After recent selling pressure, the absence of bad news was all it took to unleash animal spirits and drive European and US shares higher overnight. Risks remain elevated, especially in the lack of agreement between Greece and the rest of the world, but investors shrugged them aside in a night of solid buying. However gains were tempered as a stronger USD deflated some enthusiasm.
The stronger USD may see a more ambiguous session for the Asia Pacific region. While increased USD appetite for manufactured goods is a positive for the exporters of Asia, it also weighs on commodity prices, potentially reversing yesterday’s gains in resource shares. Futures prices are pointing to gains of around 0.25% for most regional markets, pale in comparison to the 1-2% gains overnight. One reason for the disparity is that China related shares have already moved substantially higher as investors factored in the latest round of economic stimulus.
Capital expenditure numbers today speak directly to the key issue for the Australian economy. The sluggish transition away from mining investment remains the number one concern for the RBA. Any evidence in today’s read that capex intentions are firming up in other sectors would likely lift local sentiment, and potentially set the index for a re-test of the post GFC highs around 6,000.
For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.