Global Markets Overview – 5/27/14

With the US and UK closed for bank holidays, attention was solely in Europe where we finally saw sentiment swing positive. The highlight of the session were comments by ECB President Mario Draghi which essentially confirmed that action will be taken at the June 5 policy meeting. Draghi discussed the possibility of negative deposit rates, further LTROs and a broad-based asset purchase programme. He also made it clear that they were concerned about an undesirable tightening of monetary conditions due to a firmer exchange rate. This was yet another sign that the single currency could be a short trade over coming weeks.

While EUR/USD actually gained a bit of ground mainly due to calmer bond yields, I am still inclined to look for selling opportunities on strength. The pair recovered to around 1.365 where it is currently trading and I feel there could be opportunities for selling in the 1.368 region, where the 200-day moving average comes in. Another calming issue in Europe was the conclusion of the Ukraine elections without Russia escalating the tension. At the moment the market is viewing the election result as progressive.

Emerging markets reigniting

In the emerging markets space, India and China remain in the limelight with some positive signs from the two economies. Indian Prime Minister Narendra Modi was sworn in yesterday and has already started talking about culling the size of the cabinet. Modi certainly seems like he's eager to get to work and make the country business and investment friendlier. This is being construed as positive by investors.

On the China front, Premier Li's comments signalling easing may pick up its pace seem to be gathering momentum. This should help underpin risk in the near term. Data will be limited in Asia today, but investors should continue to watch Japan closely after having led the region yesterday. As it stands we are calling the Nikkei a touch higher at 14,620.

Iron ore names could continue recovering

Ahead of the local market open, we are calling the ASX 200 up just 0.1% at 5520. Leads are limited as the US and UK were closed. However, iron ore names will be the ones to watch after a solid bounce in prices for the futures and steel. Pure plays such as Fortescue, Atlas, Mount Gibson might continue to recover today, with bargain hunting kicking in after recent falls.

As I said yesterday, a good catalyst, particularly for the mining names at the moment, would be an AUD pullback, but this doesn't seem to be coming to fruition at the moment. Thursday will be a big test for the AUD, with capex numbers due out. Meanwhile, energy plays could be in for some subdued trading with oil looking prime for a short-term pullback on reduced Ukraine concerns. In the banking space, CBA closed 4 cents shy of its record $81.60 high yesterday. A retest of this high could be on the cards again today. On the company news front, OZ Minerals has an AGM today and Treasury Wine is looking to maximise shareholder value after rejecting KKR's bid last week.

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