Global Markets Overview

Equities extended their losses overnight with sentiment remaining subdued as European concerns resurfaced. Peripheral bond yields spiked in Europe with investors going defensive and favouring German bunds. US 10-year treasuries rallied to 2.5% as investors continued to flee risk. The carnage in the small cap space also continued with the Russell index extending its losses to contractionary territory. Even a drop below 300,000 for the first time since mid-2007 in unemployment claims to 297,000 was not enough to underpin sentiment as the losses extended to US trade.

The Philly Fed manufacturing index and the Empire State manufacturing index also showed a good bounce in activity. Clearly the harsh wintry conditions in the US are a thing of the past now and the economy is ready to mount a recovery. With markets failing to shake off disappointing European GDP data, risk sentiment remains on the back foot. To add to the ECB's problems, Germany's GDP was the only one to exceed expectations, showing the increasing gap between the powerhouse and its counterparts. In theory, this makes any action by the ECB a bit more complicated to implement. This underpinned the yen as USD/JPY traded below 101.50 and looks like it is about to break major support. The Nikkei is pointing down 1.5% to 14,090 with revised industrial production the only noteworthy reading on the calendar.

Greenback in focus

The US dollar will remain in focus today on the back of Janet Yellen's speech at the US Chamber of Commerce and US Small Business Administration. Later today we have Fed member James Bullard speaking, along with some housing data set to be released. Given the recent improvement in economic data, Yellen sounded optimistic and reinforced that the economy has further to go to achieve a healthy status. We already know the Fed is happy to maintain an accommodative stance to keep the recovery on track. This would encourage small business investment and confidence. While the reaction was minimal, there was a slight pickup in the USD. AUD/USD has been incredibly resilient following the budget and will remain one to watch in coming weeks as the RBA reacts. The pair continues to find buyers on the dips and is defying the negative risk tone we've recently been experiencing. Interest in local bonds will remain key for the AUD in the near term.

Risk-off for local market

Ahead of the local market open, we are calling the ASX 200 down 0.4% at 5487. Looking at the moves from overnight trade, I suspect price action in today's trade will be largely risk-off. Commodities struggled and this negative sentiment is likely to extend to the resource names. Recent runs in nickel and copper names could be prime for shorts as traders take profits. The resilient AUD will not help the miner's cause either and will keep them on the back foot.

Once again banks will be key for the session, but given the fact most of them have already traded ex-div then interest might be limited in the near term until they return to more appealing levels. There isn't much on the company news front, but Santos' AGM might deserve some attention given its PNG LNG project is close to commencing sales.

[Kick off your trading day with our newsletter]