Global Markets Overview - 3/26/14

Global confidence gets a further nudge

The bets are growing that further stimulus measures across Europe and China will be introduced over the coming months, as both the ECB and the PBoC look to give confidence and economic growth a further nudge.

European markets reversed yesterday's losses as ECB President Mario Draghi stated, "As policies to reverse fragmentation accelerate and bank deleveraging and restructuring proceeds, monetary policy should become increasingly effective."

"I expect monetary policy to regain influence over the economic cycle, and our accommodative stance to support a gradual closing of the output gap in the coming years."

This is a clear sign that the ECB will continue to hold its finger over the rates button and it certainly doesn't rule out the prospect of negative real rates. The bank is looking to find a way to chase out funds locked up in wealth products that will then be redirected to areas of the economy that are looking for growth funding. There is also a possibility that the ECB could buy corporate and government bonds from private banks to continue the de-risking process in the eurozone in a further boost to confidence.

The statements did see the EUR finally contracting after a three-day rally, but remains a headache for the ECB. Anything above $1.37 starts to make the zone uncompetitive and increases the political pressure on domestic countries; at 1.38 it is still too high.

Spain, France and Italy have all publicly complained about the EUR at this level in the past three years, and with Spain and Italy still struggling under the pressure of high unemployment, it is understandable why stimulus expectations are growing and why Mario Draghi is likely to continue with his mantra of 'whatever it takes'.

Bets that China will look to stimulate are also growing and this is clear from the bullish reversal seen in copper, as both LME and CME saw 2% gains for the industrial metal. As the largest consumer of the metal, the bullish bets suggest that infrastructure and other similar projects are likely to ramp up over the year, and this has also been seen in the project announcement last week. The moves seen in iron ore futures yesterday back this call, which was its largest intraday move on record jumping 3.98% from the Monday close; the previous best was 2.3%. This has translated into spot prices which have moved to a 10-day high of US$111.80 a tonne.

Ahead of the Australian open

We are currently calling the market up 21 points on the 10am bell (AEDT) to 5357. Yesterday was the fourth test of the 5310 support level. Each time it has held and this shows that the buying pressure is well bid and that the bulls take control at this level. This is a very good sign of market strength and despite the issues around the China story and the fact that the AUD is now at four-month highs.

The AUD will be the talk of the town heading into Glenn Stevens address at the Asian Investment Conference in Hong Kong.

If there is no clear sign he will jawbone the currency lower, the technical trader will continue to bid it up; the channel looks to be holding firm

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