Market Brief
Emerging markets experienced their worst sell-off in months as investors question the sustainability of the recent recovery. In South America, the Brazilian Ibovespa was off 3.56%, down to 47,130 points, while in Argentina the Merval Index fell 3.74%. On the FX side, emerging market currencies also went through a tough session with local currencies falling massively. The Brazilian real was off roughly 3% against the greenback, while the Mexican peso slid 0.65% amid a broad-based commodity sell-off. Only the Argentine peso was able to gain ground as it rose around 2% against the US dollar and returned to 14.5220.
The US data released yesterday was rather disappointing and painted a mixed picture of the world’s biggest economy. Advanced retail sales beat the median forecast contracting only 0.1%m/m versus -0.2% expected. However, January's figures were revised to the downside, from a 0.2%m/m expansion to a -0.4% contraction, meaning that overall February’s data is pretty weak. Similarly, February PPI came in on the downside printing at -0.2%m/m, matching expectations, as the effects of the oil recovery lag behind. However, the market’s response to this data was relatively muted as traders are already focused on this evening's FOMC meeting.
Like most market participants, we do not expect the Fed to hike interest rates against the backdrop of mounting uncertainty about global growth - and the recent recovery in commodity prices changes nothing in the grand scheme of things. Given the recent lack of communication from Fed members - compared to last year, when Fed members were claiming the strength of the US economy on a weekly basis - we rather expect a dovish statement as the Fed sticks to its silent wait-and-see strategy. EUR/USD is treading water at between 1.1070 and 1.1110 as traders consolidate their positions. Overnight, USD/JPY rose sharply to 113.65 in overnight trading, up almost 0.60%, as traders start to switch their long JPY position to short ones against the backdrop of a weak inflation outlook and sluggish growth prospects in Japan.
In Asia, equity returns were mixed. Japanese shares headed south with the Nikkei down 0.83%. In mainland China, tech shares were sold-off, while the broader market blinked green on the screen. In Taiwan, the Taiex partially erased yesterday’s heavy losses rising 1.02%. In India, the Sensex dropped 0.64%, while in Bangkok shares were down 0.50%. In Europe, futures are pointing toward a higher open with local equity indices trading in positive territory.
Today traders will be watching the UK unemployment report and Osborne’s budget speech before the parliament; MBA mortgage applications, housing starts, building permits, CPI, industrial production, capacity utilisation and the FOMC rate decision from the US; manufacturing sales from Canada; retail sales from South Africa; GDP from New Zealand.
Currency Tech
EUR/USD
R 2: 1.1495
R 1: 1.1376
CURRENT: 1.1080
S 1: 1.0810
S 2: 1.0711
GBP/USD
R 2: 1.4591
R 1: 1.4437
CURRENT: 1.4110
S 1: 1.4033
S 2: 1.3836
USD/JPY
R 2: 117.53
R 1: 114.91
CURRENT: 113.65
S 1: 110.99
S 2: 105.23
USD/CHF
R 2: 1.0257
R 1: 1.0093
CURRENT: 0.9898
S 1: 0.9796
S 2: 0.9661