Global Markets Overview – 3/19/14

Market moves little as Russia remains defiant

As expected, the Russian Federation will look to absorb Crimea and for it to be fully integrated as early as January 1 2015. Celebrations in Red Square kicked off on the announcement from President Putin that the referendum from the weekend was evidence enough that Crimea 'wants to be run by a stable sovereignty, and that is Russia.'

The interesting development from his speech that actually grabbed the market's attention was that Russia isn't seeking to split Ukraine; economic trade with Ukraine will continue as normal, with gas to continue to freely flow to Ukraine and Western Europe. However, at the same time President Putin reminded the world that Russia reserves the right to 'protect Russian speakers' in eastern Ukraine and has not ruled out possible intervention.

Momentum heightened on this line from his address: 'Don't believe others that say Russia wants other regions beside Crimea, we don't need that.' That is the first real sign that the tensions in Ukraine are starting to subside, which saw the Micex up a further 4.1%, making the last 48 hours the best up moves in Russia for four years as the ruble remained robust. Gold continued to reverse its six-week rally by losing a further 0.9% as the EUR moved higher still.

The softly, softly approach from the EU on Russia suggests that major sanctions are, in the interim, unlikely and the market is giving risk the benefit of the doubt. This dulling down of the situation has seen the market's attention move away from Eurasia and back to the US as the FOMC approaches.

The FOMC

This will be Janet Yellen's first real test of leadership as it is expected that the economic projections announcements are likely to see language alterations. The unemployment threshold of 6.5% is likely to be altered to reflect the FOMC's desire to keep the Fed funds rates below 0.25% well into 2015; this means language changes and further communication that the rate is a guide not a threshold.

What will also get a lot of attention is the winter that the US has just suffered. Some commentators are looking for evidence of recognition from the FOMC that the winter has altered their guidance on the economic recovery - as tapering has been explicitly based on data. However, we believe the winter is unlikely to sway its thinking and the current timeline for the unwind of monetary stimulus will remain.

Ahead of the Australian open

Asia is likely to follow the leads once more today as US markets show a clear bounce of recent lows and could be heading back to record highs.

We are currently calling the market up 16 points on the 10am bell (AEDT) to 5363; what might give some pause to the rally in material plays are the further moves in the AUD. The RBA minutes showed that lending is becoming a concern and that although wage growth has been subdued, it reflects current trends.

We could see further signs of neutral stance and the minutes could even be seen as a touch hawkish in some areas, the AUD's move to 91cents remains a constraint.

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