European markets are expected to open higher this morning as they are powered by optimism that bank earnings may not be as bad as many were expecting. Is this the same old story under which firms promise less and deliver more? Well looking at JP Morgan’s earnings yesterday, we are not too far from it. Yesterday, the strong rally over on Wall Street was mainly in the banking sector and this optimism dribbled into the Asian markets. More bank earnings are due today and later in the week; Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) and BlackRock can very much set the tone for the day.
Wells Fargo by far has been the strongest bank when it comes to beating expectations and has performed relatively better than its competitors. This can be attributed to its strategy which focuses more on domestic needs. Bank of America may be the major headline winner as traders will try to use its performance as a benchmark for their trading business. Moreover, if there are any sign of cracks in the wall and investors are not satisfied with their performance, we could see the stocks feeling the heat.
The weakness in the Japanese yen has provided a springboard for Japanese exporters. Strength in the Japanese yen has been the major focal point among investors and they are hoping that the Bank of Japan will soon tackle this issue. Perhaps it’s is not so much about the fact that the yen has grown in strength, but more about the pace of its strength which makes many investors wary. Hopes are hopes and if they are not fulfilled, the reality could spur some really ugly outcomes, hence why investors should be wary.
OPEC’s meeting in Doha is another affair which is constantly flashing like a hazard light on trader’s dashboards. They cannot ignore the fact that if there is a deal, the prospects of crude reaching the $50 mark could very much become a reality. Oil prices are very volatile as time edges on and more contradictory information hits the tape. It is a constant tug of war between bulls and bears and speculators are just adding colour to the painting
In terms of economic data, it is all about the super Thursday. The main focus will be towards the Bank of England’s rate decision. With a referendum looming to answer the question of a Brexit, the chances are extremely low that they Bank of England wants to up the ante with respect to interest rates. Although, the bank is closely monitoring how the Fed are dealing with their rate hike strategy and their implications on the market, but the Bank of England has way too many obstacles in front of them before they can even think about it. Traders will be focusing on whether there are dissenters on the MPC official bank vote. The forecast is that this may remain unchanged with the reading of 0-0-9 expected to come in.
As for the US, after soft retail data yesterday which shocked many, we have the CPI m/m and core CPI numbers due later in the afternoon. The forecast is for 0.2% for both numbers. More US Fed members will speak later today as well and as usual, they will be only adding more noise than doing any favours. Adding more mixed messages will just make the picture look a lot muddier.
by Naeem Aslam