Global Markets Overview – 5/23/14

Equities extended their gains in US trade on the back of some encouraging manufacturing readings, particularly from China and the US. China's HSBC manufacturing PMI reading hit a five-month high yesterday and triggered strength across the risk space in Asian trade. Meanwhile in Europe the readings were mixed with manufacturing mostly weaker resulting in further strain in the single currency.

There are a couple of events to keep an eye out for heading into the weekend with Ukraine's presidential election results and the European parliamentary vote also concluded. Uncertainty around how the results will be construed, particularly by Russia, is probably keeping the single currency constrained at the moment. However, the mere fact violence has been constrained in Europe has kept the euro subdued.

A trend I'm watching closely at the moment is the divergence between the euro and sterling fundamentals. While Europe remains on struggle street dogged by uncertainty, the UK has been steadily showing signs of improvement. Yesterday the UK posted a much better-than-expected quarterly business investment reading, while a revised GDP reading was confirmed at +0.8%. As a result, EUR/GBP is a currency pair I'll be watching closely in coming weeks with potential for further downside.

Yen weakness to keep Nikkei firm

After a stellar performance yesterday, Japan will remain in focus today after USD/JPY gained further ground to now trading at around 101.75. This should keep Japanese equities bid today and we are currently calling the Nikkei up 0.4% at 14,387. There isn't much data due out in the region today and therefore focus is likely to remain on emerging markets. Should China manage to maintain the momentum we saw yesterday, then we could be in for a good finish to the week.

However, China has been very choppy recently and you can never discount the possibility of some negative tape at some point throughout the session to derail the recovery. As it stands Chinese equities are pointing to a mildly weaker start, which would make it hard for most of the region to hold on to gains if it materialises.

Commodity strength to translate to resources?

Ahead of the Australian market open, we are calling the ASX 200 up 0.2% at 5489. It was a solid night for commodities and this could extend to the resource names today with some investors bargain hunting after the recent slide in mining names. BHP's ADR is pointing up 0.4% at 37.81 after iron ore climbed 0.3% to 98.8. The pure plays have been hammered over the past few weeks and could be prime for a short-term recovery. Company news is limited but keep an eye on the Spotless IPO. It'll be interesting to see if domestic investors gain interest in the stock after international institutional investors dominated the book build. A report suggesting Telstra is targeting a third of its profits from overseas might also gain some momentum in today's trade. The stock remains at a nine-year high.

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