Global Markets Overview

Same market dilemmas remain

Friday night saw the US snap its run of flat to negative weeks, with the S&P registering its best week in four.

Better-than-expected manufacturing data from the East coast and jobless claims at four-month lows helped the market bounce up for the week, but close lower on Friday night.

Most have now shrugged off the comments from Janet Yellen's quantification of 'a considerable amount of time' as a mistake, and this has seen the VIX index register its largest drop since February - a loss of 16% over the week - as the Ukraine crisis subsided and the US recovery story continues to grow (it is still up for the year just shy of 10%).

The futures for the Asian session look mixed, with Japan playing catch up after a public holiday for Equinox day; however front month has been pushed forward to April and is based on Saturday's close before the conflict seen in Crimea.

China will again be the focus of trade today as the HSBC flash manufacturing data is released at 12.45pm AEDT. The concerns around China's growth are likely to remain over the coming weeks as the slowdown in orders over the winter months and Chinese Luna New Year filter out.

The growing concern around collateral stock piles is also likely to remain a market dilemma over the rest of March and into April, as questions still remain around defaults and cutting losses which could see market dumping. The iron ore price has stabilised at around US$110 a tonne, however Chinese domestic steel prices have continued to slide after a brief relief rally in mid-March after MySteel reported steel that demand at the back-end of February increased solidly as the summer months forward contract picks up.

However, prices have again contracted, seeing Chinese mills making a loss of approximately US$5 per tonne (CNY 30); this is likely to impact the iron ore price over the coming weeks. The fact that the HSBC flash data is expected to remain in contraction, meaning china hasn't seen expansion in 2014 (having seen January and February and now possibly March below the 50 mark) will only increase expectations of commodity price issues.

Interestingly, AUD has once more crossed the 91 cent handle after the mass strength in the USD dissipates. The HSBC read could see the handle lost on the initial read before recovering. The AUD has been rather resilient of late around commodity-sensitive macro data. Currency traders continue to concentrate on central bank differentials rather than future material impacts, and with the RBA on hike watch the AUD is likely to hold at this level for the foreseeable future. The China story will rebound, after having seen measures last week that are likely to increase demand for materials with which the central government will look to offset the slowdown in industrial output by bringing forward infrastructure projects, which is AUD positive.

Ahead of the Australian open

We are currently calling the market down 32 points on the 10am bell (AEDT) to 5304; this fall could be based on fears that Eurasia might flare once more after reported conflict on the weekend and fund managers looking to position for the end of the month and the quarter. On current projections, Q1 will be a loss making quarter and this may see managers making that so.

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