Equity markets initially pushed higher, and in Europe they closed in the black. However they became spooked after further steps were taken by US President Barack Obama to escalate the Crimean crisis. He’s really puffing out his chest, and adopting quite alarmist rhetoric, suggesting that the world order is being tested and that the West should be prepared militarily.
One thing US policy makers don’t seem to be able to comprehend is that the Crimean people wanted to become a part of Russia and, importantly, Russia felt that the US and Europe were trying to absorb Ukraine into NATO -- which they were. Less time should be spent belittling and antagonising Russia and more time should be spent building ties. It’s as simple as that. Smarter heads in the US are advocating just that -- less posturing and bravado; more pragmatic policy making. Maybe if policy makers in the US weren’t so busy conducting mass electronic surveillance of their own citizens, they would be aware of that.
Either way, markets were a little more anxious -- for last night at least – about Obama’s increasingly confrontational approach to Russia.
Global equities saw the Dax surge 1.2 per cent over in Europe prior to Obama’s comments, while the CaC similarly rose 0.9 per cent. The FTSE100, in contrast, was flat. Cue Obama, and markets tanked. In the US, at the high the S&P500 was up 0.5 per cent, but then the offer came on as Obama started beating his chest and the index dropped 1.2 per cent (down 0.7 per cent as I write at 1852). The Dow is off 85 points (16,289) and the Nasdaq is 1.3 per cent lower (4180).
In commodity markets, gold, silver and copper were all weaker, down between 0.9 per cent (gold off $11 to $1300) and 1.4 per cent. Crude was flat on Brent at $106.9, while WTI was up 1 per cent to $100.2 on a combination of falling inventories and rising demand for gasoline, according to the latest report from the US Energy Information Administration.
Forex markets saw a lot of activity on the Australian dollar yesterday, which currently sits at 0.9233. The unit shot 50 pips or so after the Reserve Bank governor yesterday afternoon adopted a more optimistic tone on the Aussie economy and didn’t make any attempt to jawbone the currency weaker. That fact is very positive as previous attempts at weakening the Australian dollar were confidence destroying and ultimately harmful to the Australian economy. Elsewhere, we saw the euro off a little to 1.3794, while the British pound shot up about 70 pips to 1.6588 after a Bank of England policy maker said rates should increase as the economy recovers. The yen is at 102.
Rates fell overnight as US bonds rallied. The US 10-year treasury yield is down 4 bps to 2.70 per cent with the 5-year yield at 1.67 per cent and the 2-year at 0.44 per cent. Aussie futures were then up 2-3 ticks on the threes (96.96) and the tens (95.91).
Elsewhere, US durable good surged 2.2 per cent in February, although excluding volatile items the index was down 1.3 per cent. US mortgage applications then fell 3.5 per cent in the week to March 21, after a 0.2 per cent gain.
In markets today, the SPI suggests our stocks will fall 0.5 per cent. Otherwise there is really only one piece of domestic data worth watching -- the CBA-HIA housing affordability index. In terms of the global flow, we see Chinese industrial profits at 1230 AEDT and a speech from the St Louis Fed President James Bullard before that at 1120 AEDT. Tonight the focus will be on a US fourth-quarter GDP revision and new jobless claims.
Have a great day…
Adam Carr is a leading market economist.
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