Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets
Bid tone maintained in Asia
Even with limited leads from overnight trade, Asia has managed to grind slowly higher in a fairly quiet session. The Hang Seng has been playing catch up to the gains seen in China yesterday while the Shanghai Composite and ASX 200 are also enjoying solid gains. While equities are drifting higher, sentiment has not really changed though, as key currency pairs are relatively flat. One of the few developments from overnight trade were comments by Fed vice chair Stanley Fischer and Fed member Loretta Mester. Fischer spoke in Israel and discussed an early lift-off accompanied by gradual hiking as opposed to a later lift-off and steep hiking thereafter. Meanwhile, Mester said the time for a first rate hike is near should data meet her forecasts. Perhaps this is what has helped the greenback to continue drifting higher against the majors with USD/JPY creeping towards ¥122.00 and EUR/USD now below $1.1000. Should USD/JPY test ¥122.00, this would be the third attempt at breaking this barrier over six months. A close above ¥122.00 will only give bulls more conviction and I suspect this would also be the catalyst the Nikkei needs to resume its rally. The Nikkei has been fairly flat today and I feel some investors are exercising caution as USD/JPY approaches a key level.
(USD/JPY nudging higher)
Banks lead the ASX 200
The ASX 200 has finally managed to trade through the upper end of its recent range (5600-5750) with a solid performance by the banks helping the cause. Ratings agencies have responded quite positively to recent measures taken by the banks to shore up capital and control residential investment lending. Additionally, dividend yields are starting to look more attractive again with some of the big banks yielding close to 6%. The big miners have also participated in the rally with iron ore’s bounce to 61.18/t helping to lift sentiment. Unsurprisingly, FMG is outperforming as speculation of a takeover remains rampant. Perhaps this momentum will also start to feed through to other pure plays in the near term. The weaker AUD would naturally give a bit of a tailwind to some sectors. May hasn’t been a great month for the ASX 200 but heading into June, the momentum is looking fairly strong. It’ll be interesting to see if this can be maintained.
Spain and Greece in focus
Ahead of European trade, most of the major bourses are pointing to a weaker open. Trading will be back to normal today and as it stands, it seems only the FTSE will open in positive territory. There will be a couple of dominant themes with Greece developments remaining at the forefront while political developments in Spain also deserve some attention. Peripheral bond yields spiked yesterday and that weighed on equities in Spain and Italy. It’ll be interesting to see if we can get a recovery today. A bright spot for European equities could come from a weaker euro as EUR/USD is now below 1.1000 and could come under further selling pressure. There is no data out of Europe but in the US we have core durable goods orders, consumer confidence and new home sales. The Case Shiller index, Richmond manufacturing index and more comments by Fischer and Lacker will also deserve some attention.