Global Markets Overview – June 2, 2014

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By Stan Shamu, IG Markets Strategist | June 2, 2014 9:18 AM EST

US equities extended their gains on Friday, with the S&P printing yet another record high of 1924. Once again the S&P closed at the highs of the session and this is a positive sign heading into the new week. There are plenty of key events on the economic calendar this week that could really set up equities for solid gains. Firstly, we've already seen positive signs from China's manufacturing PMI reading. We also have the ECB policy decision, which is widely tipped to deliver stimulus. While the size and scope is yet to be determined, it is clear the ECB has to be quite comprehensive to avoid disappointing the market. A large stimulus package would bode well for risk assets.

There was a big spike in EUR/USD volume over the weekend as positioning ramps up ahead of the ECB meeting. Meanwhile it is also non-farm payrolls week, which is expected to deliver a reading north of 200,000 this week and reinforce the notion that the US economy is set for a strong Q2 bounce. Should everything come together on a positive note, then there is potential we could finally see equities drift higher.

RBA meeting key for the AUD

Risk is off to a fairly good start in Asia as investors react to the latest round of China's manufacturing PMI. With markets knee deep in China growth concerns, it was refreshing to see the manufacturing PMI reading bounce to a five-month high of 50.8 and better than an expected 50.7. While this doesn't completely dispel China growth concerns, it certainly shows the mild stimulus measures it has taken recently have been gaining traction.

AUD/USD continues to hold its ground a touch above 0.93 and will be in focus over the next couple of days, with a bit of activity on the economic calendar. Today we have the AIG manufacturing index, MI inflation gauge, building approvals, company operating profits and commodity prices due out. Company profits are a quarterly figure and are expected to show a 2.6% rise, while building approvals for May are expected to be up 2.1%. Tomorrow we have the RBA meeting which isn't expected to bring a rate change. However, the statement might offer some precious insight into the RBA's budget opinion for the first time. Many analysts feel the tight budget will keep the RBA on hold for longer or better yet a rate cut at some point. We also have retail sales, current account, trade balance and Q1 GDP to look out for. Q1 GDP is expected to show a mild improvement. All up, the majority of these releases are expected to show strong signs of improvement and this could see the AUD extend its gains.    

Iron ore miners in focus

Ahead of the open we are currently calling the ASX 200 down 0.1% at 5488. Iron ore will be a huge concern for today's session after a 4% drop to $91.80/t. There is also a lot of talk around Twiggy Forest's comments suggesting we could see $80/t tested over the next 12 months. However, it is also important to note that he gave quite a broad range with an upper limit of $140/t.

Once again pure plays will be in focus on the back of this iron ore price slide. While not a pure play, BHP's ADR is pointing 1.5% lower to 36.46. China is closed for the Dragon Boat festival holiday and therefore this will limit the leads for Asia today. It would have been interesting to see how equities in China and iron ore futures react to the positive PMI print. On Friday there was also an announcement that China will cut the reserve requirement for some banks - mainly to rural borrowers and small companies. This is yet another sign that China is doing what it can to improve sentiment. However, we won't get a good indication of what these developments mean for China until markets reopen tomorrow.

Asian markets opening call

Price at 8:00am AEDT

Change from the Offical market close

Percentage Change

Australia 200 cash (ASX 200)

5,492.10

-1

-0.02%

Japan 225 (Nikkei)

14,716.50

85

0.58%

Hong Kong HS 50 cash (Hang Seng)

23,143.20

61

0.27%

China H-shares cash

10,329.90

90

0.88%

Singapore Blue Chip cash (MSCI Singapore)

374.90

1

0.32%

US and Europe Market Calls

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

WALL STREET (cash) (Dow)

16,724.00

49

0.29%

US 500 (cash) (S&P)

1,923.65

6

0.32%

UK FTSE (cash)

6,855.40

-18

-0.26%

German DAX (cash)

9,959.60

16

0.16%

Futures Markets

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

Dow Jones Futures (June)

16,707.00

43.50

0.26%

S&P Futures (June)

1,921.63

6.50

0.34%

ASX SPI Futures (June)

5,490.00

-17.50

-0.32%

NKY 225 Futures  (June)

14,727.50

100.00

0.68%

Key inputs for the upcoming Australian trading session (Change are from 16:00 AEDT)

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

AUD/USD

$0.9307

-0.0013

-0.14%

USD/JPY

¥101.790

0.210

0.20%

Rio Tinto Plc (London)

£30.85

-1.04

-3.25%

BHP Billiton Plc (London)

£19.21

-0.20

-1.00%

BHP Billiton Ltd. ADR (US) (AUD)

$36.47

-0.52

-1.41%

Gold (spot)

$1,248.65

-9.45

-0.75%

Aluminium (London)

$1,838.00

-4.00

-0.22%

Copper (London)

$6,845.00

-31.00

-0.45%

Nickel (London)

$19,250.00

360.00

1.91%

Zinc (London)

$2,054.00

-13.25

-0.64%

Iron Ore (62%Fe)

91.8

-3.90

-4.08%

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