Even though this is only the 10th week of the year it is shaping up as potentially the most important for 2014 as the West squares off against the Russian bear of Vladimir Putin who seems to have staked his political reputation on dragging Ukraine back into Russia’s political orbit.
So with tensions rising in the Crimea, Russia and Ukraine the massive data flow this week makes for interesting trading conditions. Hopefully for the Ukrainians this doesn’t turn into a rerun of Georgia back in 2008.
The key for markets of course is that these tensions lead to uncertainty rising rise and already this morning the Aussie dollar is trading below 89 cents for the first time in a month on the rising tensions and also the continued fall in the Chinese Official PMI data which was released over the weekend printing 50.2. While this is still in expansion territory relative to the flash estimate of the HSBC PMI which was recently recently at 48.5 the trend is certainly for a weakening in Chinese data.
Looking back on the data from Friday US Q4 GDP printed 2.4% at the latest update as expected, Chicago PMI printed a stills strong 59.8 but pending home sales rose only 0.1%. But at the close US markets recovered from a plunge into the red with the Dow up 0.30% and the S&P 500 at 1859 for a gain of 5 points to a new closing all time high of 1859. The Nasdaq also recovered off its lows but couldn’t sneak into the black closing down 0.25%.
In Europe the FTSE was unchanged, the DAX gain of 1.08% would be expected to be unwound tonight given proximity to the Ukrainian hotspot and need for Europe to deal with Russia directly given it was the move toward Europe and then President Yanuschenko move back toward Russia which has caused the ructions. The CAC was up 0.26% while stocks in Milan and Madrid moved in opposite up 0.60% and down 0.49% respectively. It could be an ugly European trading day today.
Locally on the ASX the SPI 200 March futures contract was up 21 points but it would be fair to expect this to back off a bit in Asian trade today before it becomes clear what is going to happen tonight.
On global FX market this morning the US dollar is gaining on all currencies with the Euro trading at 1.3763 from a 1.3801 close Friday. Similarly Sterling has lost 20 points this morning to 1.6720 and USDJPY is at 101.37.
The Aussie is sitting at 0.8899 having made a low of 0.8888 so far this morning but it was already under pressure on Friday night closing lower on the day as tensions and concerns about China weigh. The RBA tomorrow and it’s statement will be watched closely by AUD traders as well.
I have been short Aussie for some time now on the basis of my view that there is a weakening in the global economy relative to expectations coming at the same time the Australian economy is facing real headwinds.
It hasn’t been the most comfortable position and it remains still somewhat tenuous given that clearly in a fundamental sense I have been missing something that has had the bulls enamored with the Aussie for some time as well.
We aren’t there yet as you can see from the Aussie chart above (blue line where Aussie is in pre-MT4 open – a break of the recent low at 0.8860 is needed to really pen up the downside. But now that it has broken below 89 cents the chances are increasing.
On commodity markets gold and oil are likely to gain this week which should reverse the weakness in gold we saw last week with a close of $1325 on Friday night and push Nymex crude toward $104 bbl from $102.76. Copper closed last week at $3.23 and is likely to remain pressured lower as global growth slows. On the Ags it was a universally positive day with wheat up 2.88%, corn up 2.12% while soybeans rose 1.49%.
On the data front it is a huge huge week and you can find our Trader Diary here. On the day however we get the TD Inflation data, AiG PMI, HIA Home Sales, ANZ Job Ads and then in the lead up to the GDP data this week we see the release of Q4 Company gross operating profits.
Offshore we get the next round of Markit PMI’s which kicks off with the HSBC Chinese PMI and then moves through Europe and the US. Also out tonight is UK credit data and US personal consumption.
Have a great day and good hunting.
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