Big gains on US and European markets, iron ore higher again, Chinese cut rates, Aussie dollar consolidates and ASX futures up 43 points

Led by Germany (+2.65%), European equities were strongly higher on Friday night, which helped lift US trader sentiment, where large caps rallied between 1% & 1.5%. In a report released by Moody's Investor Services, the top 50 US companies are holding US$1.1 trillion in cash, leading to an--actual and prospective--increase in buy-back and merger and acquisition activity. The report also shows that the amount of cash stored outside the US has grown by 57% versus this time last year, illustrating an unwillingness to repatriate funds back to the US and a growing trend of multinational companies utilising profit centre destinations where taxation offers either lower rates or more flexible accounting terms than that of the US. Loose money supply is largely responsible for these increasing cash piles and, given the size of some of these chunks, there will likely be a steady stream of big deals done this year.

China cut its lending and deposit rate by 25 basis points yesterday. The last time rates were cut by this quantum--not to be confused with recent changes to the reserve ratio--was on 28 February, and following that there was not a notable boost to the Australian equity market or the dollar. Prior to the announcement, iron ore did have another positive session on Friday, finishing US$1.04 or 1.72% higher at US$61.40. Traders may take a positive view on iron exporters today due to the rate cut, but it must be remembered that China is in a moderately defensive economic position at present and lending rates there remain relatively high, at 5.10%. Nonetheless, progressively lowering the burden of China's high levels of debt through decreased financing rates should be welcomed by China analysts and we can probably expect more to come.

In today's first chart, you can see the British Pound (GBPUSD) rallying strongly against the US dollar, following the election outcome in the UK. Prime Minister David Cameron managed to shake off the need for a coalition by winning an outright parliamentary majority, with even further support from some minor parties. The GBPUSD looks interesting, and a lot of uncertainty has now been shed, given the previous anticipation of a close election and the possibility of a hung parliament based on pre-election polling, which read the election poorly. The horizontal line on today's first chart shows selling resistance for 2015 to date and, while this will be closely watched by traders, Rivkin would like to see a break and a close above this line before taking the view that it might move higher - Bank of England's rate decision is due out at 9pm Sydney time.

Today's second chart shows the AUDUSD currency pair consolidating within a broader up-trend. Fundamentally, the Aussie dollar is still enjoying a softening of the US dollar index and the sense that the Reserve Bank of Australia is less willing to continue cutting rates due to the ineffective nature of continued cuts in an environment where Australians are unwilling to increase their household debt and bring spending forward. The most likely reason for a break lower in this pair will be due to a resumption in the positive US dollar trend or a reversal of the recent euro rally, which would have the effect of pushing the US dollar higher. As discussed last week, a 'kind' Australian Federal Budget (due out tomorrow night) would take pressure off the Reserve Bank to cut, and thus the Australian dollar might have to look beyond interest rate themes to find reasons to sell off.

Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: NAB's AU business confidence survey out at 11:30am, Bank of England rate decision at 9pm, all Sydney time.

This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.

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This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

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