Equities retreat on limited data

Equities unwound overnight in a move that started in European trade.

Wall Street

Data in the US was limited and as a result investors just chose to focus on a couple of negative headlines. The World Bank lowered its global growth forecast for 2014 and the shock Eric Cantor loss was among some of the headlines investors focused on.

NZD in focus on the back of a rate rise

Making headlines in Asia this morning is the RBNZ’s decision to raise rates by a further 25 basis points to 3.25%. The central bank still sees considerable momentum in the economy and said future rate moves will depend on how data progresses. It seems some of the market was beginning to feel we might see a pause in rates after today, but  comments seem to have changed market perception. The market is pricing in an additional 60 basis points worth of hikes this year and the three-month bills are forecasting rates to be 4%.

After having had a lacklustre week, the NZD finally came back to life on the back of the decision and NZD/USD rallied to 0.8629. During the process it managed to break downtrend resistance and is now testing the 23.6% retracement of the February low to May high move. The momentum seems to be firmly to the upside at the moment, but a concern will be the fact that the RBNZ is talking down the currency. In light of the commodity price weakness, the RBNZ feels the exchange rate is not quite reflecting that.

IG Charts

AUD and ASX focus on jobs

The AUD will also be in focus today with the May jobs data due out. The unemployment rate is mostly expected to remain steady at 5.8% with around 10,300 jobs added. A strong reading tomorrow could see the AUD extend its gains against the USD and EUR today. Apart from the jobs numbers we also have MI inflation expectations due out. In the emerging markets space we have China’s money supply data and India’s CPI reading. These releases could have a bearing on commodities and commodity currencies.

Ahead of the local market open we are calling the ASX 200 down 0.3% at 5440. There isn’t a lot going on in the company news space but I expect to see a modestly risk-off theme. Iron ore lost further ground along with most of the metals complex. This will keep the mining names on the back foot today. Should the jobs numbers support further AUD gains, then we could actually see losses accelerate through the session due to the adverse effect of a firmer AUD. Goodman Group announced an earnings upgrade and will be in focus with an investor briefing taking place today. 

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