Global Markets Overview – July 23, 2014

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By Evan Lucas, IG Markets Strategist | July 23, 2014 9:26 AM EST

A trader works by the post where Verizon is traded on the floor of the New York Stock Exchange in this file photo taken February 21, 2014. Verizon Communications Inc, the largest U.S. wireless telecoms company, reported a 6 percent rise in quarterly revenue as its postpaid wireless subscriber additions rose 53 percent, July 22, 2014. REUTERS/Brendan McDermid/Files (UNITED STATES - Tags: BUSINESS)
A trader works by the post where Verizon is traded on the floor of the New York Stock Exchange in this file photo taken February 21, 2014. Verizon Communications Inc, the largest U.S. wireless telecoms company, reported a 6 percent rise in quarterly revenue as its postpaid wireless subscriber additions rose 53 percent, July 22, 2014. REUTERS/Brendan McDermid/Files (UNITED STATES - Tags: BUSINESS)

Bottom-up growth

Global macro concerns may have outweighed trading yesterday due to light reporting; however out of the 36 individual companies that reported to the market, 79% beat expectations, meaning bottom-up actuals outpaced the global gloom being generated by geopolitics.

The S&P made a new intraday record high on the back of the better earnings, while the US consumer price index held the line meaning trade was unhindered by data. However, core CPI was lower than expected, meaning the FOMC will continue to point to inflation as a reason to retain the current monetary setting for the Fed funds rate.

What will be even more important to this call is wage inflation. In the coming weeks we will see wage inflation data from three different sources: ADP non-farm payroll numbers will have an inflation index built into it; the employment cost index with its a key measure of wage inflation; and then the official non-farm payrolls which also produces a wage inflation gauge.

Chairperson Janet Yellen has increasingly pointed out that there is more to be done with monetary policy to rectify the wage growth concerns. Although the FOMC's target of 6.5% unemployment has been well and truly reached, wages are dead flat and if it was to contract it would spook confidence, meaning the FOMC is likely to hold the line with the Fed funds rate and an early rise seems unlikely.

This is why I see the current trend in the market holding true; the US markets are moving higher and are likely to continue this trend in the interim. There are reasons to point to possible pull-backs, but again the S&P futures are now up to 123 trading days without a 5% or more pull-back, which suggests come September the market is likely to be higher still. Come October, when the Fed fully withdraws the asset purchase programme, then we might see this trend slowing and/or reversing. Until this reverses, I am following the trend.  

Ahead of the Australian open

The AUD will again take centre stage in Asian currency trading, with Australian CPI data due at 11.30am AEST. Year-on-year numbers are estimated to hit 3.0%, which would be right on the edge of the RBA's comfort range of 2% to 3%.

However, the figures to concentrate on from an RBA perspective are the trimmed mean figures, with core inflation, which is estimated to hit 2.7%. Do not be surprised to see the AUD possibly overreaching to the CPI read on theories of rate hikes; this is likely to settle if the trimmed mean comes in-line with expectations, meaning inflation remains contained.

We are currently calling the ASX 200 up 16 points to 5556; today could be the decisive break out of the heavily-defended resistance level of 5540 to 5545. A close above this level is likely to see the market returning to upside risk in the interim as we approach FY14 earnings season. The banks have seen lax trading

Asian markets opening call

Price at 8:00am AEDT

Change from the Offical market close

Percentage Change

Australia 200 cash (ASX 200)

5,556.90

14

0.25%

Japan 225 (Nikkei)

15,346.20

3

0.02%

Hong Kong HS 50 cash (Hang Seng)

23,843.10

61

0.26%

China H-shares cash

10,641.10

36

0.34%

Singapore Blue Chip cash (MSCI Singapore)

380.77

3

0.90%

US and Europe Market Calls

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

WALL STREET (cash) (Dow)

17,088.70

16

0.10%

US 500 (cash) (S&P)

1,978.91

4

0.20%

UK FTSE (cash)

6,775.80

21

0.32%

German DAX (cash)

9,703.00

34

0.35%

Futures Markets

Price at 8:00am AEDT

Change Since Australian Market Close

Percentage Change

Dow Jones Futures (September)

17,025.50

19.00

0.11%

S&P Futures (September)

1,973.13

4.25

0.22%

ASX SPI Futures (September)

5,512.00

14.50

0.26%

NKY 225 Futures  (September)

15,357.50

0.00

0.00%

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

$0.9394

0.0007

0.08%

USD/JPY

¥101.470

-0.055

-0.05%

Rio Tinto Plc (London)

£33.05

0.15

0.47%

BHP Billiton Plc (London)

£20.33

0.20

0.97%

BHP Billiton Ltd. ADR (US) (AUD)

$39.01

0.50

1.30%

Gold (spot)

$1,307.45

0.45

0.03%

Aluminium (London)

2044.5

24.00

1.19%

Copper (London)

7050.75

21.75

0.31%

Nickel (London)

19099

227.00

1.20%

Zinc (London)

2372.5

28.50

1.22%

Iron Ore (62%Fe)

95.4

-0.60

-0.62%

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(Photo: / )
A trader works by the post where Verizon is traded on the floor of the New York Stock Exchange in this file photo taken February 21, 2014. Verizon Communications Inc, the largest U.S. wireless telecoms company, reported a 6 percent rise in quarterly revenue as its postpaid wireless subscriber additions rose 53 percent, July 22, 2014. REUTERS/Brendan McDermid/Files (UNITED STATES - Tags: BUSINESS)
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