Sentiment took another hit overnight, although there wasn’t too much in the way of real news or dataflow to cause it. Indeed data was light overall, but quite positive. Geopolitical tensions flared, fair to say, and that obviously would have weighed. The fact is though the protests by pro-Russians in Eastern Ukraine have been going on for weeks and aren’t that large -- a few hundred here or there according to reports. The difference this time is that Russian protesters were allowed to enter government buildings and of course make very public calls for a referendum or Russian assistance.
Instead, this latest deterioration in markets looks to be a tech stock event, on a view that valuations are stretched. We’ll find out soon as the US earnings season kicks off this week.
Equities were hit both side of the Atlantic, with the Nasdaq losing another 1.2 per cent overnight (4079), bringing losses over the last three days to 3.7 per cent -- the worst three-day performance since 2011. The S&P500 in turn was off 1.1 per cent (1845) with losses at 2.4 per cent for the last three sessions. The Dow is then off 166 points last night to 16,245. In Europe, the major indices were hit by tensions in Ukraine and the US tech slump. The Dax lost 1.9 per cent, the CaC fell 1.1 per cent and the FTSE100 was off 1.1 per cent. For Australia, the SPI suggests our market will lose 0.3 per cent.
Forex markets didn’t seem too perturbed by events in Ukraine, with the euro up 35 pips to 1.3742 on European Central Bank commentary stating that deflation risks were contained. Expectations have been rising that the ECB will engage QE, and they may yet -- certainly they are positioned for it -- however relaxed commentary on deflation suggests they may not actually go through with it. Meanwhile, the British pound rose by a similar amount, a little less perhaps, to 1.6607. The Australian dollar was off smalls to 0.9270 and the yen is at 103.09.
Rates saw more buying action at the margin, markets ignoring optimistic commentary from the St Louis Fed president. So US yields were down again overnight, although moves were small. On the 10-year note, yields were off about 1 bps to 2.698 per cent, while the 5-year was down 2 bps to 1.67 per cent. Aussie futures rose 2 ticks each to 96.98 and 95.925 respectively.
Commodities weakened in the main. Crude was down 0.6 per cent on Brent to $105.99, while WTI was down 0.4 per cent ($10.7). In the metals space, gold lost $6.4 to $1296, silver lost 0.3 per cent, while copper bucked the trend to put on another 0.6 per cent.
Elsewhere, German industrial production rose 0.4 per cent in February, following a 0.7 per cent rise the month prior. Annually, production is nearly 5 per cent higher. Then in the US, consumer credit surged again in February, up over $US16 billion after a $US14bn spike the month prior. Finally, the St Louis Fed President suggested he was optimistic on the US economy and expected it to rise 3 per cent this year. He suggested the recent lift in jobs growth was a good sign the economy was recovering after a weather-induced lull.
In markets today, the key release for Australia will be National Australia Bank’s business survey. Confidence looks to have recovered somewhat recently although current conditions are still reported as being fairly bad. There isn’t much else for our region, bar Japanese trade statistics. Tonight the key data includes UK industrial production and the NIESR estimate of UK GDP for March. For the US, we see job openings, the NFIB small business optimism index and two Fed speakers, Narayana Kocherlakota and Charles Plosser.
Have a great day…
Adam Carr is a leading market economist.
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