Markets calmed somewhat overnight -- well, quite a bit actually, and in many cases we saw a reversal of the previous session’s price moves. The reason? Russian President Vladimir Putin and his comment “we are not going to war with the Ukrainian people”. Putin noted that Russia had cultural and historical ties with the Ukraine and that Russia’s actions were not about “conquering” -- rather, about responding to a request for aid from the legitimate president of Ukraine. He said “the only thing which was necessary, and which we did, was to strengthen the protection of our military installations…it will not be necessary for us to do anything like that in eastern Ukraine”. So with Russian forces on the border of eastern Ukraine called back to base (though not in the Crimea), markets relaxed.
Global equities surged and Europe led the charge with the Dax up 2.5 per cent, the CaC up the same and the FTSE100 1.7 per cent higher. Not quite enough to offset the previous day’s losses but a good result nevertheless. On Wall Street gains have so far offset yesterday’s losses, and by a decent margin too. With an hour left to trade the S&P500 is up 1.4 per cent (1871), the Dow up 221 points (16,389) and the Nasdaq up 1.6 per cent (4347). In terms of sector performance, gains were broad-based, with all major sectors up over 1 per cent.
Forex action was reasonably light. The Australian dollar rose about 15 pips to 0.8942, while the euro was unchanged at 1.3736. The British pound too was little changed at 1.6671, and the yen is at 102.2.
Commodities, naturally enough, sold off -- well, mostly. Gold was down $13 to $1336 and silver lost 1.2 per cent. Otherwise crude dropped, given gas supplies from Russia are no longer under question. WTI was down 1.6 per cent to $103.3, while Brent fell 1.8 per cent to $109.11. Copper bucked the trend and rose 1.3 per cent.
Rates spiked higher, with the US 10-year yield shooting up 7 bps to 2.679 per cent. The five-year yield is then at 1.51 per cent (about 6 bps higher) and the two-year at 0.32 per cent. Aussie futures were weaker, with the tens down five ticks at 96.005 and the threes down four ticks to 97.10.
Elsewhere the news and dataflow was light. Economic data included lower-tier releases like the ISM New York, which fell to 57 in February from 64.4. The IBD/TIPP economic optimism index rose, however, to 45.1 from 44.9. Over in Europe, producer prices fell 0.3 per cent in January after a 0.2 per cent rise the month prior, while the UK construction PMI slipped to 62.6 from 64.6.
In markets today the SPI suggests our stocks will find a decent bid -- up 0.8 per cent. Regarding the macro dataflow, Australian GDP is the key point for our market today. The consensus is that GDP rose by 0.7 per cent for the fourth quarter and by 2.5 per cent over the year -- a little below trend. In terms of risks to the number, I think they are probably to the downside. On the partials to date a number like 0.7 or 0.8 per cent is the maximum you would expect and the spread of forecasts is skewed towards here. It won’t take much for a number closer to 0.5 per cent to come out though.
Outside of the GDP figures, China’s services PMI is due at 1245 AEDT. Tonight, and in Europe, we see the breakdown of European fourth-quarter GDP and retail sales. Over in the US, the ADP employment report is due, alongside the non-manufacturing ISM survey and the Fed’s Beige Book.
Have a great day…
Adam Carr is a leading market economist.
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