Today's European session looks like it could be a quiet one

Good morning,

European indices are attempting to reverse yesterday's losses, following on from an Asian session which has done exactly that. The outperformance of the Nikkei yesterday despite losses in the likes of the Shanghai composite have been all but undone, with significant losses in Japan set against a marginal increases across many of the other major Asian markets. In Europe, yesterday's selloff is expected to be shortlived, with future pointing to an open of the FTSE100 +17, CAC +18 and DAX +39 points.

Overnight saw the second interest rate hike from the RBNZ in as many months, with the official cash rate rising 25 basis points to 3.00%. This has come against a backdrop of increased inflationary fears particularly within the construction and non-tradables sector. In much the same manners as the Australian market, one of the biggest fears stems from the booming housing sector, where the existence of historically low interest rates have driven both demand and new home building to a peak, highlighting the potential for yet another asset bubble. However, the job of the RBNZ remains somewhat of a balancing act, where the imposition of higher interest rates is further fuelling the incessant rise of the NZD, which hit a 2 1/2 year high earlier this month against the dollar. Despite this possibly reducing the inflationary pressures by reducing demand for domestic goods and driving interest for lower priced imports, this is not necessarily desirable for an economy which is attempting to get over recent threats to their key export sector.

Today's European session looks like it could be a quiet one, where the real major event of note comes from Amsterdam, where Mario Draghi is due to speak. With eurozone inflation caught within the 'danger zone' below 0-1% for six months now, the pressure has never been so high for the ECB to act decisively to raise inflation and support the recovery within the single currency. In stark contract to the last impulsive and unexpected reduction in interest rates back in November, Draghi has been playing the long game, deciding to hold off on any real major measures since. This seems somewhat sensible given that many of the factors to the recent deflationary environment in the eurozone, such as low energy prices, would feel little effect from another interest rate cut; the likes of which have been shown to impact CPI to such a small extent that a cut is hardly justified.

However, with the rise of the euro feeding into yet lower demand for domestically produced goods, in favour of lower priced imports, there has emerged yet another reason for Draghi to act. In his address earlier this month, Draghi noted that any further increases in the value of the euro could spark additional stimulus from the bank, yet it is difficult to gauge whether this is just another in a long list of dovish comments which seek to impact markets without having to actually follow up with actions. We will be watching today's speech closely for any further indication of where the ECB will move next, with the EURUSD currently around a very similar price to that when he gave his last comments.

The Ukraine crisis appears to be reemerging as a worry, where Russia stepped up it's rhetoric citing that any attack upon Russian speaking or pre-Russian separatists in Ukraine will be deemed an attack upon Russia itself. Of course, this step was always expected in the master plan following the unwillingness of Russia to actually attempt to persuade Russian speaking militants to vacate the key government buildings in Eastern Ukraine. Unfortunately it appears that Crimea represented a practice run for the wider target of Ukraine itself which little by little is likely to come under Russian control. The western world is trying to do it's bit for Ukraine, with the IMF offering one of their infamous loan deals in the form of a $17 billion 'staff support' package. This comes at a time when the government is struggling to put together a coherent strategic defence policy throughout Eastern Ukraine. Thus there is the possibility that much of that money is spent on defence rather than being able to implement the structural investments and reforms needed to get the beleaguered nation back onto a stable footing. However, for now the markets are choosing to ignore this issue until something more drastic happens that will effect the west.