Sense of Doubt is an instrumental track from his Heroe album, pretty weird to say the least including the video which shows Bowie performing mime.  Nevertheless the song title does help illustrate the market’s mood overnight,  mild risk off tone reflecting a bit uncertainty ahead of an imminent Fed hike next week with a bit of geopolitical tensions thrown in the mix.

US equities look set to end the day in negative territory (currently down between 0.2% and -0.4%) with financials the worst performing sector in the S&P 500. Early in the session main European equity indices ended day down between 0.3% and 0.6% with Deutsche Bank dragging financial shares lower after announcing plans to raise capital.

Yesterday’s news that North Korea had launched four missiles with three of them landing inside Japan’s Exclusive Economic Zone didn’t help sentiment while commodities were also under the pressure on diminished Chinese growth prospects. Copper and aluminium ended the day down 1% and iron ore closed   at -1.7%. Gold and oil prices were little changed.

In currencies the USD recovered a bit of lost ground after the mild sell off triggered by Fed Chair Yellen’s speech early Saturday. Gains in the big dollar have coincided with a late selloff in US Treasury yields with the move led by the back end of the curve amid longer dated corporate issuance overnight and prospects of UST issuance later in the week.

JPY is the only G10 currency that has managed to withstand the late overnight rise in the USD. USD/JPY is essentially unchanged at ¥113.93 with the AUD a little bit softer, down 0.14% at 0.7585. Meanwhile NZD has remained under pressure, slipping another 0.5% over the past 24hrs and spending most of the past four hours just under the 70c mark. Expectations of a soft dairy auction tomorrow morning (see more below) and yesterday’s soft dwelling’s data have not helped the Kiwi.

The Euro is 0.3% lower against the USD and currently trading at 1.0587. Early in the session the currency pair traded to an overnight high of 106.4, but then it quickly sold off following news that Alain Juppe had ruled himself out of the French Presidential race. Evidently, Juppe’s pull out has been interpreted as lessening the chances of Far Right Le Pen being knocked out in the first round. The move also saw the spread of 10y French to German bonds widen from 58 to 62 bps.

Coming Up

Ahead of the RBA this afternoon, this morning in Australia we get the weekly consumer confidence reading and February’s AiG Performance of Construction Index.

As for the RBA, all economists surveyed by Bloomberg expect the Bank to stand pat.  Nevertheless, the market will be paying close attention to the language in the Governor’s Media Release to see whether last week’s December quarter GDP had any material bearing on the Bank’s thinking. We don’t think so, indeed,  we expect the Bank to remain neutral with the final paragraph in the Governor’s statement  assessing current monetary policy settings as consistent with the Bank’s policy mandates.

It’s a quiet night in Europe with German factory orders the only notable data release.  The third Q4 reading for the EU area GDP growth might prompt some attention with household consumption and investment spending likely to have been positive contributors to growth in the quarter.

Consumer credit and trade balance (both for January) are the two data highlights in the US. A pick in consumer credit is expected after a soft December print ($18bn exp. vs 14bn prev.) and advance data on goods trade balance suggest the US trade deficits could have widened to a five year high of $49bn from $44bn in December, mainly on the back of rising imports. A trade deficit is a drag on growth and overnight US trade adviser Peter Navarro said the U.S. faced a growing economic and potential national security risk from the commercial behaviour of its major trading partners and added that the administration would make the reduction of U.S. trade deficits its top policy focus. Watch this space.

Early Wednesday morning sees the latest GDT (dairy) auction and our BNZ colleagues note that recent indicators and fundamentals suggest a price fall in the vicinity of 7% looks likely.  (EU and NZ milk production declines are showing signs of abating, while rain in NZ has improved the late season outlook.)  As a result, BNZ has nudged its NZ milk price forecast down to $6.10 from $6.40 previously, although it still remains a touch above Fonterra’s current $6.00 forecast.

Overnight

On global stock markets, the S&P 500 was -0.25%. Bond markets saw US 10-years +1.45bp to 2.49%. In commodities, Brent crude oil +0.18% to $56, gold-0.0% to $1,226, iron ore -1.7% to $89.73, steam coal -0.9% to $80.20, met.coal -1.1% to $163.25. AUD is at 0.7582 and the range since yesterday 5pm Sydney time is 0.7571 to 0.7609.

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• Markets Today: 7 March 2017 (PDF, 116kb)

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