Global Markets Overview – June 4, 2014

US equities were flat overnight, with investors non-committal heading into the business end of the week. The S&P had to come from behind and even managed to test an intraday record high before a minor pullback into the close. With US economic data starting to ramp up, beginning with the ADP non-farm payrolls, trade balance and the GDP reading, some investors feel this warrants a bit of caution. The market certainly seems to be pricing in a strong set of data from the US this week, which puts risk assets in an interesting position. Fed member Esther George was on the wires saying there is a possibility the Fed funds rate will be raised sooner and faster than the Fed currently thinks.

At the same time we have the European situation, where traders just continue to speculate what action the ECB will take this week. The pressure was exacerbated by a couple of disappointing CPI readings out of the region this week starting with Germany, and overnight we saw the CPI flash estimate for the reading come in at 0.5%, slightly below an expected 0.7%. However, the euro actually came off its lows and this seems to be a factor of treasuries being sold off and consequently dragging European yields higher. This move in the euro weighed on European equities which could have gotten a kicker from the weak CPI reading. Heading into the ECB meeting, traders are more likely to be looking to take advantage of euro strength for selling opportunities.

Analysts flag upside risk to local GDP

AUD/USD will remain in focus today, with Q1 GDP numbers due out at 11.30 AEST. The market is looking for a 0.9% q/q rise which equates to a 3.2% y/y rise. However, following yesterday's current account data which showed that net exports added to 1.4 percentage points to GDP, which is more than double the previous quarter (0.6%) and well ahead of the expected 0.8%, many analysts feel there is upside risk to today's GDP reading. Some brokers have actually upgraded their GDP estimates to 1% q/q. AUD/USD was capped at 0.9300 yesterday and has since retreated to around 0.9267. A GDP surprise could see 0.9300 retested in Asia today.

Confidence still a problem locally

Ahead of the open we are calling the ASX 200 up just four points to 5484. After yesterday's sharp drop into the close, it's quite disappointing to see such a timid start. Consumer stocks were the worst hit yesterday after the disappointing retail sales reading.

Iron ore bounced yet again to 92.50, but as we saw yesterday this doesn't necessarily mean we'll see gains for the miners. Confidence has certainly waned in that sector and until we see a sustained improvement, investors are likely to continue to shy away from the sector. Interesting comments from Rio Tinto's Sam Walsh suggesting he doesn't think iron ore will hit $80 and said perhaps around $100 will see some kind of normalisation.

Meanwhile BHP may cut some iron ore jobs as part of its productivity review; no surprises there given what iron has been doing. It was another woeful session for China yesterday and this didn't do the region any favours. With confidence remaining a factor, investors are likely to be looking at some of the more defensive names for some security.

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