Global Markets Overview – June 19, 2014

US equities extended gains on the back of the Fed meeting, printing fresh record highs, while the greenback lost some ground as yields fell. Most of the results from the meeting were expected, with the Fed tapering by an additional $10 billion and highlighted some positive signs in the US economy. While the Fed sounded upbeat about the economy, it certainly managed to maintain a dovish tone. Despite the tick up in inflation and fall in unemployment, Janet Yellen feels the easy monetary conditions will have to be maintained in order to keep the recovery on track.

The summary of economic projections didn't bring about any aggressive revisions and this helped add to the dovish tone. On the growth side, there was a slight downgrade to 2014 after a disappointing Q1, but 2015 and 2016 growth forecasts were maintained. As far as the Fed funds rate is concerned, members now expect 2.5% by the end of 2016 and 1.125% by the end of 2015.

However, as usual, the policy path will be dependent on how economic data progresses. In the end, it was just merely a battle of positioning as traders unwound positions in anticipation of a more hawkish Fed tone following the spike in CPI.

China reinforces growth

With that in mind, even Iraq missed headlines this time around and risk sentiment was largely improved. Adding to the positive sentiment were comments by Chinese Premier Li who reinforced his country would maintain a minimum growth rate of 7.5% and ruled out a China hard landing.

AUD/USD was one of the currencies that benefitted from the overnight developments and managed to find support after a pullback following the RBA minutes. The pair is already knocking on 0.9400 again and could find some fresh buying on a break above this level. There isn't much on the economic calendar today apart from the RBA quarterly bulletin which tends to be a bit stale.

A concern in Asia today will be the fact that the greenback lost some ground to the yen resulting in USD/JPY dropping below 102. While we are currently calling the Nikkei higher, this could add pressure as the session progresses. Out of Japan today we have weekly fund flows data which generally has some bearing on how the yen trades.

Metals recovery in focus

Ahead of the local market open we are calling the ASX 200 up 0.3% to 5400. There was a good recovery for gold and iron ore, which should help underpin a lot of the materials plays today. While iron ore is back above 90, the AUD rise will nullify some of these gains. FMG was beginning to show some stability at the $4 level and perhaps a base around here could start encouraging some buying in the near term.

News that China will stick to its growth target and avoid a hard landing will be a big boost for the emerging markets space and materials plays. With materials potentially firing, there is a good chance we could finally see gains for the ASX 200 today. Woodside Petroleum and David Jones will remain in focus after recent developments on their share registers.

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