As it turns out markets did indeed take a turn for the worse over the Chinese trade statistics. Most of the damage was in the commodities space though, especially iron ore, and this certainly weighed on equities. The fact that Europe is still underperforming, especially German markets, points to the Crimean crisis as still being a strong bearish influence though and of course we are still operating in an environment where many investors think markets are rich. We can’t get too bearish though -- US equities were bid last week and losses to date have been small.
Commodities were weaker and obviously the focus is on iron ore. Benchmark iron ore delivered to China has fallen 8.3 per cent to an 18-month low. It also recorded its second biggest fall on record. However, falls elsewhere were reasonably decent as well -- crude is own 1.5 per cent on WTI ($101.1), while Brent is off 0.8 per cent. In the metals space, copper dropped 1.3 per cent and silver was 0.5 per cent weaker. Only gold rose, although it was just one or two dollars to $1340.
Global equities were generally weaker. Action was mixed in Europe with the Dax down 0.9 per cent, although the CaC managed to stay in the black with a 0.1 per cent rise. The FTSE100 fell 0.4 per cent. With an hour left to trade, US markets are in the red -- barely though. The S&P500 is currently 0.03 per cent lower at 1877, the Dow has dropped 43 points to be at 16,408, and the Nasdaq is off 0.1 per cent (4330). By sector, industrials, consumer services and telecommunications look to have underperformed.
Forex -- while commodities fell out of favour overnight, the Australian dollar is little changed. Currently at 0.9018, the unit is off about 10 pips from yesterday at 1630 AEDT. Elsewhere, we saw the euro little changed at 1.3870 (on a 30 pips range). Most of the action was actually on the British pound, which fell almost a big figure to 1.6639 after the deputy governor of the Bank of England said that any further rise in the currency would hinder export growth and stymie efforts to rebalance the economy. He also noted that any lift in interest rates would occur only gradually and take rates to 2-3 per cent over the medium term -- ie. rates, when they rise, aren’t going up much. This of course is the natural consequence of not targeting any economic variable as the Bank of England now does. The yen is otherwise at 103.23.
Rates were a little higher in the US. The 10-year Treasury yield, for instance, having hit a high of 2.8 per cent finished only 1 bps higher from yesterday afternoon at 2.78 per cent. The five-year yield is at 1.62 per cent and the two-year is at 0.37 per cent. Aussie futures rallied, with the threes up 5.5 ticks to 97.045, while the tens are at 95.589.
Elsewhere, Japanese fourth-quarter GDP was revised down to 0.7 per cent from 1 per cent. Then we saw Chinese money supply data. Growth in M2 was reasonably steady at 13.3 per cent in February from 13.2 per cent the month prior. We also saw a speech in the US from the Philadelphia Fed President Charles Plosser, who appeared more confident that recent data weakness was distorted by the weather. In particular he noted that weak labour market outcomes had been the result of poor weather.
In markets today, the SPI suggests our stocks will be off smalls today after an almost 1 per cent fall yesterday. In terms of the news and data flow for Australia, the key data includes business confidence indicators from NAB (1130 AEDT). Confidence has improved markedly over recent months and there is every reason why confidence should continue to push higher. Tonight the key data includes German trade data and UK industrial production. For the US, data is relatively minor and includes the NFIB small business optimism index, wholesale inventories and sales, and job openings data.
Have a great day…
Adam Carr is a leading market economist.
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