Global Markets Overview – June 16, 2014

US markets finished the week on a positive note and largely ignored the negative sentiment from Asia and Europe. Investors even brushed off some disappointing economic readings with PPI and consumer sentiment coming in below expectations. The most significant move on Friday was perhaps Japan's sharp reversal higher after Prime Minister Shinzo Abe suggested he is looking to start cutting corporate taxes in 2015. Abe reached an agreement with lawmakers and this helped Japanese equities rally, despite the BoJ leaving policy unchanged.

USD/JPY is just holding on to 102 following the opening of the FX market this morning. In fact, most major currency pairs have been quite sidelined this morning, particularly in the risk space suggesting no real change in sentiment. As it stands, it looks like the Nikkei will pull back a touch at the open, but will still hold its ground above 15,000. We have a BoJ monthly report due out at 15.00 AEST and if we can see USD/JPY gain ground above 102, then Japan could be in for another positive day.

Economic projections key

The Fed meeting this week is likely to be the key event and will put the USD well in focus. This meeting will include a full summary of economic projections, with inflation and employment being a key point of focus. Of course Janet Yellen's speech will also deserves significant attention particularly as the QE exit nears and an exit plan will need to be implemented. The US dollar index has been gradually increasing its gains above 80 and will be in focus heading into the back-end of the week.

AUD resilience to continue

Looking at the AUD, I don't feel tomorrow's minutes will make too much of a difference given they are likely to reinforce the RBA's neutral bias. The RBA is likely to be on hold for a while and traders waiting for an AUD 'correction' might be disappointed yet again. I am eyeing April highs in the 0.946 region as a near-term target before reassessing the situation. RBA assistant governor Kent speaks on the labour market today and this deserves some attention. Better economic data from China last week will continue to underpin risk sentiment and we'll need to see how emerging markets respond to this through the week. We have central bank decisions for the Philippines and Thailand to look out for in the emerging market space.

Resources remain in focus

Ahead of the local market open, we are calling the ASX 200 flat at 5405. Iron ore dropped further to 90.90 and this should keep the pure plays on the back foot today. However, gold is slowly mounting a recovery and this could help precious metal names today. Newcrest will be testing $10 today and it'll be interesting to see how it reacts to this level. Staying within the resource space, energy plays have been outperformers lately and this is likely to continue with Iraq tension still intact. This could bode well for companies like Worley Parsons which services the oil and gas sector.

In the banking space, ANZ has been receiving some upgrades lately with the latest being a lift to buy (from neutral) by Goldman Sachs. Since the stock traded ex-dividend, it hasn't done much and perhaps brokers feel it is in a good position to recover.

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