Manufacturing dominated the calendar yesterday with prints from China, Japan, Europe and the US. Overall the numbers were disappointing across all regions resulting in renewed concerns around the global economic recovery. This was a primary driver of weakness in Europe and even dampened some of the optimism we’d been seeing coming from developments around Greece. On top of the disappointment in manufacturing, services PMIs were not much better and this also weighed on sentiment. Surprisingly, the euro still managed to recover some ground against the greenback but this was mostly attributed to a weaker USD. Data prints out of the US including unemployment claims, manufacturing PMI and new home sales all disappointed and contributed to USD weakness.
Greenback weakness a positive
In a time when there are all sorts of questions around the impact of a stronger USD on the US economy and earnings, this weakness was actually well received by US markets. Earnings were mostly on the positive side and this also helped sentiment. Given all the talk around earnings reflected analyst concerns about the impact a sluggish US recovery and stronger USD, it’s impressive that 76% of companies have beat profit projections so far. A rebound in crude oil is also underpinning the energy space and has notably seen the Canadian dollar rally. Supply concerns around Saudi Arabia’s involvement in Yemen are playing a big role in lifting crude oil prices.
Resources set for gains
Ahead of the local market open we are calling the ASX 200 up 0.5% at 5868. It’ll be interesting to see if resource names will maintain their gains after they performed well yesterday. The support from firmer iron ore, gold and crude oil prices will see materials and energy stocks get off to a positive start. After all the doom and gloom talk which analysts raised on iron ore prices, all of a sudden a growing number of analysts are calling a floor in iron ore. These calls could prove to be premature but the key is what happens with supply more than what happens with demand. From there we’ll have to see if the yield trade can make a positive contribution today after struggling to gain traction yesterday. The uncertainty around the next rates move will keep a lot of these yield plays on the back foot heading into the May RBA meeting AUD/USD has been on the move and is knocking on 0.7800 yet again with the short term momentum seemingly to the upside. ResMed posted its Q3 report post US trade and will be in focus locally. Results were in line but this may not be enough to keep its rally going. A bit of weakness is expected at the open.