Global Markets Overview – 2/27/14

It was once again another choppy session for US equities, with early gains fading towards the end of the session. Geopolitical concerns also resurfaced on the Ukraine front, and this, along with some encouraging US economic data helped underpin the greenback. New home sales data came in much better than expected at 468,000 (+9.6%) versus an anticipated 406,000. AUD/USD extended its losses after having recovered significant ground following yesterday's sharp sell-off. The pair is back below 0.90 with USD strength weighing. Once again the bottom-end of the range in the 0.894 region was tested and the pair managed to find support straight away.

Today brings the all-important private capital expenditure data at 11.30 AEDT, which feeds into GDP expectations. The headline 4Q capital expenditure data is expected down 1.3%. Many will question the reliability of this read, as naturally it will be revised a number of times; however any reading here needs to be measured against the 2013 to 2014 read of $152 billion. Any number below $137 billion should cause a reasonable weakening of the AUD, as the market is priced for a 10% decline here.

On the other side of the scale a number above $145 billion should see a rally materialise in AUD, given this is half of what is expected. Given AUD/USD has been just oscillating around 0.90 and holding a range, this reading could be what sees us finally break out of this range. This will be followed up by private sector credit numbers tomorrow. Private sector credit for January is expected up 0.5% on-month and higher by 4.1% on-year.

China and Japan in for mild weakness

Elsewhere in the region, Japan and China will be interesting to watch as they've experienced some volatility this week and helped shape sentiment for the region. USD/JPY stormed back overnight in a move driven primarily by USD strength. We are calling the Nikkei mildly weaker today at 14,900, but given we are heading to a couple of days of crucial data for the USD and JPY then we might see some positioning. Today we have weekly fund flows data which will then be followed by the all-important CPI print tomorrow among a raft of other releases. A number of Fed members will also be speaking including Pianalto, Fisher, Lockhart, George and of course Janet Yellen's second testimony. On the China front, we will continue to monitor currency moves and any liquidity/lending issues.

Qantas earnings take centre stage

Ahead of the local market open, we are calling the ASX 200 down 0.2% to 5429. The weakness in the commodities space, particularly iron ore will remain a significant concern. Iron ore dropped another 1.1% to 117.80 and as long as it is below 120 it will be a concern for the big miners. Gold also retreated from its 17-week high with the resurgence of the USD weighing on most commodities.

BHP's ADR is currently pointing down 0.2% to 38.49 and we would expect to see similar falls for the rest of the iron ore space. Meanwhile mining services companies and other industrials will be in focus on the back of the private capex numbers. While there are a number of companies reporting earnings today including Northern Star, Medusa Mining and Independence Group, focus is likely to be on Qantas' first-half earnings. There has been plenty of speculation around the airline's plans and various scenarios of what sort of government assistance it might receive. Many will be looking for clarity on the stock today. I would expect to see some volatility in Qantas today. Since its low on December 10 (95 cents), QAN shares are up 40%.

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