Global Markets Overview – 3/6/14

With the Russia/Ukraine threat significantly downgraded, risk sentiment has remained steady in global markets, with major asset classes relatively unchanged. Discussions are now taking place among leaders and while there is nothing concrete yet, it is encouraging to see them working on a solution together. News that Ukraine will receive around $3 billion in emergency aid from the EU also helped sentiment, particularly in the emerging markets complex.

Equities in the US mostly treaded water with some fairly mixed US data holding investors back from challenging record levels posted in the previous session. The ADP non-farm payrolls reading came in at 139,000; well short of the expected 159,000.

Non-manufacturing PMI was also well short of expectations at 51.6, while the Beige Book generally showed activity continues to expand and the outlook remains optimistic.

While the ADP reading disappointed, in recent months a better-than-expected reading actually resulted in the official payrolls reading disappointing. This could be a situation where the disappointing ADP reading could lead to a better-than-expected official reading on Friday. Having said that, expectations for Friday's reading are quite high with the market expecting a jump from 113,000 to 151,000. In fact many analysts have started downgrading their expectations for Friday's reading after the sharp decline in the employment component of the non-manufacturing index.

AUD/USD testing 0.90

After quite a bit of volatility in Asian trade yesterday, AUD/USD managed to recover and retest highs just shy of 0.90. The pair continues to hang around that level heading into Asian trade where we have local retail sales and trade balance numbers at 11.30 AEDT. Retail sales for February are expected to show a 0.5% rise along with a $0.1 billion surplus for Q4. Given most local releases this week have been quite positive, expectations will be high heading into today's data. While any beats on these releases could drive AUD/USD through the 0.90 level, China will continue to present significant challenges.

Yesterday concerns of a potential corporate bond default and rising short-term rates saw sentiment slump in China. This will be a key focus for investors today and could continue to unravel. It was also the first day of the National People's Congress which didn't deliver too many surprises, with most economic forecasts the same as last year. Any comments from there will be watched closely.

Flat start for the ASX 200

Ahead of the open we are calling the ASX 200 down 0.1% at 5,439. Just like other major global indices, not much change is expected at the open today.

Without any fresh catalysts to drive markets higher, investors are likely to remain on the sidelines with some mild profit-taking occurring. I expect to see a bit of a pullback in the resource space at the open, particularly iron ore names with BHP's ADR pointing 0.6% lower.

While gold was up a touch, I don't feel this will be enough to see gold names resume the monster gains we saw last week. There isn't much on the company news front but perhaps a scheduled ACCC ruling on BSL's potential acquisition of OneSteel's assets will get some attention. Qantas developments will remain in focus this week as negotiations continue to pave a future for the airline. There are also a number of stocks trading ex-div today including QBE, OSH and NST.

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