Global Markets Overview – August 29, 2014

Equities retreated as geopolitical risk reared its ugly head yet again. News that Ukraine-Russia tension is flaring up again sharply spooked investors, with reports suggesting Russia has even more troops in separatist territory. These reports were backed by NATO images and President Obama has since warned of more sanctions against Russia.

Predictably, price action favoured safe haven plays while risk was on the back foot. European markets unwound after having enjoyed a solid week with peripheral yields rebounding. Flows favoured treasuries, bunds, the yen and gold.

Meanwhile, US economic data continued to show some positive signs with GDP, unemployment claims and pending home sales readings all fairly robust. All up though, moves in US equities weren't actually bad, with only mild weakness compared to European peers. In fact, we have seen US futures recover post market and this has seen a tick higher in opening calls for Asian markets.

Raft of releases from Japan

Looking ahead to Asian trade, Japan will be the main point of focus, with a raft of economic releases due out. We'll get the latest reads on inflation, employment, industrial production, retail sales and housing starts. Any signs the BoJ is drifting away from its goals will most likely ignite calls for further stimulus. Inflation will be especially vulnerable once the impact of the sales tax hike wears off.

Japanese equities are firmly back in focus after BoJ Governor Haruhiko Kuroda made some fairly dovish comments at Jackson Hole over the weekend. BoJ Governor Kuroda said they may have to pursue aggressive easing policy for some time and still feels the 2% inflation target is achievable. The important takeaway here is that this shuts down the sceptics who were beginning to feel the BoJ has done all it could.

The negative at play for Japanese equities at the moment is the fact safe haven flows favouring the yen might put on pressure as geopolitical risk escalates. USD/JPY is back below 104, but is likely to come across some support in the 103.50 region. We are currently calling the Nikkei down 0.3% at the open to 15,428. I wouldn't be surprised to see investors looking to buy the dips.

Earnings wrapping up

Ahead of the local market open we are calling the ASX 200 up just four points to 5628. Today will be the last day of the earnings season with Woolworths, Harvey Norman, Transfield and Virgin Australia some of the key names to look out for.

Qantas grabbed headlines yesterday and is likely to remain in focus over coming days as analysts digest the results. The stock traded at its highest since June yesterday, and if it breaks June highs at $1.41, it'll be trading at its highest level since October last year. Materials plays will also remain in focus after another loss for iron ore, now trading down at 87.3. This will set the alarm bells ringing, particularly for iron ore names like ARI, MGX, AGO, GBG and GRR, whose breakeven levels are fairly high (above 80). Gold plays might enjoy some buying in the near term, as the precious metal recovers on the back of safe haven demand. Investors are likely to flock to the security of high yield plays and other defensive names today.

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