Global Markets Overview – September 12, 2014

Global equities seem to be in a holding pattern as we head into next week's FOMC meeting. Additionally resurfacing geopolitical risk from the Russia front seems to be keeping investors cautious. Perhaps the most significant development in overnight trade was further EU sanctions on Russia. The latest round of sanctions included moves like banning major Russian state-owned banks from any borrowing among other financial-related limitations.

Russia is now reportedly compiling a retaliatory package, which is likely to be released soon. This resulted in a spike in Russian bond yields, while equities and the ruble took a hit. Meanwhile, peripheral bond yields also continued to rise despite Mario Draghi reinforcing his commitment to stimulus. Perhaps a bright spot was the fact US equities managed to recover from the lows, but I doubt this will necessarily encourage investors in Asia. On the data front, US unemployment claims for last week disappointed, but analysts feel this is perhaps not an issue due to the Labor Day holiday impact.

AUD drops despite jobs surge

While the euro and pound stabilised, the local currency continued to be out of favour in a move that commenced in Asian trade. AUD/USD dipped below 0.9100 and while it has reclaimed this level, it still looks quite vulnerable to further selling. It was a case of data being 'too good to be true' when it came to yesterday's jobs numbers. As a result, the 121,000 jobs added ended up proving to be a negative for the AUD.

The interesting bit is that should this data have been even modestly ahead of estimates, the local currency would have probably maintained its gains. Having seen a break of the multi-month range (at $0.9203), with the 200-day MA subsequently breached - whether the pair can close below $0.9200 will be key here. If it does, price action has the feel that the pair could trade in a new range of $0.9000 to $0.9200. Many analysts have questioned the reliability of the data, with economists suggesting assessing the data over a three to six month period and taking an average would probably be a better way of looking at it. For now though, it seems Australia will remain cautious around the jobs picture.

Flat start for the ASX 200

Ahead of the open we are calling the ASX 200 up 0.1% to 5554. Once again investors will continue to focus on the deteriorating picture in the commodities space and what it means for the materials plays. Quite a number of key mining names are trading at or near their 52-week lows at the moment and this is a real concern as key support levels are tested. Momentum traders will be looking to take advantage of this in the near term. Myer shares dropped significantly yesterday on the back of its full-year results. Analysts are now reacting to the results and Deutsche bank has downgraded the stock to hold, with further downgrades potentially on the way.

In the banking space, investors will keep an eye on NAB as the bank goes through some contingency planning on its UK assets' exposure to the Scottish referendum. There is a raft of economic data due out of China over the next couple of days which deserves some attention including new loans, money supply, industrial production, fixed asset investment and retail sales.

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