Market Drivers for March 04, 2014- Risk rallies as Putin recalls Russian troops to barracks
- RBA keeps rates unchanged notes strong AUD
- Nikkei 0.47% Europe 1.47%
- Oil $103/bbl
- Gold $1338/oz.
Europe and Asia
AUD: Building Approvals 6.8% vs. 0.7%
AUD: RBA no change
GBP: Construction PMI 62.3 vs. 63.6
EUR: PPI -0.3% vs. -0.1%
North America
USD: Economic Optimism 10:00 AM
Currency markets breathed a small sigh of relief as risk sentiment improved throughout the night after Russia recalled its troops to barracks at the conclusion of its war games. Currencies popped in reaction to the news, seeing it as a sign of de-escalation of hostilities. There was speculation that Vladimir Putin would hold a press conference today, but so far the Russian leader has not made any public comments on the recent moves.
Despite some small signs of easing of tensions, Russian troops continue to surround Ukranian military bases in the Crimea and Ukrainians have so far refused to surrender their weapons or positions. The standoff therefore remains in place and the prospect of an errant shootout that could lead to a skirmish is still quite high, making the situation in Crimea extremely combustible.
Still, despite continuing tensions on both sides, the situation in Crimea appears to have been stabilized and suggests that as in past conflicts such as those in Georgia and Ossetia, Russia will only seek limited advantage and will not expand its military campaign beyond the current scope of operations. If that were the case, markets would likely begin to ignore the situation in Ukraine and re-focus their attention back to economic data.
On that front, the calendar today as been relatively quiet so far, though in Australia the RBA reaffirmed it neutral stance while at the same time making yet another reference to the strong Australian dollar. The Aussie quickly dipped towards the .8900 figure in a knee-jerk reaction to the rhetoric from the RBA, but then quickly rebounded and rose to a high of .8970 as traders saw little chance of the RBA changing policy anytime soon.
One key reason for the RBA's relative hawkishness is the fact that the Australian housing market remains strong and any further rate cuts would only stoke demand in the sector. Today's much-better-than-expected Building Approvals data, which rose 6.8% versus 0.7% eyed, suggests that the RBA's hands are tied for now. The Aussie therefore is likely to channel between .8800-.9000 for the time being.
Elsewhere, cable sold off mildly in reaction to the slightly weaker UK PMI Construction data which came in at 62.6 versus 63.6 forecast, but the drop may have been caused by tough weather conditions and the reading still remains near recent highs. The more interesting potential market mover will be tomorrow's PMI Services report which is expected to print just slightly lower than the month prior. If the services report remains near the current levels, cable could stage another rally attempt at yearly highs, as the market will become even more convinced that the BoE will be the first G-7 central bank to hike rates.
In Europe the PPI data continued to signal deflationary trends, coming in at -0.3% versus -0.1% eyed. The market however ignored the news as traders are convinced that the ECB will not move rates at this meeting and will view the decline in price levels as temporary and transitional. For now, the EUR/USD is solely focused on the geopolitical risks and as long as the situation in Ukraine does not escalate, the pair could see further a rally as the day proceeds.