– The Crimeans have, unsurprisingly, voted on Union with Russia according to Reuters this morning. This will increase tensions and this referendum in Crimea is going to be the key driver early this week. The incursion of Russian troops over the weekend into Western Ukraine, just outside Crimea, shows how tense things are — and how easily inflamed they may become. Key to remember here is that Crimea’s water and energy come from Ukraine and the Russians may be in a mood to secure this, or at least try.
– Looking back to Friday it was another down day for US stocks with the Dow down 0.27%, taking it’s losses for the week to more than 2%. The Nasdaq fell 0.36% while the S&P 500 lost 5 points to 1,841 for a loss of 0.29%. Worth noting is that consumer confidence released on Friday fell heavily to 79.9 versus the 82 the market expected.
– In Europe the DAX managed, somehow, to rise on Friday 0.42% but it was down 4% last week and is down something like 8% so far this month. Of course the German economy and German companies are the most exposed to these Russian shenanigans and Chancellor Merkel finally started talking tough on Friday to Putin. Elsewhere the FTSE fell 0.39%, the CAC dropped 0.8% while stocks in Madrid and Milan fell 1.39% and 1.19% respectively.
– Locally on the ASX futures market the March SPI 200 contract was off 18 points to 5301 bid.
– On FX markets the Euro defies gravity and many other laws of nature by continuing to rise amidst the gloom of the European economy, continuing disinflation, potential deflation and proximity to the Ukrainian crisis. But rise it does and while it sits at 1.3893 this morning in very early Asian trade it pushed above 1.39 on Friday. GBP continued to stay strong as well and sits at 1.6632 and it seems the key here is that the US dollar is under pressure as USDJPY has fallen down to 101.31 and close to a big break lower.
– The Aussie dollar did quite well last week buoyed by the employment report. Buyers keep coming in every time it falls and while it is off from Friday’s 0.9027 close this morning at 0.9006 traders would rightly be wondering about the enduring strength of the Aussie dollar.
– On commodity markets the IEA upgraded its energy use forecasts which helped Nymex crude rally 0.7% to $99 Bbl. But it is gold which continues to be the primary beneficiary of the uncertainty. Gold is at $1,382.30 Oz this morning. Copper is back at $3 lb while the Ags were very volatile with Corn down 2.48%, Soybeans off 1.06% while wheat rose 1.66%.
ON the data front today we have motor vehicles and then European CPI tonight which will be huge for the Euro (well, maybe if Euro traders care about fundamentals). In the US Empire State Manufacturing is out and the Tic flows will be watched closely after rumours of a $1oo billion+ seller of US Treasuries last week.
Here is today’s Stock to Watch from Michael McCarthy of CMC Markets:
SMS Management and Technology
After reporting a half year drop in profit on increased revenues in February, SMX has been hit again – S&P have announced the company’s shares will be removed from the ASX 200 index in the rebalance implemented at the close this Friday. Its shares are under sustained pressure.
Last Friday, volumes surged with almost 400,000 shares changing hands compared to a daily average closer to 200,000. It also dropped to a five year low. There’s little doubt that fund managers whose performance is benchmarked to the main Australian index are selling right now. Additionally, it appears traders anticipating fund selling are short selling this stock, with the total short position (as at March 10) now 4.98%, making it one of Australia’s top 50 most shorted stocks.
However, this is a stock I want as part of my long term portfolio, and I suspect the shorters are in for substantial pain once the March 21 re-balance passes. Friday’s action looks to me like a “ramming” by traders who are already short – and the surge in volume suggests SMX has found a substantial support level.
There are two potential buying triggers. If the stock trades back above $3.72, I’ll take that as a sign the short sellers are capitulating. Otherwise, I’ll buy it at Friday’s close. Either way, SMX is one to watch.
Michael McCarthy, Chief Market Strategist CMC Markets