Summary:

  • Most of Asia-based stock markets gain following a successful session on Wall Street
  • US dollar on the back foot losing the most in the G10 basket
  • Australian data (including trade) comes in below expectations, AUD delicately poised in the morning

Three prime indices in the US ended Wednesday with decent gains, and it encouraged Asian investors to buy riskier assets as well. Let us point out that a rally on Wall Street yesterday was mainly driven by banks’ shares giving the Dow Jones (US30) its best day in almost 2 months whereas the NASDAQ (US100) closed at another record high. The entire financial sector gained 1.8% contributing the most to the overall increase. To some extent this sector was boosted by rising yields sparked in part by remarks coming from ECB senior member that a debate on exiting the bond buying programme might be brought up as soon as next week. Having regard to specific banks one may single out JPMorgan climbing 2.3% as well as Goldman Sachs adding 1.7%. Upbeat moods were even not spoilt by the news that US Treasury Secretary Steven Mnuchin, who was to urge Trump to exempt Canada from steel and aluminium tariffs, reportedly had not called on Donald Trump to exclude Canada from the lately imposed levies.

link do file download linkThe Dow Jones has been recently the most underpriced US index, but it’s changing after the index rallied on Wednesday. Therefore, a target placed at 25800 points could be in store. Source: xStation5

In Asia the Japanese NIKKEI (JAP225) is rallying nearly 1% despite a 0.25% gain in the yen. Stocks in China are also higher gaining 0.75% (Hang Seng) at the time of writing. Notice that Chinese equities may have been partially supported by conjectures the PBoC could cut reserve requirement ratio (RRR) for banks if the data on China’s FX reserves show a drop to the lowest level since August (the release is due today).

link do file download linkAustralian trade balance saw a lower than forecast surplus in April largely due to a decline in exports. Source: Macrobond, XTB Research

On the FX front one may spot that the US dollar is again on the back foot being the worst major currencies almost an hour before the London’s opening. The euro, encouraged by the yesterday’s hawkish commentaries from ECB members, has already been able to breach a 1.18 handle whereas the pound stayed above 1.34 yesterday. Looking into macroeconomic readings which were released overnight it’s worth paying the most attention to two prints from Australia as both of them fell shot of estimates. AiG index, measuring performance in construction, fell in May to 54 from 55.4 whilst the trade data showed a surplus in April equal 997 million AUD while the median estimate had pointed to 1 billion AUD. However, when it comes to numbers regarding trade it needs to be said that the value for March was revised upwardly to 1.731 billion from 1.527 billion making overall tone not so grim. Finally let’s add that exports dropped 2% in a monthly basis whereas imports remained unchanged. By and large, the Australian trade balance is not in the spotlight, unlike those in China or the EU, as the US holds a surplus with this country.

link do file download linkThe Aussie keeps struggling with its trend line, but bulls do not look to be doomed to failure as AUD weakness could prove to be just temporary. Source: xStation5