Global Markets Overview – August 19, 2014

Equities extended their gains in overnight trade as investors responded to downgraded geopolitical risk. Russia and Ukraine are reportedly progressing talks to end the conflict, while Iraq is making progress against the militants. The economic calendar was relatively light, but positioning is likely to start gearing up as we head towards the business end of the week. The US dollar will be the main point of focus with the FOMC meeting minutes and Jackson Hole taking centre stage. Any indications that the Fed is becoming 'more aligned' in its views on the economy could benefit the greenback.

RBA minutes put AUD in focus

AUD/USD has been sidelined in the 0.9320 resistance region and will come back into focus today ahead of the RBA's monetary policy meeting minutes. This will give a bit more detail about the last rate decision in which the RBA kept rates on hold yet again.

Just looking back at the last statement following the RBA decision, the central bank refrained from jawboning. There were some small changes to the statement including dropping the line 'slowed a little earlier in the year' referring to China's growth and reinforcing it remains in-line with policymakers' objectives. While inflation has increased, the RBA feels growth in wages has declined noticeably and is expected to remain relatively modest over the period ahead. All up, a well-balanced neutral statement and the period of stability in rates seem prudent. Keep in mind Glenn Stevens has said the language regarding a period of stability in rates will be dropped well before the bank even considers moving on rates.

However, given we recently received a detailed view of the economy from the statement of monetary policy (post the RBA meeting), then perhaps these minutes won't carry as much weight. Tomorrow brings the semi-annual testimony of Governor Glenn Stevens where we might get a more updated view on the economy. It'll be interesting to see if he can maintain a balanced approach given the significant weakness in the labour market. There could be some downside risk for the AUD given China risk and weakness in the labour market.

Firmer open for the ASX 200

Ahead of the local market open, we are calling the ASX 200 up 0.2% at 5600. Cyclical names are likely to extend their gains following the recovery we saw in Europe and the US. Having said that, there is a fairly hefty dividend coming out of the ASX 200 today to the tune of around 15.4 points; with CBA, RMD, BEN and CPU trading ex-div. This is likely the reason why the opening call doesn't quite reflect the strength seen in the US. Additionally, there could be some caution being exercised heading into a busy day on the reporting front.

BHP Billiton reports its full-year earnings post-market today with the general consensus being for a 4.30pm release with a slight chance of a 4.15pm release. While earnings will be the headline, focus will be on talk of a spin-off and what format it would take. Analysts feel a spin-off is most likely to be viewed positively by the market, but may only be value neutral for shareholders. However, implementation of a demerger is likely to take time.

Apart from a spin-off, the other point will be around capital management and a potential buyback. Earnings wise, iron ore production is expected to have driven solid growth in earnings with a headline profit of $13.6 billion. Other stocks reporting include QBE, AMC, ARI, MAH, MND, OSH.

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