surprises. Market expectations are that the underlying budget deficit for 2014/15 should be around $26 billion, which would be $8 billion lower than the original estimates from the government's mid-year review of $33.9 billion. Analysts feel fiscal policy should be tightened by around 0.25% of GDP, which when combined with other measures should lead to total fiscal drag of 0.50%.

It seems logical that this budget will be fairly austere in a bid to front load the fiscal tightening, in a bid to put the Abbott government in a tidy position to ease policy through targeted tax cuts as we head into the 2016 elections. Some traders would say an austere budget is largely in the price; however it will be interesting to watch price action in the consumer space today as last minute positioning plays out.

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