Risk aversion accelerates on China data

After having seen an improvement in sentiment yesterday, it seems we are back to square one with renewed China concerns and Ukraine tension ramping up. 

China data was releases post local trade and this set the tone for overnight trade. Industrial production slowed significantly at just +8.5%, which was well below consensus of +9.5%. Retail sales and fixed asset investment data also missed estimates and analysts feel the combined impact of these readings points to a high likelihood of a big GDP drop for Q1. Another school of thought suggests that the pollution fight has resulted in a lot of plant closures, which would ultimately weigh on data.

There was also some data out of the US with retail sales and unemployment claims both coming in ahead of expectations. This to an extent supported the US dollar against risk currencies. However, it was a different story against the yen as risk aversion ramped up and resulted in investors flocking to the safety of the yen. USD/JPY dropped from around 102.80 all the way down to 101.60. This sees the pair approaching March 3 lows which were printed when the situation initially kicked off. With Ukraine/Russia tension just not easing at all and heading into the referendum, fears the situation will escalate are keeping investors risk-averse. Yen strength will see Japan underperform the region at the open today. We are currently calling the Nikkei down a whopping 2.7% to 14,418.

Risk currencies drop against the greenback

Risk currencies mostly lost ground against the greenback indicating a clear shift in sentiment as we head into a crucial weekend for the Ukraine. The move in the euro was compounded by some fairly dovish comments by ECB president Mario Draghi. Draghi aired concerns about deflation again saying it is now more relevant, while euro gains were flagged as increasingly relevant to price stability.

ASX to drop sharply

Ahead of the local market open we are calling the ASX 200 down 1.1% to 5353. Today will be the first time investors get a chance to react to that disappointing China data and therefore this is hardly surprising. Risk aversion heading into the Crimea referendum will result in some positioning today. However, there is a possibility we’ll see some of the resource names come off their lows today, particularly after the gains for iron ore, oil and gold. Gold could be the commodity of choice heading into the weekend.

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