Global Markets Overview – 3/13/14

US equities managed to pare losses despite a lack of fresh catalysts to really drive sentiment either way. There was a continuation of similar themes from earlier in the week, with Ukraine uncertainty keeping investors at bay in Europe, while China concerns saw commodities remain subdued. A 0.2% decline in Europe's industrial production which was expected up 0.6% also weighed on commodities. However, copper managed to arrest its slide from yesterday.

Focus now switches to China's industrial production later today, which is expected to show a 9.5% rise. Any disappointment in this reading will only compound China fears and could be detrimental to risk heading into the end of the week.

While overnight activity was relatively quiet, Asia has got off to a busy start, with the RBNZ announcing a 25 basis-point rate hike to 2.75%. Not only did the RBNZ raise rates, it also said it expects rates to rise by around 2% over the next couple of years. Over the next year it expects rates to go up by 125 basis points, while the market was looking for a 111 basis-point hike. This was slightly more hawkish than what the market was expecting and therefore resulted in quite a move in the NZD. In the developed world, the RBNZ is the first central bank to hike and this is its first change in rates since March 2011.

Diverging AUD and NZD fundamentals

Given the increasingly diverging fundamentals between the AUD and NZD at the moment, AUD/NZD is one pair I've been watching closely today. AUD/NZD dropped from a high of around 1.065 all the way down to 1.054 on the announcement and remains vulnerable. This was the pair's lowest level since January 25. The low from January was 1.0492 and if jobs numbers disappoint today we could very well be headed there in the near term. This level also happens to be the lowest for the pair since December 2005. While the RBNZ decision is out of the way, we still have local jobs numbers to look out for today.

Local jobs numbers are due out at 11.30 AEDT and the market is expecting unemployment to remain steady at 6% with 15,300 jobs added. As usual there will be more emphasis on the breakdown between full time and part time employment. The recent trend in the jobs numbers has been extremely bearish and we recently heard from the RBA saying it expects unemployment to tick higher heading into the middle of the year. Apart from China industrial production we also have fixed asset investment and retail sales data.

Flat start for ASX 200

Ahead of the open we are calling the ASX 200 down just four points at 5380. Once again there will be significant focus on resource names, with quite a bit of activity on the China economic calendar contributing some volatility. Copper and iron ore both stabilised, while gold pushed towards a 24-week high. As a result today might see some bargain hunting in the resource space being the dominant theme.

Atlas iron might be a prime target for bargain hunters after it said the breakeven point for iron ore prices on its operations is $70 to $80 per tonne. The stock is still trading below $1. Lend Lease and Crown shares will remain in focus after the fire at Barangaroo. LLC shares dropped significantly yesterday and some investors might feel this move was overdone.

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