Global Markets Overview

Eastern Europe stealing the headlines

Thursday saw the ASX make another near six year intra-day and closing high, as trading in the blue chips continued to push the market to levels not seen since mid-2008.

With three of the remaining big four banks due to report to the market over the coming two weeks, yield hunters are looking to scrape every cent that can be found. Both WBC and ANZ made record highs on Thursday; however the forecasted yields are not what you would call 'chunky', so maybe the euphoric trade is due to WBC's east coast housing exposure and the earnings prospect it will bring, plus ANZ's healthy net interest margin and growing earnings in Asia - both will print record all-time profit numbers come reporting.

However, bottom-up views will be pushed to one side this morning, particularly here in Australia as we have a full trading day to catch up on.

The Ukrainian tensions are once again mounting and the word coming from Capitol Hill and also Europe is that sanctions on Russian officials will be harder, more direct and onerous on President Putin's inner circle; this will disrupt normal trading conditions.

Gold bugs will be getting excited once more having seen a 9% decline in gold since the annexation of Crimea. However, at the close of the week ending April 22, gold saw net-long positions increasing for the first time since the crisis started and is yet to fully trade on the tensions from the weekend as international observers were taken hostage by pro-Russian rebels. Gold is likely to head back towards US$1320 an ounce over the coming days, as the tensions reach a reaction point.

Geo-political tensions are already playing havoc with European exchanges as the DAX and CAC tumbled on the news out of Ukraine. The European rout translated across the Atlantic into US trade, which saw the DOW and the S&P lose 0.8% or more at the close of Wall Street on Friday.

This will mean that Asia is starting the week on the back foot, and considering most Australian investors have taken the last two weeks off, having opened set-and-forget positions, profit lock-in is also likely to figure in today's trade.

Japan's inflation acceleration?

What is also building in the Asian region are Japanese inflation issues. Headline reads would suggest Tokyo inflation for April had its largest rise in 22 years as the data jumped to 2.7% year-on-year as it is the first month to include the new 300 basis point tax increase. However, the BOJ estimates the tax would have added 170 basis points to the data - strip that out and inflation in Tokyo has remained at 1%. Nomura estimates that the rush for durable goods pre the tax hike is already falling and is going to be a further headache for the BOJ.

What does this mean for flows and BOJ policy? With all core CPI data in Japan making the same year-on-year increases over the past four months, and with the same conclusion to be drawn from the Tokyo data, the positive impact of the falling yen over the past year is definitely starting to diminish.

This is likely to have neutral movements the BOJ in the short term, as it is likely CPI will peak in May as the new tax filters through. However, post the May read, a significant fall away in the CPI read may wake the BOJ once more.

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