European equities higher, US equities lower, Aussie dollar eases back at the hands of a weak euro/strong US dollar, Chinese big talk not helping commodity markets - ASX futures down 11 points

While Europe held up well on Friday night (thank you for your interest in the German Blue Chip Portfolio, email customerservice@rivkin.com.au if you have not yet received it), major US equity markets were down between 0.44% and 0.82%, with large caps hit the hardest. The Russell 2000 outperformed (down 0.36%) while the bigger end of the market was harder hit (Dow off 0.82%). Today's first chart shows the S&P 500 cash futures in percentage terms on a year-to-date basis (flat) versus the ASX 200, up 7.20% for the year so far. As discussed of late, a strong US dollar and fear of what higher interest rates might do to the United States' green-shoots economic recovery has been holding the markets there back. Australia has the benefit of a 2.25% cushion of official interest rates to play with, and while the current interbank cash rate curve is not showing a probability of a rate cut in April, it is showing a high likelihood of a 25 basis point cut in May. The Reserve Bank of Australia will release its March meeting minutes tomorrow at 11:30am so this might help give traders more clarity about what might happen in April - presently there is a 39% chance of a cut priced in for that meeting.

In today's second chart you can see that the Australian dollar (orange line) drifted lower into Saturday morning's FX market close; and despite highs of US$0.7730 on Thursday night, we're back in the US$0.7630 region now. The US dollar index (in black and now above 100) is like a steam train at present, pummelling anything that jumps in front of it. Much of this is due to European investors embracing the implementation of loose monetary policy there, with the EURUSD pair now at US$1.0485, where euro selling will naturally fuel the US dollar's strength.

I'm not sure that regional 'hope' will be enough to help China for the foreseeable future. It is becoming a challenging reality that, although it is growing from a much higher GDP base having quadrupled in the last decade, slowing growth in China is probably something that needs to keep happening. Their US$28 trillion in debt will begin to look even worse as its GDP growth falls (with most economists focused on its debt-to-GDP ratio of ~280%), and any expansion of that debt will only make these figures look worse also. So while the Chinese have come out and said that they have plenty of monetary and fiscal tools at their disposal to try and cling onto hopes of 7%+ GDP growth for 2015, should they use them if it means more debt? Rivkin continues to have very small exposure to commodity producers in Australia and while there will no doubt be a counter-cyclical inflection point for investors to target at some point, long resource positions are still a bit of a risky trade. We haven't come out of the blocks in 2015 with a new wave of commodity price optimism after such a dis-inflationary 2014, and one should not expect that to change and mean-revert. Let's wait and see if the data and price action can pick up before we take a good look at these Australian raw materials export sectors.

Today's last chart is for any trader who might like to take a relative value bet on India's equity markets outstripping China's - it shows the largest of China's (FXI) and India's (INDA) equity ETFs. If you'd like to implement a positive view on India relative to China, one could buy equal amounts of INDA and sell equal amounts of FXI simultaneously. 

For those with euro exposure, get used to this new calendar item - the ECB will announce its quantitative easing purchases at 1:45am tomorrow morning (Sydney time). This will accompany some volatility in the euro pairs to take care.

Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: Swiss retail sales out at 7:15pm, ECB QE purchases to be announced at 1:45am tomorrow, all Sydney time.

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