Flight to safety sends yen and gold higher

Yen strength has been the dominant theme in Asia as risk aversion accelerates heading into the weekend.

The yen and gold have been the destinations of choice ahead of a very uncertain weekend on the Russia/Ukraine front. Russia has continued to increase its military presence near the Ukraine border heading into this weekend’s referendum. The massing of troops has continued despite some stern warnings from the west. The US and Germany have issued an ultimatum for Russia to implement harder sanctions should its current pursuit continue.

This tension has kept investors on the sidelines and resulted in sharp drops in equities throughout Asia. The Nikkei is the hardest hit with a drop of over 2% after USD/JPY dropped to 101.54. Just to put it into perspective, the pair was trading towards 104 earlier in the week when Ukraine fears were significantly downgraded.

The BoJ minutes from the February meeting were released this morning and January industrial production figures are due out. Given there were no major changes from the meeting, the minutes haven’t really brought any surprises. The highlight was that members feel the economy and prices are travelling in-line with their forecasts and that the sales tax hike will not derail the economic recovery.

Gold remains at six-month highs in Asia with traders happy to stay long heading into the weekend and should we not get a favourable solution from Russia/Ukraine tension could continue to edge towards 1400.

Europe in for some weakness

Looking ahead to European trade, we are calling the major bourses weaker as they respond to soft trading through US and Asian trade. While data out of Europe is quite limited, ECB president Mario Draghi’s comments on the euro will continue to impact trade. Draghi talked up preparing unconventional monetary policy measures to guard against deflation while euro gains were flagged as increasingly relevant to price stability. However, Russia is more likely to dominate headlines in today’s European session.

The recovery in US data continues to allude to the fact that recent weakness was indeed a seasonal issue. The nice bounce, particularly in unemployment claims, reflects a nice bounce in the jobs market through March could be on the cards. Despite the recovery we’ve been seeing in US economic data, the greenback has remained quite subdued with the US dollar index still trading below 80. This is probably an ideal situation for the Fed as tapering is on course while the USD remains subdued enough to aid inflation.

Resources put the ASX on course for a hefty weekly loss

It’s a sea of red for the Australian market, with resource names continuing to be the worst hit. Even the fact that iron ore and copper have arrested their slide hasn’t been enough to turn the tide. The reality is with China continuing to pump out disappointing economic readings along with heightened fears of corporate bond defaults then it’ll be a while before confidence comes back into the market.

Cyclical names were already going to be on the back foot due to Ukraine concerns but China data just exacerbated the situation. Even gold miners are struggling despite the precious metals remaining at a 24-week high. The ASX 200 is set to finish the week well over 2% lower with miners logging an absolute shocker for the week.

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