Equity Markets Finish On Positive Note

Equity Markets Finish On Positive Note

In the US on Friday, equity markets finished the week on a positive note and logged modest gains to close at fresh multi-year highs as the stronger-than-expected US earnings season continued to boost confidence.

The Dow Jones Industrial Average was the best performer, rising 0.4% while the broad-based S&P 500 added 0.2%. The NASDAQ finished flat for the day.

Locally, the ASX 200 is called to open the session 0.3% higher at 4838 following the positive US leads. Although the Australian market has been largely ignoring strong US leads, gains could be seen in the energy, industrial and materials sectors.

A rise of 1% in crude oil futures to US$113.73/bbl helped lift US energy names with the likes of Exxon Mobil, Chevron and ConocoPhillips all up more than 0.6%. Australian names could rise on the back of this momentum.

Elsewhere, material names performed well despite the London Metals Exchange and UK markets being closed for the royal wedding. BHP’s ADR is calling the locally listed stock to open 0.6% higher at $46.11. Gold had another good session, jumping 2% to US$1564.1/oz as the US dollar continued to fall. However, due to the strength of the AUD, our gold stocks have been struggling to keep pace.

On the downside, US financials finished the session 0.2% softer and could weigh on our financial stocks. Having said that, ANZ, NAB and Westpac are due to report first half results this week. Despite the leads, we could continue to see buying interest as investors position themselves ahead of earnings.

In summary, it looks like the ASX 200 is set for a positive start to the week, although the factors that saw it underperform last week and month are still firmly in focus. On the economic calendar, the AIG Manufacturing Index and MI Inflation Gauge are due for release at 9.30am and 10.30am this morning. In regional news, it’s worth noting that both the Hang Seng and Shanghai Composite are closed for holidays today, meaning trade through the region could be on the thin side.

As we have mentioned in recent times, the strength in the AUD has become the number one headwind for the equity market in the short term. Price action on Friday night will certainly not help matters either, with the AUDUSD making a fresh high of 1.0978, with the bulls in charge right up until the closing bell. Interestingly, whilst the AUDUSD gained more than 2% for the week, we saw speculative long positions held by futures traders’ drop 5% to 80,867 contracts. This suggests ‘real money accounts’ had been the underlying buyers of AUDs this week.

The moves seen of late have been nothing short of breath taking. Whilst a lot of the move has been due to USD weakness, the AUD has rallied against a trade weighted basket, which shows good underlying strength towards commodity currency. Technically, the AUD has been in a strong up trend channel since March 17th, appreciating 13%. The top end of the channel is currently around 1.11 suggesting it could easily push higher in the short term, with the fundamentals clearly supporting this as well. The divergence in views from the two central banks is quite clear with Bernanke engineering a weak USD, whilst the RBA seems perfectly happy to see the AUD move higher to counter inflationary forces.

Momentum is clearly behind the AUD at present; however resistance should be seen at 1.10 where options barriers and technical selling could curb further upside in the short-term. China’s April PMI print released Sunday came out lower than expected at 52.9 and shows manufacturing is growing at a slower pace, which is ultimately what the Chinese want to see; however, there is a good chance this will be viewed negatively.
Interestingly, an article written by RBA watcher Terry McCrann in the Sunday Herald Sun suggested interest rates are going up as early as June; this may outweigh the Chinese data and could be the catalyst to see the AUDUSD hit 1.10.

Traders will this week look to position themselves for what could arguably be quite a volatile week for the currency. Tuesday will see the RBA rate statement, as well as ISM manufacturing and nonfarm payrolls in the US. If this US data comes in stronger-than-expected, we could see a short covering rally in the USD.

Market Price at 6:30am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0972 0.0075 0.68%
ASX (cash) 4838 15 0.31%
US DOW (cash) 12799 52 0.41%
US S&P (cash) 1366.5 9 0.67%
UK FTSE (cash) 6102 29 0.48%
German DAX (cash) 7545 63 0.85%
Japan 225 (cash) 9930 15 0.15%
Rio Tinto Plc (London) 43.60 closed -
BHP Billiton Plc (London) 25.25 closed -
BHP Billiton Ltd. ADR (US) (AUD) 46.11 0.28 0.62%
US Light Crude Oil (Jun) 113.73 1.11 0.98%
Gold (spot) 1564.1 30.02 1.96%
Aluminium (London) 2764.00 closed -
Copper (London) 9371.00 closed -
Nickel (London) 26845.00 closed -
Zinc (London) 2265.00 closed -
RBA Cash Rate to be raised by 25bp (May) (%) 13.00 0 0.00%

ends

© Scoop Media