Manufacturing pick-up lifts risk sentiment

Global markets focused on a broad recovery in manufacturing in some key economies. 

China
Source:Bloomberg

China’s numbers in Asian trade yesterday set the tone and this carried through to European and US trade where we also received some encouraging manufacturing numbers. After an ordinary Q1, it certainly looks like the US is on track for a Q2 rebound, and this encouraged some positive price action across the equities space.

The risk currencies managed to extend their gains against the greenback with the AUD being one of the notable movers. AUD/USD finally nudged through April highs in the 0.946 region and extended its gains to a touch above 0.950. This saw the pair trade at its highest since November last year. After a period of consolidation around 0.940 heading into the RBA decision, it seems the pair had set enough of a base to extend its gains from.

The reaction to the RBA suggests the market was positioned for a dovish RBA, but with the ‘period of stability in interest rates’ line being maintained then this saw the market’s position shift. The market was not phased by the line ‘offering less assistance than it might in achieving balanced growth in the economy’ when referring to the exchange rate. In terms of where the pair might go in the near term, the previous uptrend line running from February is likely to offer some resistance, but this only kicks in closer to 0.955. Any dips into the uptrend support are likely to be used as an opportunity to buy. 

On the calendar today we have trade balance data due out at 11.30 AEST while RBA Assistant Gov Debelle speaks later tonight. 

AUD/USD
IG Charts

Ahead of the local market open we are calling the ASX 200 up 0.5% to 5402. After a couple of disappointing sessions, this could finally be the trigger for the Australian market to start edging higher. As I said yesterday, the local market only put on 0.9% for the first half of the calendar year and if we are to perform as widely expected by most analysts, we’ll need to have a big run in the second half.

The fact that China concerns are fading should encourage some buying in the cyclical plays, particularly the resources. Japan’s recovery and a strong indication of spending from yesterday’s Tankan report is also likely to play a big part as Japan has been tipped to start ramping up trading with Australia again. The Nikkei is looking to extend its gains at the open today and could lead the region again.

Iron ore managed to recover after a dismal few days and this could play in the hands of the pure plays today. Atlas Iron announced some job cuts and plans to ramp up production after market yesterday. This could help the miner out today after having struggled significantly in recent times. Independence Group will also be in focus after a fairly encouraging trading update. REA Group, which was one of the best performers of FY14, has an investor briefing this morning which might deserve some attention.

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