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US equity markets returned from the long weekend with refreshed vigour, pushing the broader benchmarks to a new record. We saw a return of risk sentiment with a rise in equities, matched by a fall in safe havens like the yen and gold. Treasuries rose, however, underlining the jittery mood of investors as they seek assurances over lofty valuations in their portfolios. The rotation out of small caps and tech stocks may have temporarily halted, with the Russell 2000 and the NASDAQ putting in some of their best gains in weeks, of 1.4% and 1.2% respectively. The S&P500 added 0.6% to trade convincingly above the 1900 levels, while the Dow clocked gains of 0.4%. With the 1900 levels now decisively broken on the S&P500, observers are targeting the key 2000 round handles before we see another bout of profit taking. The same could be said of the German Dax, which is coming within striking distance of the 10,000 mark. Pfizer gained 0.4% after deciding not to pursue the takeover of AstraZeneca following its third failed bid. IBM fell 0.6% after a report by Bloomberg revealed that the Chinese government is urging banks to replace IBM’s high end servers with local brands, over concerns of espionage or stealing of data. Facebook added 3.5%, contributing to gains in the tech sector which was the best performing overall amongst ten broad sectors in the S&P 500. In M&A activity, Hillshire shares popped, surging more than 20% after Pilgrim Pride offered to pay $6.4bn for the hot dog maker. Aside from the accommodative conditions as signalled by ECB President Mario Draghi, US equities rose on the back of better economic reports. US durable goods orders rose 0.8% in April, defying expectations of a contraction. The spring rebound may have been stronger than expected, especially since March figures were revised upwards by a full percentage point. This may also indicate that the second GDP reading for Q1, due for a release tomorrow, may not be as depressing as economists expect. It may be due its first quarterly contraction since Q2 2009. Home prices were on the rise, albeit slower, but still coming in ahead of expectations. The Case-Shiller index rose 12.4% compared to 12.9% previously, and 11.9% estimated. Meanwhile, consumer confidence rose amid rising stock prices and a rebound in the housing sector, with the conference board reading rising to 83, from 81.7 previously.

Forex

Despite the slew of better economic data, the dollar only managed meagre gains against the majors, due to a stubborn slide in 10-year treasury yields. After sliding some 380 points from the start of May, the decline in EUR/USD is starting to look exhauste,d with no further catalyst to push it lower. Except, of course, the usual jawboning by ECB officials. A much needed rebound may be seen today if the German unemployment numbers come in better than expected. From the private sector employment data in the PMI reports released previously, there is a high probability of that happening. The kiwi dollar fell this morning following an ANZ business confidence data release, recording a fall in the month of May. This follows a string of weak milk auctions during the past two months. Earlier this morning, Fonterra set its opening milk price of $7 for 2014/2015, while revising its current season milk price down to $8.40 from $8.63. A weaker pay out may put the brakes on the RBNZ’s intended rate hikes and apply downward pressure to the kiwi.

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