The Eye of the storm

The release of FOMC meeting minutes overnight saw the global bond market rout pause as investors heeded a clear signal that a June rate hike from the Fed is all but ruled out. However, additional comment that the economic weakness in the US in the first quarter of the year was likely “transitory” moderated any enthusiasm, and could see the Australian share market test a key level of support today.

The release of FOMC meeting minutes overnight saw the global bond market rout pause as investors heeded a clear signal that a June rate hike from the Fed is all but ruled out. However, additional comment that the economic weakness in the US in the first quarter of the year was likely “transitory” moderated any enthusiasm, and could see the Australian share market test a key level of support today.

Overnight share trading was tepid in volume and timid in direction with European shares drifting up and US shares down. Futures markets are pointing to modest gains for Asia Pacific markets at their respective openings, but there is plenty of potential for sentiment to sour over the session. The release of flash readings of manufacturing activity in Japan and China today may set the tone. Weak readings may spur buying as traders look for further central bank support. Flat to slightly stronger readings may see the overnight malaise continue.

Futures expiry today will see elevated trading volumes. The question for the market is whether any large investors take the opportunity to either further trim their sales or take on more ballast. Technical traders are watching the 5600 level very closely, as a move below may signal larger falls to come.

For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.

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