Asian equity markets continued their rout overnight as concerns surrounding the financial sector heightened and investors fled to safe havens sending the yen to a 15 month high against the dollar. The Nikkei fell 2.3%, off its lows but still slid to a 16 month low, exacerbating the bear market there despite the adoption of negative rates from the BOJ.
Crude oil prices trimmed caught a small bounce overnight, once again owing to unrealistic expectations that some production cuts may be afoot. U.S. crude was up 2.1% at $28.53 a barrel but with inventories due this afternoon, with an additional build of 3.1m expected, we may well be looking at lower prices in the near term, especially if supplies are greater than expected.
Gold continues to press against the $1200/oz mark but lacks the temerity to just do it. From a technical perspective, we may be looking at a pullback in the near term. The market is very overbought and the psychological level coupled with uncertainty on dollar direction may see the current up move fade.
It’s the event of the week for many and today FOMC Chair Janet Yellen will find herself caught between a rock and a hard place as she testifies on the economy before the Congressional committee. With such volatility in the markets and the Fed apparently still sticking to its guns in respect of monetary tightening, we can expect some general choppiness no matter what sort of tone is struck. Expected to defend the recent hike and likely to adopt a progressive tone, that further increases are on track and that all this choppiness is transient. We will see. Certainly, a move away from any excessive hawkishness might be the right medicine for risk assets, albeit a temporary relief rather than an actual cure.
For a change, the weakness in Asian has not managed to find its way to European bourses this morning. Eurozone bonds are broadly weaker too. A significant bounce in Deutsche Bank (DE:DBKGn) shares (+10%) this morning has helped the broader financial sector to pop higher here in the UK. The FTSE is up 46 points with Tesco (L:TSCO) on top rising 3.88%. The decline in sales has eased this year so far with revenue dropping by 1.6% in the 12 weeks to January 31, the smallest drop since September according to researcher Kantar. The supermarket chain has also had its buy rating reiterated by Deutsche Bank. Shares are up 20% in a month now and over 30% higher from the January 7th low. This tends to imply a turnaround for Tesco but much of the flow has been defensive as investors moved away from the likes of mining and financial stocks in the past number of weeks
By contrast, Hikma Pharmaceutical (L:HIK) is on the bottom rung, initially shedding 20% in early trade, it is now 12.5% lower as it announced that it is revising terms for the Roxane purchase and lowered its revenue outlook.
Arm Holdings (O:ARMH) is lower by 3.78% despite a strong rise in both profits and sales. It reported a 31% rise in annual pre-tax profits to £414.8m with sales up 15% at $1,488.6m. In moving away from smartphones , where sales are slowing, to focus on connected devices it’s margins are being squeezed.
TUI Travel (L:TUIT) has seen its Turkish bookings falter on foot of security fears. The shares have plummeted over the past number of weeks. Down 18% since the 13th January. Down 3.5% today
On the macro front, nobody was expecting much from UK industrial or manufacturing output but it still managed to miss estimates. The former fell 1.1% against an estimate for a 0.1% drop while manufacturing output fell 0.2% when the consensus was for a gain of 0.1%. This has reined the pound back to an intraday low of 1.4446.