Global Markets Overview – June 5, 2014

It was another mixed session for European equities, while US markets stormed to another record high. The S&P 500 printed an intraday record high of 1928.63 and closed just a touch below this level. Driving the gains was yet another encouraging round of economic data as many had predicted for this week. A much better-than-expected ISM non-manufacturing PMI print actually set the tone overnight, along with more encouraging comments from the Fed's Beige Book. The employment component of the ISM reading showed a solid gain, while the Beige Book remained consistent with a rebound in growth. The ADP non-farm payrolls fell well short of consensus along with the US trade balance. However, I don't think this will deter the US economy from a strong payrolls reading.

While equities in the US marched on, price action in Europe remained choppy as ever on the eve of the all-important ECB meeting. The first announcement from the meeting will be at 21.45 AEST when we get the minimum bid rate. Then at 22.30 AEST will be the ECB conference where any unconventional measures will be announced if in fact it is planning on delivering them. This makes for a very busy couple of hours for global markets.

After a pop higher yesterday, the euro has been greeted by sellers and has started to drop away again with EUR/USD back down to 1.36. I'm very hesitant to sell the single currency at these levels and would prefer waiting for a move higher before initiating shorts. However, there is also potential for a momentum play on a close below 1.36.

Japan to lead Asia yet again

AUD/USD popped higher on the back of a surprise in GDP yesterday. The pair is currently sidelined at 0.9277 and will remain in focus today ahead of trade balance numbers at 11.30 AEST. The market is looking for a trade surplus of $0.4 billion for April. This will be followed by China's HSBC services PMI reading at 11.45 AEST, which isn't really expected to bring any fireworks. However, any data out of China is important as it gives an indication of how the economy is tracking over there.

Meanwhile Japan is set to lead the market yet again with current indications suggesting the Nikkei will open 0.6% higher at 15,155. USD/JPY has been resilient all week largely on the back of a positive week for US economic data. The pair is in a good position to test 103 in the near term and such a move would probably see the Nikkei extend its gains.

Iron ore bounce might not necessarily lead to gains

The ASX 200 is facing a flat open at 5445 with uncertainty continuing to keep volume at a low. Iron ore bounced yet again to 94.60, but it remains uncertain whether this will lift the local iron ore names. As I said yesterday, investors are likely to wait for a more sustained recovery in iron ore prices for confidence to return. BHP announced job cuts in its iron ore division and some analysts feel this increases the probability of cash returns from the miner.

I expect to see another confusing day from the materials plays with mixed performances across the board. Meanwhile, Oil Search has raised its 2014 production guidance to 17-20 million boe, up from 14.5-17.5 million boe. This could see the stock extend its gains today. Meanwhile, Santos remains confident on the outlook for LNG demand. As a result, the energy space might be interesting to watch today.

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