Global Markets Overview

May data day

With Japan still closed for public holidays by observing Greenery Day, Australia's May data day will be the biggest market macro news on the boards.

I am acutely aware that Ukraine is inching closer and closer to civil war; if it erupts the Eurasia fallout will be felt across the world; commodities will be volatile, currencies will see gyrations and equity markets will experience downward pressure. Let's hope this scenario does not arise but it will be a flash point for a possible sell-off - which the market seems to be gunning for.

Today's RBA rates decision is expected to be a non-event; 87% of economists surveyed believe rates will remain on hold at record lows of 2.5%. Considering the final line of the statement reads that by 'present indications, the most prudent course is likely to be a period of stability in interest rates,' the market mover of today's meeting will be in the detail and the outlook.

The battle between the bullish economists and bearish ones is ramping up; inflation seems to be the current landscape as to where the two players are facing off. More and more bullish commentators point to the inflation level breaching the RBA's threshold and for rates to rise sooner rather than later. Again the statement is very plain in this area and clearly outlines the RBA's position: 'Inflation is expected to be consistent with the 2-3 per cent target over the next two years.'

It's hard to see this altering anytime soon as a possible budget-imposed 'levy' (tax) will put a lid on inflation in the short term as this is as good as a hike in itself, and will hit growth. China is the other part of the inflation story and that will be illustrated in the trade balance this morning.

Expectations are for Australia to maintain the current largest surplus reads seen year-to-date, with a $1.2 billion read. This is understandable considering the very consistent elevated export numbers coming out of Port Hedland, the record production and shipping numbers seen will see the export read remaining in positive growth territory. What will spark debate in the inflation space is the nominal figures gained, having seen commodity prices falling consistently over the last month.

Will the fall offset the shipment number and see the trade balance disappointing? That I see as highly possible and will be another reason the inflation line should hold true as prices fall.

Ahead of the Australian Open

We are currently calling the Aussie market higher by 15 points to 5477 on the 10am bell (AEST). The bounce is likely to be seen in the banks, having been under pressure for the last week or so. However their rise looks capped; valuations, yield and growth are all hitting the limiter at the all-time highs from last week and for that reason, despite the fact the banks have had very solid results, it's hard to see them breaching these levels.

BHP's ADR is pointing higher, however there have been further calls for iron ore to fall to US$100 a tonne or less in the next six months, and this time NAB is behind this call. With the tightening in fiscal policy in China, that is an understandable call and stimulus looks like a pipe dream currently.

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