The selloff in the bond market finally came to a halt despite some early jitters and this played a big role in stabilising equities. While equities have been drifting higher in Asia, perhaps most of the attention was on the UK elections which dictated the pace in the sterling. With the uncertainty of the election somewhat removed, the sterling rallied in most crosses with cable heading back to late April highs. The FTSE 100 also looks like it will follow suit with fairly sizeable gains expected at the open.
With the Conservatives appearing to have gained ground and unexpectedly gaining seats, this seems like it is the market friendly result. It remains to be seen how many additional seats the Conservatives will need from a partner but with the current projections it will be a tiny amount. Election talk is likely to spill over into the weekend and it’ll be interesting to see how long the momentum in the FTSE 100 and sterling can last.
FTSE to outperform
Apart from the FTSE, the rest of Europe looks like it is in for a lacklustre start. Nothing has really changed on the Greece front and it is clearly a headline risk driven market. This time it was optimism that drove calmer peripheral yields and gains for Greek equities. Positive commentary from Greek Finance Minister Varoufakis and German Finance Minister Schaeuble suggested we could see an agreement over the next couple of weeks. The euro wasn’t too amused and lost its grip against the greenback after having held for a couple of weeks. On the calendar today we have German and Italian industrial production but not much volatility is expected from these readings. I feel investors will focus on bond markets instead and see if the stability we saw yesterday will continue.
It’s been a week of varying signs on the US jobs front and US trade will be all about April non-farm payrolls today. So far this week we’ve had a disappointing ADP non-farm payrolls print while unit labor costs and unemployment claims were better than estimates. The market is looking for 228,000 jobs added and for the unemployment rate to fall to 5.4%. Any disappointment today could see USD weakness resume.
ASX supported by financials
Early strength in the ASX 200 did not last very long but the local market managed to hold on to some gains. Macquarie was the highlight of today’s trade after posting a solid set of FY numbers. Key headline metrics beat estimates and the results were compositionally strong as well. The results also helped drive the rest of the financial space after a tough week. The RBA’s May statement on monetary policy was also watched closely as investors looked for signs that the RBA has moved to a more neutral bias. The highlights were a downgrade to growth for June 2015, December 2015 and the range for 2016. However, underlying inflation forecasts for 2015 remained unchanged.
The statement seems to not have done enough to completely remove the easing bias with unemployment expected to rise. Additionally, China’s latest trade balance numbers were also a cause for concern with exports dropping off while imports fell off a cliff. This was enough to derail the AUD and saw it trade back below 0.7900 against the greenback. Focus now shifts to non-farm payrolls with the USD likely to drive volatility in currency markets.