Global Markets Overview – July 22, 2014

Politics hits market confidence

Global macro concerns outweighed further bottom-up strength from US earnings overnight, as the Gaza-Israel conflict raged on and the squeeze on Russia politically saw its index take a further pounding.

The Russian market has now logged its sixth consecutive contraction and is suffering particularly from traders and investors dumping exchange traded funds with Russian exposure. The likely outcome from the Ukrainian crisis is that the politicians will act to pressure Russia to de-escalate the situation through economic sanctions, on current movements. The market is pre-empting these expectations making the current situation all the more painful for investors in Russia, with funds draining from the region.

This trading pattern is unlikely to slow over the coming weeks as the push-pull factors from the political negotiations add uncertainly to trading and the Russian ruble; bonds and equities are unlikely to find support in the interim and are likely to contract even further.

Moving back to Asia, politics will also dominate this region with Indonesia expected to announce its election results today. There is growing unrest in the country as both candidates have been unwilling to concede defeat, and considering the passion Indonesian has for politics, outgoing president Yudhoyono has had to put additional police forces on standby if the situation escalates and slips into the streets.

The unofficial poll has Jakarta Governor Joko Widodo (also known as Jokowi) ahead after securing 52.9% of vote; his appointment will be a milestone for the nation as he would be the first President without links to the Suharto era.

The JSE Composite and the rupiah were bid up in yesterday's trade on speculation that the results will fall Jokowi's way. The market is hoping for a smooth transition as is outgoing President Yudhoyono, who will look to instil calm if needed. However, considering Indonesia is currently experiencing its slowest growth rate since 2009, any tensions that spill over could see further weakening and may unwind the last 16 years of growth in the country.

Ahead of the Australian open

The AUD will be glued to every word from Glenn Stevens today as he addresses the Anika Foundation in Sydney at 1:00pm AEST. Compounding the intrigue is that the name of the speech has not been released. Keep this in mind considering his previous address in Hobart to the Economic Society of Australasia caught the markets unaware when he suggested the RBA is ready to act if the AUD remains elevated; that it is watching the non-mining space; and the fact it continues to lag expectations while also expressing concern around wage growth.

This jawboning that isn't 'jawboning' (according to Governor Stevens) is what the market will be watching for; further signs the RBA Governor is moving back to its easing stance will lead to similar AUD weakness seen on July 3.

We are currently calling the ASX 200 up a solitary point to 5541; however yesterday reiterated the strength of the resistance level on the ASX. Although the local market had a six-year closing high, the extremely light volumes meant price action was indirect. We see the bearish signal developing at 5540 to 5545 as a zone the bears will defend with vigour, and considering the tone of trade overnight the market is likely to see red screen trading.

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