Copper cheapened to one-week lows as WTI traded at $43 in Asia. Oil slipped below its 100-day moving average on the downside for the first time since April and short positions are gaining further momentum for a fresh attempt towards the $40 level.
Yet, FTSE rallied to 6740p at the open regardless of softening oil, commodity prices and weak corporate results. The cheaper pound appears to be the major bullish driver this morning. Basic materials gained past 1% with the pound set for another slide towards the 1.30 mark versus the US dollar. Investors see increasing value in pound’s depreciation, as the UK companies become gradually more cost efficient, and could be interesting M&A targets for foreign investors.
Sell-off in BP (LON:BP) (-0.82%) remained reasonable, after the company announced 44% decline in 2Q profits. Investors could take a breather on BP’s decision to keep its dividend unchanged at 10c/share.
Rush into yen
Hopes to see a massive fiscal stimulus simply vaporized after Japanese Finance Minister Aso said they would let the Bank of Japan (BoJ) decide about what to do next in terms of further stimulus. Abe-maniacs readjusted their expectations drastically on the downside as the likelihood of a 30 trillion worth of fiscal stimulus briskly faded overnight.
The US dollar sold-off aggressively against the Japanese yen; the USD/JPY tanked below the critical 38.2% retracement on July rise, 104.60, sending the pair into the bearish consolidation zone before Thursday’s BoJ meeting.
The possibility of a decent disappointment is being priced in, as the BoJ could – and certainly will not be able to meet the ultra-dovish market expectations. The consensus is a 5 basis points cut in the policy rate and no change in asset purchases, although speculations that the BoJ could buy an additional 10 to 20 trillion yen worth of assets annually introduced a dovish skew in the JPY-complex over the past couple of days.
Across the Pacific, we see a softer US dollar heading into the two-day Federal Reserve (Fed) meeting. We expect the Fed to maintain the status quo and to join the wait-and-see camp amid post-Brexit uncertainties. The FOMC will likely emphasize the importance of future economic data and deliver a dovish accompanying statement to grant its support to the markets. The S&P 500 and the Dow could surf on a fresh wave of cheap money, should the Fed leaves the punchbowl on the table.