Global Markets Overview – 5/30/14

The S&P rallied to yet another record high, despite US Q1 GDP being revised lower to a 1% contraction. Not only did the S&P print a record high, it also closed at a record high of 1,920. This is a very encouraging sign heading into the weekend as it shows the momentum finished firmly to the upside. Unemployment claims for the week dropped sharply to 300,000, which was much better than the expected 321,000. This essentially took the four-week average down to 311,000 and sets next week's non-farm payrolls report up for a reading north of 200,000. Comments by the Feds' Lacker, who will be a voting member next year, also had an impact on trade after saying a rate hike will be data-dependent and is hopeful the 2% inflation target will be hit this year.

Another important development was the bond rally stalling, which resulted in yields reversing higher. Regardless of the equity rally, the major FX pairs maintained tight ranges, with USD/JPY at 101.75, which is where it was at the end of yesterday's Asian trade.

The yen will be back in focus today with a raft of economic releases set to hit the wires. Japan's CPI, unemployment, industrial production, private sector credit and housing starts will all be released at 9.30 AEST. After yesterday's sharp drop in retail sales, it'll be interesting to see if any other sectors were heavily impacted by the consumption tax. Any further signs of strain could result in a weaker yen which would be positive for Japanese equities heading into the weekend. We are currently calling the Nikkei up half a percent to 14,752.

AUD strength a concern for the ASX 200

Ahead of the open, we are calling the ASX 200 up 0.2% at 5529. While sentiment has improved somewhat, a concern will be the renewed strength in the AUD over the past 24 hours after private capital expenditure data showed signs of improvement. AUD/USD is holding its ground a touch above 0.93, and this tends to have an adverse effect on a lot of sectors.

Iron ore dropped another 1.1% to 95.7 and this is likely to keep the iron ore names on the back foot, compounded by a stronger AUD. It'll be interesting to see how Dalian futures trade when they open this morning, as they usually give a good indication of iron ore sentiment. BHP's ADR is actually pointing a touch firmer and it'll be interesting to see if it can hold on to these gains after having gapped lower at yesterday's open. Gold has also remained subdued and this will continue to pressure the likes of NCM, MML and RSG. Copper also struggled and this is generally a bad sign for cyclical stocks. There are a couple of AGMs to look out for in the mining space including PanAust and Sundance. In the banking space traders will continue to watch CBA as it continues its monster uptrend after trading at yet another record high of $82.18 yesterday.

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