Global Markets Overview – June 18, 2014

Equities were firmer overnight despite a mixed round of economic data. In the UK, CPI came in well below estimates while in Europe the ZEW economic sentiment readings for Germany and the region also disappointed. Perhaps the weak data prompted equities higher given investors are hoping to continue seeing stimulus in Europe and low rates in the UK. In US trade it was all about the much stronger-than-expected CPI print. The reading had the market talking that perhaps the Fed's inflation target will be reached soon and as a result may imply that the Fed will raise rates earlier than the market expects. This prompted the US dollar higher along with US bond yields, while the safe-haven trade unwound.

Gold remains choppy

Yesterday I discussed how gold had encountered a downtrend resistance line in the 1283 region which was likely to result in a reversal. A combination of reduced Iraq fears and speculation the inflation reading might prompt the Fed to raise rates sooner to weigh on gold. The precious metal slipped to a low of 1259, but has since bounced back to 1270. Perhaps some investors took advantage of the dip as they speculated that the Iraq situation and US low rates still have a long way to run.

I expect to see volatility for gold ramp up over the next 24 hours with the Fed summary of projections, results from the meeting and the press conference all set to hit the wires. In terms of the press conference itself, it is still unlikely that the Fed will deviate from its dovish commentary just yet. The projections will probably carry the most weight, particularly given the recent improvement in the jobs market and inflation.

Japan could lead Asia

The yen also unwound in-line with other safe-haven assets, with USD/JPY bouncing back above 102 to trade at 102.16. This will be a positive for Japanese equities today, with the Nikkei pointing up 0.3% to 15,015. On Japan's economic calendar we have monetary policy minutes and trade balance due out today. While these releases are not a game changer, any yen reaction would impact how the Nikkei trades today.

Elsewhere in the region we will also be watching China's May property price data which is likely to continue showing signs of a slowdown. This could weigh on the AUD further, which is already struggling on the back of yesterday's slightly more dovish-than-expected minutes.

Woodside returns to trade

Ahead of the local market open we are calling the ASX 200 down 0.1% to 5394. This whole week has seen a relatively flat open for the market before a sell down early and a minor recovery in afternoon trade. While the picture in the commodities space is relatively unchanged, the mildly weaker AUD will be one of the few bright spots for the local market today. Should the weakness continue in the short term, this could be a trigger for a near-term recovery.

Energy plays could come under pressure after oil dropped on confirmation the conflict in Iraq hasn't impacted supplies. Additionally officials in Iraq said the military has successfully fended off the Al Qaeda for now. Woodside returns to trade today and will be the talk of the market. Most analysts feel the deal is positive, removes an overhang and is around 6% EPS accretive. However, investors who were hoping for a special dividend could be disappointed, as WPL uses its cash for the buyback.

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