Geopolitical turmoil will be the main driver of financial markets this week, with the Reserve Bank of Australia’s board minutes on Tuesday the only notable event on the economic calendar.
Traders are bracing for a risk-off theme to sweep through equities and bonds, after the US navy moved within striking distance of North Korea on Monday, following a failed ballistic missile launch on Sunday.
Traders are bracing for a risk-off theme to sweep through equities and bonds, as the US navy moved within striking distance of North Korea on Monday. Photo: Jim Rice
While Australia’s stockmarket was closed on Easter Monday, along with Hong Kong, New Zealand and a large portion of Europe, shares around the Asian region were mixed, despite positive data showing China’s economy accelerated for the second straight month.
China’s gross domestic product increased 6.9 per cent in the first quarter from a year earlier, topping economists’ expectations for growth of 6.8 per cent. Retail sales and industrial output increased in March.
Japan’s Topix index was little changed, trimming earlier declines, while the Shanghai Composite Index was down 0.7 per cent on Monday afternoon, paring an earlier loss of 1.1 per cent.
The prevailing geopolitical concern has seen safe-haven plays such as gold and the Japanese yen move significantly higher, while US Treasuries extended last week’s flight to quality.
“With all the military adventurism in play, those insidious wartime market correlations take force as the risk-off theme grips markets,” said Stephen Innes, senior trader at OANDA.
“To what extent the markets need to price in geopolitical risk more actively into their psyche will likely drive nearer term sentiment. There’s no question the world has become a more sensitive and scarier place in the last fortnight.”
Narrowing in polling in the French election was also fuelling a fearful mood in markets.
So far this year, gold has risen about 12 per cent.
Investors are also looking to US earnings season this week for clues as to the health of the US economy, with Bank of America, Goldman Sachs, Netflix set to report.
Currency traders are still reeling from US President Donald Trump’s jawboning of the US dollar during a media interview last week, which sent the greenback tumbling against the Australian dollar. The global uncertainty also sent the greenback falling to a fresh five-month low against the Japanese yen on Monday.
However, analysts argue it is unlikely the US dollar will stay depressed for long, with strong positive signals emerging from the US labour market, a pick-up in inflation and the hefty size of the US balance sheet.
The Aussie dollar may find further support this week, with traders remaining buoyed by last week’s extremely positive jobs print. However, given there is little economic data out this week to prompt significant movement, it is likely to remain hostage to commodity prices and global equity market sentiment.
Crude oil futures fell slightly in quiet trading on Monday as investors digested a third consecutive weekly gain. Iron ore, Australia’s largest export, was fetching $US68.68 a tonne, after officially falling into a bear market this month.
A slew of analysts, Australia’s government, and even some mining companies have said the recent gains in iron ore are unsustainable amid rising supply.
The Reserve Bank minutes are released on Tuesday morning, with analysts expecting the bank to focus on household debt and the housing market after it decided to keep the key cash rate at 1.5 per cent last month.