Global Equities Lower, USD Rebounds From Lows, ASX SPI200 Futures Down 13 Points

Global equities closed broadly lower on Wednesday as data failed to address concerns that economic growth & corporate earnings are slowing. UK Construction PMI (Apr) missed estimates of 54 with a reading of 52 while retail sales (YoY Mar) was also lower at 2.1% vs 2.6% forecast. European equities were led lower by the FTSE100 (-1.19%), followed by the CAC40 (-1.09%), DAX30 (-0.99%) and Euro Stoxx 600 (-1.12%). Despite data that showed the US trade balance shrunk from –US$47.1 billion to –US$40.44 billion and ISM Non-manufacturing Composite (Apr) beat expectation of 54.8 with a reading of 55.7, US equities also fell for the second day in a row as data from ADP Research suggested employment for April was lower than anticipated at 156,000 vs 195,000 expected. The S&P500 declined -0.59% and the Nasdaq100 finished -0.68% weaker.

The US Dollar continued to rebound from its lowest levels this year as talk begins to grow around the possibility of a June rate hike with the USD strengthening 0.32% against a basket of its peers. Sticking with the US, Donald Trump is now the presumptive Republican nominee after rival Senator Ted Cruz and John Kasich announced they were withdrawing their campaigns and it now looks likely Hilary Clinton will also clinch the democratic nomination despite losing to Bernie Sanders in the Indiana primary.

Looking to the local market the ASX200 closed 1.54% weaker on Wednesday led lower by BHP following an announcement it has been named in a $44 billion law suit along with Brazilian miner Vale over a dam rupture in Brazil in November 2015. Meanwhile ASX SPI200 futures are down 13 points, suggesting a weaker open this morning.

Despite the big four banks having recovered a little from the hammering they took in mid-February and then again in April, there is still no uptrend in sight and--frankly--unless they inspire investors to believe that they can achieve the level of earnings per share growth that gets newspapers and the public complaining about their record profits (be careful what you wish for!), it's not a simple call to say that any of them are 'cheap.' Of course analysts all have their own version of what constitutes a cheap stock, and this week's RBA rate cut will stretch out an otherwise-exhausted 'hunt-for-yield' trend that might keep buyers in the screens.

However, with commodities finding a lot more support and oil, iron ore, copper, gold, silver all sitting on 30-day gains, buyers in the resources sector are piecing their frayed nerves back together and--once again--the ASX 200 resources sector is offering a credible destination for those with cash to spend on corporate investments. So long as the banks don't find an uptrend and so long as commodities continue to sit at levels far from the panic points of December/January, we could see some steady switching going on. I advise anyone to keep the low cost producers (BHP, RIO, FMG, S32, OZL) on their watch lists and buy lightly on the down days. The chart below highlights the performance of the four major Australian banks since May 5th 2015, ANZ (-22.30%), NAB (-15.90%), CBA (-10.21%) and WBC (-8.43%).

Data Releases:

·         Australian Trade Balance (Mar) 11:30am AEST

·         Australian Retail Sales (MoM Mar & QoQ Q1) 11:30am AEST

·         Chinese Caixin PMI Services & Composite (Apr) 11:45am AEST

·         UK Markit Services & Composite PMI (Apr) 6:30pm AEST

·         US Initial & Continuing Jobless Claims (Apr 30th & 23rd) 10:30pm 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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