Macro data to the fore

The UK elections are, at this point in the night, very interesting. The exit polls are suggesting the Conservatives will win 316 seats while Labour gain 239.

Source: Bloomberg

So there is a big discrepancy between the pre-polling estimates and exit polls.

If this is replicated in the actuals, it will be only the second time in 25 years that exit polls been significantly wrong – the last time was way back in 1992.

The reaction in cable was instant - rocketing up over 1% on the exit poll drop. The effect on FTSE trading tomorrow is also likely to be the same when it comes online. UK futures open at 4pm AEST – watch the open for a good understanding of how the market will see the results in what looks to be a conservative return.

Today will be the biggest macro data day of the month and possibly the quarter (barring a Fed move in June) Globally we have the UK elections, Greek debt payments and further EU discussions, and US non-farm payrolls to digest.

Throw in the RBA’s Statement of Monetary Policy and China’s trade balance and today will be a very exciting trading day. There is so much macro data to push and pull currencies, commodities and the markets in general.

There were some interesting developments overnight on the other side of the channel. Greece owes the IMF a €745 million coupon payment on May 12 – yet there is still no sign an agreement has or will be reached with international lenders, or that additional funds will be released in time.

Although benched form the official negotiations, Greek Finance minister Yanis Varoufakis is still driving the political standpoint for the Syriza Party and publicly stated overnight that talks will ‘go down to the wire’, saying ‘Europe works in glacial ways and eventually does the right thing after trying all alternatives’. Translation: market volatility is coming for Europe in the next five days.

The run on in the bond market due to the Greek issue and overvaluations is a real threat to current market stability. It is ramping up and the strength of the selling is only gaining momentum. Janet Yellen’s statement that bond yields could spike has done nothing to help the situation but it is the correct and astute observation, and one that has become fact. Her call on equity market valuations is also the other comment that has put the market on notice.

Market valuations are indeed elevated and even stretched for the likes of the NASDAQ. The fundamentals are a slow moving ship and they look likely they have finally caught the rapid price appreciation of the past four years and are making investors question further buying. The disconnect between price and fundamentals is likely to close, and fast – this just means more volatility for the market.

Ahead of Australian open

There appears to be no end to the run on in the ASX despite the US markets closing higher. We’re currently calling the ASX down a further 20 points to 5625.

Intraday, the ASX has given up almost 300 points in three days - this is the biggest sell-off on the ASX for over two years. I don’t think any amount of easing bias in the Statement of Monetary Policy will save the ASX from sliding further today as more questions are raised around the banks after NAB’s raised a massive $5.5 billion in capital.

At the start of the week I stated that the only bank I want to see was MQG and on first glance the results print this morning justify my thoughts. Dividends beat estimates by 30 cents, and revenue and net profit both solidly beat estimates. Funds under management were also impressive and, as expected, the USD tail winds from MQG have provided huge assistance for the results. I would expect a bounce in the share price this morning.

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