Bulls pushing for all-time highs

Global equities continue to grind higher with equity bulls the dominant force, despite a number of negative themes which could get more attention.

Source: Bloomberg

There still seems some room to push higher as only 40% of the key developed markets are above their 2007 peak and strong technical momentum is in play. US markets have shown good leadership with global fund flow data (as reported by AMG Lipper) showing the second consecutive week of net inflows of $1.6 billion into US equity funds.

This is also in keeping with Europe and Japan which also showed good inflows as investors committed to buying Japanese equities for the ninth week in a row. I suspect US markets will continue to be bid up and, as said before, a market at all-time highs is a bullish development and should be traded as such.

A number of the market internals are worth looking at, though, especially for short-term-focused traders. The S&P 500 has printed a new intra-day high, but the level of participation seems to be waning – the number of stocks above their 20- and 50-day moving averages has dropped of late.

Anyhow, these markets will be put to the test this week given 30% of the S&P 500 reports earnings, including Apple after market today. Judging by the moves in the tech giant last week, the market believes the eight consecutive quarterly earnings beats will continue. Expect a sizeable increase to its previously announced buyback.

Staying in the US, we also get Q1 GDP (consensus at 1%), the FOMC meeting and Employee Cost Index (+0.6%) or ECI, so it will be interesting to see if the mini correction in the USD can continue.

Two other issues the market will also continue to work through this week are whether Greece is to become a more dominant market theme, while spot cable is testing $1.52 and one-month implied options volatility fell 1.6% last week. Hardly a market concerned about the political fallout of a minority government.

Greece has moved somewhat closer to a technical default after the weekend’s antics, although it seems the majority of Europe’s finance ministers have had about as much as they can take of the Greek finance minister Yanis Varoufakis and will look to deal directly with top dog Alexis Tsipras from here on in.

The fact a weekend poll (source Kappa) showed 72% of Greeks were keen on a compromise suggests a last-minute deal is still on the cards. The limited stress shown in the EUR, or the fact European and US volatility indices are at multi-year lows, highlights just how little concern traders have about the testing payment schedule for the Greek government in the weeks ahead.

Asian markets have shown no real discernible trends, with China putting on around 1% and the ASX gaining 0.7% while the Nikkei is flat. It’s not just earnings in Europe and the US that will be in focus - we also have corporate numbers in Hong Kong, Japan and China, which will be widely in play and potentially provide a sense that it is not just central banks that are boosting share prices.

Australian investors will have to wait until next week for bank earnings, while at the same time getting clarity on whether the Reserve Bank will act on its easing bias. The market is now placing a 51% probability of a cut on 5 May, supported to a degree by the 22% move in iron ore in the last 15 sessions and momentum in the energy complex.

This hasn't affected the ASX 200 too negatively and traders are eyeing the 6000 level once again. Surely the bulls will have the energy and impetus to break the 6000 ceiling this time around, but if the RBA really wanted to get the domestic equity market firing and generate a level of confidence from the real wealth effect they should cut rates amid a resurgence in key commodities.

Of course, a stronger manufacturing and services PMI report from China on Friday and a nuanced Federal Reserve should also assist in appealing to investors and traders alike. That would, in effect, be the perfect storm.

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