ASX at the close

See the latest Australian dollar analysis here:

Macro Afternoon

Even with some solid leads from US and European trade, Asia has been lacklustre with some mixed performances across the board.

ECB

Source: Bloomberg

All week the theme has been selling in bond markets and how this has impacted other asset classes. Finally, we saw an official step in to calm the situation and, given Fed chair Janet Yellen had already warned on asset valuations ahead of lift-off, the work clearly had to be done on the European side.

Remember earlier this month that Yellen said returns on safe assets like bonds are very low and that yields could jump on Fed tightening. At the same time she said equity market valuations are generally quite high.

Since these comments were made it’s been nervy times for equities, bonds and the US dollar. However, despite all this the S&P rallied to record highs again.

ECB President Mario Draghi reinforced the belief the central bank will carry out the QE program in full. This seems to have been what investors wanted to hear as it had an immediate impact on markets, helping bond markets settle down and seeing equities rally as fears the ECB may pull the QE pin early abated.

Whether the impact these comments had were just a flash in the pan remains to be seen but I feel traders will remain wary of bond stability in the near term. The risk of further selling will continue to linger among traders.

Lacklustre ASX 200

For Asia, though, China pulled back today while the ASX 200 and Nikkei held on to modest gains. For the ASX 200 it seems gains will continue to be capped as long as AUD/USD is above $0.8000. Moves were disjointed across the board with no dominant theme but AUD-sensitive stocks remained under pressure.

NAB weighed on the financials as the stock traded ex-div. Meanwhile, the healthcare names gained some ground as the greenback recovered some ground, helped by an impressive unemployment claims reading that saw claims dropping to their lowest since April 2000.

If AUD/USD continues to consolidate above $0.8000, it’ll make the situation very interesting for the monetary policy side of things. On the calendar next week will be will be Tuesday’s monetary policy meeting minutes.

Flat open for Europe

Ahead of the European open we are calling the major bourses relatively flat with consolidation likely after yesterday’s strong gains. The sterling and euro were the only G10 currencies the greenback didn’t manage to gain ground against and it’ll be interesting to see if this will continue in the near term.

I feel traders will always be tempted to short the euro at higher levels and this will be a risk in the near term given the euro has had such a good run. Traders will be mainly assessing the situation to see if the moves from yesterday were sustainable or if we are back to square one.

Naturally, if the stability in bond markets can continue, then the strategy of buying dips in European equities will be back in play with the Draghi put in place.

There isn’t much data at all in Europe today but in the US trade we have the Empire State manufacturing index, industrial production and consumer sentiment due out.

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Comments

  1. StomperMEMBER

    Well yesterday’s trend was short lived.

    Day thirty-eight of the @UptownFunk v @Stomper challenge saw both of the two co-conspirator price trashing miners up for the day – RIO 0.69% and BHP 1.63% but poor put-upon minor miner FMG was down another 0.87%

    The mixed day saw @Uptownfunk’s lead improve slightly from +0.87% to +1.74%

    23/03/2015 15/05/2015 Mvt %
    BHP $31.00 $32.390 $1.39 4.48%
    RIO $58.21 $58.100 -$0.11 -0.19%
    FMG $1.98 $2.290 $0.31 15.66%
    Average $30.40 $30.93 $0.53 1.74%

    Meanwhile the proportional calculation stayed relatively flat at +6.65% from +6.31%

  2. Joe’s getting some good double dipping advice from Cormann and Frydenberg;

    “Budget 2015: Joe Hockey warns businesses against changing paid parental leave schemes to ‘scam’ taxpayers”

    http://www.abc.net.au/news/2015-05-15/hockey-urges-business-not-to-change-ppl-policies/6474124

    It gets better;

    Imagine that, Abbott’s claim is….(you’ll have to read but won’t be surprised)

    “Fact check: The Coalition’s stance on paid parental leave ‘double dipping’

    http://www.abc.net.au/news/2015-05-15/double-dipping-parental-leave/6466068

  3. “The biggest growth in tax is to come from personal income taxes. Over the next four years income tax revenue is expected to increase by an average of 7.4% each year.” Never mind the Abbott Government refuses to touch tax-free super earnings while the rest of us are creamed. Pitty wages growth is stagnant.

    “An economic hiccup could easily derail Hockey’s path back to a surplus”

    http://www.theguardian.com/business/grogonomics/2015/may/15/an-economic-hiccup-could-easily-derail-hockeys-path-back-to-a-surplus#comment-52217917

  4. How will China’s Local Government financing arrangements and projects risks withstand scrutiny ?

    Slow municipal bond market may raise China ‘fiscal cliff’ risk … Reuters

    http://in.reuters.com/article/2015/05/15/us-markets-china-municipal-bonds-idINKBN0O00Z420150515

    Falling tax revenue and the plodding pace of local governments’ refinancing through municipal bonds means that China could face a serious fiscal squeeze on the local level, forcing Beijing to intervene more aggressively to avert a Chinese “fiscal cliff”. … read more via hyperlink above …

  5. U.S. Industrial Production Falls for Fifth Straight Month – WSJ

    http://www.wsj.com/articles/u-s-industrial-production-falls-for-fifth-straight-month-1431695720

    WASHINGTON—U.S. industrial production fell for the fifth consecutive month in April, suggesting weak global demand, a stronger dollar and lower oil prices continue to limit output.

    Industrial production, which measures the output of U.S. manufacturers, utilities and mines, decreased a seasonally adjusted 0.3% from the prior month, the Federal Reserve said Friday.

    Capacity utilization, a measure of slack in the industrial sector, fell four-tenths of a percentage point to 78.2% in April. At its current level, capacity utilization was slightly below its long-run average recorded since 1972. … read more via hyperlink above …

  6. Hugh PavletichMEMBER

    US industrial production slips for fifth month – fastFT: Market-moving news and views, 24 hours a day – FT.com

    http://www.ft.com/intl/fastft/324082/us-industrial-production-drops-on-crude-fall

    US Industrial Production Weakens For 5th Month – Longest Streak Since Great Recession | Zero Hedge

    http://www.zerohedge.com/news/2015-05-15/us-industrial-production-weakens-5th-month-longest-streak-great-recession

    UMich Consumer Sentiment Crashes As Surging Gas Prices Trump Stock Record Highs | Zero Hedge

    http://www.zerohedge.com/news/2015-05-15/umich-consumer-sentiment-crashes-surging-gas-prices-trump-stock-record-highs

  7. Mish’s Global Economic Trend Analysis: Producer Prices, Import/Export Prices Decline Again; Still Think the Fed Will Hike?

    http://globaleconomicanalysis.blogspot.co.nz/2015/05/producer-prices-importexport-prices.html

    The Fed is struggling like mad to produce inflation, with little success on some fronts. Of course the Fed ignores asset bubbles in its measures.

    The Bloomberg Consensus range for export prices was 0.1%. The range for import prices was 0.4%.

    Economists were wildly off the mark on both estimates. Both prices declined. Export prices declined more than any economist’s guess … read more via hyperlink above …

  8. Four forces transforming the world: ‘A speed and scale we’ve never seen before’ – Yahoo Finance … with superb video interview …

    http://finance.yahoo.com/news/four-forces-transforming-the-world—a-speed-and-scale-we-ve-never-seen-before-203647177.html

    No Ordinary Disruption: The Four Global Forces Breaking All the Trends: Richard Dobbs, James Manyika, Jonathan Woetzel: 9781610395793: Amazon.com: Books

    http://www.amazon.com/No-Ordinary-Disruption-Global-Breaking/dp/1610395794

    No Ordinary Disruption: The Four Global Forces Breaking All the Trends is that book. One of its co-authors, Richard Dobbs, joins me in the accompanying video to explain why he beleves these forces will have 3,000 times the impact of the Industrial Revolution. … read and view via Yahoo Finance hyperlink above …