Caution prevails in global markets

Equities remain subdued with investors digesting the impact of the resurgence in oil prices, firmer US data and some fed commentary. 

Source: Bloomberg

The conflict in Yemen saw equities on the backfoot in Asia yesterday and should this escalate into a deeper regional conflict, then the risk-off trade is only likely to ramp up. On the data front we had unemployment claims in the US, while James Bullard called for the Fed to start normalising now.

All eyes will be on Fed chair Janet Yellen today as she speaks on ‘The New Normal for Monetary Policy’. We have already started to see a risk-off tone in the FX space with the AUD and EUR losing ground to the greenback after a couple of weeks of resilience. This has benefited safe haven plays such as the yen as USD/JPY slipped to a low of 118.33, its lowest since February 20. This move will also be negative for the Nikkei today, which we are currently calling down around 0.7% at the open. Around 111 points worth of dividends comes out of the Nikkei today, which will put a dent in the index. It’s a big day for Japan today with a raft of releases set to hit the wires including household spending, CPI, unemployment rate and retail sales.

China industrial profits in focus

At the same time out of China we have industrial profits data tomorrow, which is likely to show a further decline. This makes for an exciting finish to the week for the region considering how quiet the middle part of the week has been for us.

The data out of China will have a fairly significant bearing on the AUD today and could see yesterday’s losses extended. The industrial profits data is due out at 12.30 and given we haven’t had a print for a couple of months, there will be quite some attention on this reading. While many would expect disappointing China data to drive stimulus expectations and in turn spur risk, there are plenty of questions around how effective China stimulus is on the economy these days. AUD/USD is retesting 0.7800 and traders will be eyeing fresh shorting opportunities on a break below that level.

Gold extends rally

Ahead of the open we are calling the ASX 200 mildly higher at 5897. While crude spiked in Asia yesterday, it hasn’t really added on to its gains since then. Regardless, I expect to see some speculation in energy plays helping to prop up price action in the energy sector.

Gold has continued its rally and this also leaves gold plays in a good position heading into the weekend. Northern Star might be an exception as it goes ex-div today. Apart from that there isn’t much on the company news front and I suspect it’ll be a risk tone driven market. The positive for the local market is that yield plays are likely to find buyers at lower levels.

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