Threat of war still hitting worldwide markets

Share Markets:

Risk aversion stepped up overnight as tensions in Ukraine intensified. Disappointing economic data yesterday from China also added to recent concerns about China's growth outlook.

Meanwhile, it appears that US economic data is taking a backseat possibly due to the weather disruptions that have been temporarily impacting the data. The S&P500 dropped 1.2% and the Dow fell 1.4%. 

Bonds:

The concerns over tensions in Ukraine and growth concerns over China saw US treasuries rise (yields fall), although yields lifted temporarily on stronger-than-expected retail sales and jobs data overnight.

Yields on Australian 3 and 10-year bonds (implied by futures) also fell, dropping to 2.92% and 4.02% respectively.

Foreign Exchange: 

The US dollar index was little changed, although the US dollar came under pressure against the euro.

ECB president Draghi hinted that monetary policy would remain loose, which would put downward pressure on the euro.

The Australian dollar jumped on the strong domestic jobs report yesterday, and touched above US$0.91.

It gave up some of those gains after disappointing Chinese data and weaker risk sentiment overnight, but it continues to sit above US$0.90.

While the AUD is probably close to the "uncomfortable" range for the RBA, the "jawboning" or "talking down" the Aussie from the central bank has been limited. Recent commentary is suggesting that the central bank is becoming increasingly encouraged by the gradual improvement in domestic economic activity.

Commodities:

Copper prices came under further pressure as weaker-than-expected Chinese data yesterday added to concerns about the Chinese growth outlook. Supply concerns however, saw US oil prices slightly higher.

Gold prices rose to a six-month high on weaker risk appetite. Among other commodity prices, iron ore prices have edged up from 17-month low.

Australia:

Total jobs surged 47.3k in February.

Additionally, full-time jobs jumped 80.5k in February, the largest monthly gain since August 1991.

The monthly gain and upward revisions to past data suggests that the labour market is not as weak as what we previously thought.

However, the unemployment rate was unchanged at a decade high of 6.0% and reflects the moderate pace of job growth when looking through monthly volatility.

Leading indicators of jobs and a gradual pickup in activity provide signs that the labour market will see some gradual improvement this year.

However, we think it will take some months before job gains are significant enough to see the unemployment rate stabilise.

We continue to see a risk that the unemployment rate will edge higher.

China:

Economic data over January and February disappointed consensus forecasts.

Retail sales rose 11.8% in the year to February. Meanwhile, industrial production lifted 8.6% in the year to February.

While both results fell below consensus estimates, there could remain some noise around the Chinese lunar New Year holiday.

Nonetheless, a recent corporate bond default in China highlights the downside risks arising from China's shadow banking sector and surge in credit growth.

The risk of further defaults remains.  

Japan:

Machine orders jumped 13.4% in January, largely reversing a 15.7% decline in the previous month.

The jump is supporting the view that capital spending is improving, and follows an upgraded assessment of capital expenditure by the Bank of Japan (BoJ) last week.

United Kingdom:

UK house prices were reported to be higher by 45% of respondents in February, down from the record 58% seen in November last year.

United States:

US retail sales rose 0.3% in February.

February's result slightly beat consensus expectations for a 0.2% rise, but data for both January and December were revised 0.2 percentage points lower to -0.6% and 0.3% respectively.

There remain some impact by the weather disruptions, and it will be some time before retail sales data are weather-impact free.

Early March saw some disruption and deferred/delayed spending could boost upcoming figures for several months, making underlying trends harder to discern.

US initial jobless claims unexpectedly fell 9k to 315k in the week ended 8 March. There were no special factors or distortions noted.


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