Global Markets Overview - May 25, 2016

By @chelean on
Australian Securities Exchange (ASX)
People walk past the Australian Securities Exchange (ASX) building in central Sydney October 20, 2008. Reuters/Daniel Munoz

Biggest monthly increase in US new home sales in a decade

Strong US new home sales have added credence to the Fed’s claims that the US economy may be strong enough for another rate hike in June or July. US property-related data has been uniformly disappointing throughout 2016, so the 16.6% month-on-month increase in new home sales in April was a welcome development. US data alongside ORB’s latest Brexit poll showing the Remain camp pulling further ahead saw the US dollar and the British pound perform the strongest in overnight currency markets. The DXY dollar index gained 0.4% and looks to be steadily closing in on the $96 level. USD strength and RBA governor Glenn Stevens’ reaffirmation of the central bank’s commitment to its inflation targeting framework yesterday saw the Aussie drop 0.6%.

Equity markets also reacted well to this news with European and US markets reversing the poor performance seen in Asian markets yesterday and pushing strongly higher. Technology stocks led in the US, with the IT sector the best performer in the S&P 500 while the NASDAQ added a full 2%. 

US new home sales in April increased by 88,000 homes from the previous month, the biggest monthly gain since October 2005. While it would be inappropriate to read too much into one data point, even a few more months this year with half that number would help spur a dramatic resurgence in US housing construction. A development that would not only be cheered by a Fed that is keen to see two rate hikes this year, but also for Aussie stocks like James Hardie (JHX) that are leveraged to the USD and the US housing market.

Energy stocks look set for a strong day as the early estimate on US oil inventories release by the API saw a decline of 5.1 million barrels. The market is expecting a 2 million barrel decline in the EIA numbers released this evening, but the risk of an overshoot is significantly higher now and not surprising given the supply disruptions from the Canadian wildfires. WTI oil gained 1.1% off the release and is rapidly closing in on its key resistance level of US$50.

Commodities have been remarkably buoyant overnight given the strong performance in the US dollar. Copper gained 0.6% and iron ore gained 0.3%. This played into the performance for the big miners overnight with BHP’s ADR gaining 0.6% in the US session.

With equities, commodities and the US dollar all moving higher, the Asian session is set for a strong open. The ASX is set to open 1.1% higher around 5365. But Japanese equities in particular are relishing the strong US dollar. The USD/JPY is on the verge of breaking back into the 110 handle, a key psychological level for Japanese traders, and the Nikkei is set to celebrate this by opening 1.7% higher.


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