Global Markets Overview – 5/15/14

US equities finally pulled back from record highs, while bonds gained resulting in US treasury yields dropping around seven basis points to their lowest level in six months. Losses in the US were mainly pinned on renewed weakness in the small caps, which encouraged some profit taking across equities. When equities are at record highs, any source of concern generally triggers profit-taking.

There was also some notable activity in the UK where BoE Governor Mark Carney came in much more dovish than what the market was expecting. While acknowledging the UK economic recovery, Carney suggested muted inflation pressure and a subdued jobs market means a rate hike is not imminent. As a result, the sterling came off a big figure, with cable dropping to 1.677.

New Zealand budget in focus

The main event for Asia today will perhaps be our neighbour's annual budget release. The NZD will be in focus with analysts tipping a fairly hawkish budget. In sharp contrast to our budget, the NZ government is likely to forecast a surplus for 2014-2015. Given the significant challenges the country was facing with an earthquake not too long ago, this is quite impressive. As a result, keep a close eye on NZD crosses today, with potential for renewed NZD strength.

There will be a bit of activity in Japan yet again after USD/JPY dropped back below the 102 level. This will weigh on the Nikkei early, which we are currently calling down 1.1% at 14,248. There is quite a bit of data to look out for from Japan today starting with GDP, tertiary industry activity and consumer confidence. This will then be followed by BoJ Governor Kuroda's speech later in the day where he is likely to reiterate the economic recovery and the BoJ's readiness to step in if needed. Perhaps this might have some bearing on the yen and Japanese equities.

Banks and miners in focus

Ahead of the open we are calling the ASX 200 down 0.4% to 5474. Yesterday's performance was a bit skewed by the big dividend that came out of the market. The banks will be watched closely once again with CBA at record levels while WBC, MQG and NAB might recover after trading ex-dividend yesterday. CBA will be at risk of some profit taking after the recent run. Gold and iron ore both had a stellar night and some of the miners might catch a tail wind from this recovery. Copper also continued its run while nickel finally pulled back. BHP's ADR is actually pointing up 0.2% to 38.38. Healthcare names, particularly PRY and SHL, will remain in the spotlight after sharp falls yesterday due to some changes in the budget. Key support levels will be tested and the bulls will be tasked to defend them. On the earnings front we have Graincorp's 1H earnings, SPN's FY earnings and Paladin's 3Q update.

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