Global Equities Mixed Ahead of FOMC Decision, British Pound Strengthens As Traders Lower "Brexit" Expectations, ASX SPI200 Futures 20 Points Higher

European equity markets were mixed on Tuesday, the DAX30 (-0.34%), CAC40 (-0.28%), Euro Stoxx 50 (+0.12%) and the FTSE100 (+0.38%). UK equities were led higher by Standard Chartered (+9.76%) posted a drop in loan impairments and BP Plc (+4.32%) following a surprise first quarter profit. The Euro was 0.49% stronger against the US Dollar while the British Pound reached the highest levels in nearly three months as traders wind back bets on a “Brexit”. While polls suggest the remain vote continues to lead by a narrow gap it’s too soon to tell the likely outcome. In my view, Britain would be worse off not being part of the Euro-Zone, losing trade bargaining power that comes with the membership, US President Barack Obama recently stating the US will be focusing on negotiating with a big bloc to get a trade agreement done, leaving the UK at the back of the queue. Having to negotiate new trade agreements would be a long and costly exercise, and I’m not sure it would leave Britain in a better place given it relies heavily on its exports of goods and services to Europe.

U.S. equities were also mixed on Tuesday, with the S&P500 (+0.19%) led by better than expected earnings by Procter & Gamble Co. and 3M Co. The Nasdaq100 finished 0.47% lower, while both Apple Inc. & Twitter Inc. released disappointing results after the close of market. US Durable Goods Order (Apr) missed expectations with a reading of 0.8% vs 1.9% expected  as business investment remains weak as companies assess the outlook for global demand and Consumer Confidence (Apr) also missed estimates, 94.2 vs 96 expected. As a result the US Dollar Index (DXY) finished 0.28% weaker. Traders keep in mind we have the FOMC rate decision for April out at 4am AEST on Thursday, while traders are pricing in 0% chance of a hike at this meeting, the language used to describe the decision will be watched closely for clues as to the next hike. Currently September 2016 is the first month with a 50% probability of a hike.

Commodities closed mixed on Tuesday, Iron Ore (-4.98%), Copper (-0.78%), Natural Gas (-2.42%), WTI Crude (+3.28%), Brent Crude (+2.83%), while precious metals Spot Gold & Spot Silver closed 0.44% and 0.95% higher respectively. While the recent moves higher in commodities can be partly attributed to an improving Chinese economic outlook, it is also receiving a boost from Chinese speculators. This will be an interesting scenario to watch play out, given the lessons learnt from the recent equity bubble in China regulators may begin to crack down on this. The chart below shows parabolic move in Steel Rebar futures traded on the Shanghai Futures Exchange, up approximately 46% year to date.

The local market looks set to open higher this morning with ASX SPI200 futures up 20 points in overnight trading while the Australian Dollar finished stronger at 0.7752, up 0.48% against the US Dollar. 

Data Releases:

·         Australian CPI (QoQ & YoY Q1) 11:30am AEST

·         UK GDP (YoY Q1) 6:30pm AEST

·         US Department of Energy Crude Oil Inventories (Apr 27th) 12:30am AEST

·         US Federal Open Market Committee Rate Decision 4:00am AEST

·         NZ Reserve Bank of NZ Rate Decision (Apr) 7:00am AEST

Source: Rivkin, Bloomberg, Updata

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This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.

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