Global Markets Overview – July 25, 2014

While equities continue to extend their gains, sentiment appears to be a bit mixed as the major currency pairs maintain some tight ranges. While there were a few developments overnight, the dominant theme remained US corporate earnings and optimism around an improving global manufacturing picture. US unemployment claims came in at the lowest since February 2006 and this saw the four-week average drop to around 300,000. This is a good sign heading into next week's non-farm payrolls data. With optimism continuing in the US jobs market, the greenback managed to edge higher.

The main threat to risk sentiment in Asia today is news that Portugal's Espirito Santo Financial Group sought protection from creditors. While this is not a major threat to Europe's financial sector, it could be used as an excuse to take some profits in the near term. On the earnings front, investors mainly focused on Facebook, which rallied over 5% in response to its earnings. However, Caterpillar, which is perhaps more relevant to emerging markets, slumped after forecasting sales and earnings below estimates. Additionally, commentary around a recovery in 2014 was quite gloomy and being a fairly significant bellwether, markets won't like this.

On the other end of the spectrum, Visa beat estimates, but still this was not enough to appease investors as the company cut its revenue target. A lot of analysts have been bullish on the stock as the world increasingly leans towards electronic payments and internet shopping. While Caterpillar's results disappointed, a set of improving PMIs in China and across Europe will go a long way towards lifting sentiment.

Japan CPI in focus

After having started the week firm on safe-haven demand, the yen has slowly unwound through the week and USD/JPY has now knocked through a key downtrend resistance and looks well positioned for further near-term gains. As it stands, we are calling the Nikkei up 0.3% and it seems it'll lead the region at the open, with most of the other major regional markets being called flat.

Japan's CPI data is due out this morning and the market expects to see little change from these numbers. Should there be no surprises from this reading, we could see USD/JPY extend its gains and this would be positive for Japan's equities. Apart from this reading it seems the region is in for a fairly quiet session on the macro front.

ASX 200 up 1% for the week

Ahead of the local market open we are calling the ASX 200 relatively flat at 5586. Commodities were mostly firmer, particularly copper and zinc helped by the stronger manufacturing PMI readings across the globe. This will be a minor lift for some of the materials plays, but I feel there will continue to be a degree of caution heading into the weekend.

We are already up 1% for the week so far, and considering the recent events in the geopolitical space, this is not too bad an outcome. The caterpillar result could weigh on Seven Group and other mining services names in today's trade. On the earnings front, GUD Holdings posts FY results and this will dictate how the stock trades.

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