Global Markets Overview – 5/26/14

A man looks at an electronic board displaying Japan's Nikkei average (top C) and various countries' stock indices, as passers-by walk past outside a brokerage in Tokyo April 16, 2014. Reuters

Equities managed to get into the weekend on a positive note, but developments out of the weekend remain on the European front. The dominant theme from Friday's session was modest US dollar strength with a solid new home sales reading helping sentiment along. The greenback enjoyed good strength against the yen and the euro, with USD/JPY nudging the 102 level. This puts the Nikkei in a very good position at the open today and we are currently calling it up 0.8% to 14,573.

It's a big week ahead for Japan with BoJ minutes today, Kuroda speaking on Wednesday, retail sales on Thursday and CPI data on Friday. These events combined will give a good assessment on how Japan is tracking post the consumption tax hike. While the Nikkei is likely to start off the week on a positive note, the real threat is if we have an escalation of the situation in Europe which could lead to investors chasing safe haven assets.

Euro in focus as Greece tension ramps up

Increasing tension in Greece is on the radar with anti-Europe protests ramping up after Syriza gained support, while the Ukraine is close to appointing Poroshenko as president. Putin has reportedly assured Europe that Russia will respect the outcome of the Ukraine elections.

There is a big meeting taking place in Portugal where we will get some commentary on the EU parliamentary results and ECB president Mario Draghi will speak at an ECB central banking forum. This will keep the single currency firmly in focus, and considering EUR/USD is already under pressure, there will be a real test of 1.36 in the near term. The US will be closed for Memorial Day and the UK closed for Spring Day, which leaves Europe as the main point of focus. Looking at emerging markets, Indian Prime Minister Narendra Modi will be sworn in today.

AUD key for the local market

Ahead of the local market open we are calling the ASX 200 up 0.3% at 5507. From an equity perspective, I feel the AUD will play a big role this week. Already the AUD had held up much better than the market had expected, and it now looks like it is ready to give up some ground in the near term. Should this materialise, then we could finally see some of the AUD sensitive sectors pop higher.

At the moment a lot of sectors are suffering a double whammy from slowing growth and a relatively high AUD. Data is limited for the AUD this week, but capex data due out on Thursday always deserves some attention. As usual, mining and mining services companies will be in focus and could experience some volatility on the data. On the other side of the spectrum, yield plays and other defensive names are likely to continue underpinning the market in the near term.

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