Scoreboard: Ukraine watch

Markets will be keeping a close eye on Russia this week as troops amass along Ukraine’s border.

Equity markets did little on Friday night with moves on either side of the Atlantic generally small. There was little macro dataflow to guide sentiment; most of the focus was on a number of Fed speakers, who spent their time trying to moderate and correct for Fed Chair Janet Yellen’s communication errors.

The Fed, like the Bank of England, has announced that in effect it no longer has economic targets, having dropped the pseudo-targets they adopted some time ago once they looked like being met. This by itself is confusing enough for markets. Markets need guidance and the best guidance is a clear economic target -- like inflation targeting, for instance. Taking that guidance away just leaves a qualitative assessment, subject to the whim of the political process.

The Fed shouldn’t have been surprised that people may have been taken off guard then when Yellen dropped her bombshell, saying interest rates would rise around six months after the Fed's bond-buying program ends. Not very smart. The damage control from Fed speakers on Friday was that Yellen was just repeating current financial market expectations. Kind of like “Hey, what’s all the fuss?”. Again, this kind of commentary does nothing to instil confidence to the market or provide certainty.

Rates did ease in response to the commentary, though mildly. The US 10-year yield is down 2 bps to 2.74 per cent, the five-year is at 1.7 per cent and the two-year yield is at 0.42 per cent. Aussie futures were then up about 2 to 2.5 ticks on the threes and the tens, to 96.95 and 95.855 respectively.

Global equities were mixed as mentioned. In Europe, the majors managed to push higher in most cases, with the Dax up 0.5 per cent. the CaC 0.2 per cent higher and the FTSE100 0.2 per cent higher. Over on Wall Street, the S&P500 was down 0.3 per cent (1866), the Dow lost 28 points (16,302) and the Nasdaq was down almost 1 per cent (4276).

Forex markets saw the Australian dollar up 25 pips or so to 0.9090, the euro is 12 pips higher at 1.3798, while the British pound is off just over 20 pips to 1.6486.

Commodity markets were also mixed -- gold was up smalls $5.5 to $1336, silver then fell 0.6 per cent, while copper rose 0.8 per cent. In the crude space, WTI rose 0.6 per cent to $99.46, while Brent was up 0.9 per cent to $106.9.

Elsewhere, and in terms of data, there wasn’t really much. Concerns over Russia’s intentions towards Ukraine intensified over the weekend, as Russia apparently continued to build up forces on the Ukrainian border. The Ukraine is again talking of war, although Putin has stated publically that he has no intention of taking Ukrainian territory in the east of Ukraine, and that Crimea was the last of it. However the build-up of forces is leading many to question that. The US, unfortunately, has mishandled this from the start and now confusion reigns. Markets to date have taken the situation in their stride.

In markets this week, there is very little Australian data of note -- housing affordability on Thursday. Indeed the main macro focus will be comments and speeches from the governor and deputy governor of the Reserve Bank, on Tuesday and Wednesday.

Looking abroad, the major data out of the US includes housing data such as S&P Case Shiller’s house price series, and added to that is new home sales. The US also releases another estimate of fourth-quarter GDP, which is expected to be revised up to 2.7 per cent from 2.5 per cent. In addition to that, we see data like durable goods orders, consumer confidence, the Richmond Fed activity index, and personal spending and incomes figures.

Other than that it’s worth keeping an eye on HSBC’s flash Chinese manufacturing PMI today at 1245 AEDT. European PMIs are out tonight although the more important German IFO survey comes out Tuesday.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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