The Federal Reserve and the Bank of Japan meetings are the main talking points as the week kicks off, and many are retreating to the sidelines ahead of these risk events.
Markets in Australia and New Zealand are closed for ANZAC day public holiday on Monday, thus we have before us a fairly downbeat start to the week.
WTI lost 1.6% and Brent crude fell 1.4% as industrial metals fell from a six-month high in Asia.
On the demand side, China’s slowing economy and the rise of renewable energy pose headwinds, but demand growth for oil is still expected. The IEA forecasts global oil-demand growth to moderate to around 1.2 million barrels a day in 2016, slower than the 1.8 million-barrels-a-day expansion last year.
The Shanghai Composite and Hang Seng traded 0.67% and 0.50% lower; Nikkei and Topix wrote off 0.89% and 0.48% at time of writing.
An unexpected deterioration in German business confidence would indicate that the Eurozone’s ‘core’ is beginning to lose its momentum. Falling to 106.6 in April from 106.7 previously, it's little wonder we’re seeing some softness following the strong expansion in the first three months of the year. The ‘current situation’ fell to 113.2 from 113.8. It generally tends to vindicate the ECB’s comments that Europe is plagued by underlying structural issues that require structural reform, not stimulus, and is ultimately borne out in the Eurozone PMI recently regressing back to February's level, a 13-month low.
The effect on the euro has been muted. Euro shorts retreated last week as the European Central Bank delivered nothing all that new at Thursday’s central bank meeting. The EUR/USD remains bid above the 1.1219 (major 38.2% retrace on March-April rally), keeping the pair in the positive trend for the moment.
Sterling has given back some gains from the Asian session - cable is presently pulling back from a 1-month high and EUR/GBP trades just below 0.78. Although now trading below the 55 day MA for the first time since December, support should be found around 0.7751 with no significant options expiring today. Domestic focus today will be on April CBI data, which will be of interest in light of weaker March retail sales data last week.
Miners are lower as some of the recent sheen in metals’ prices starts to dissipate. The recent big driver for base metals is the positive economic data from China, including the property market and credit growth. The question remains – how long can the momentum and ergo positive sentiment last? One would think that a weaker dollar is required here to really boost commodities higher. Equally, the effects of the weak dollar on the emerging market space would be a positive for the likes of oil and copper. The dollar index remains above the 94.00 level, with front-end sentiment in the likes of USD/JPY telling the tale – heightened expectations in respect of BOJ action while little on the part of the FOMC.
Much of the top spots on the FTSE are as a result of a plethora of broker upgrades. The index itself is outperforming the likes of the DAX (-1.17%) and the CAC (-0.87%), with much of the flow going into the more defensive stocks.
Ashtead Group (LON:AHT) (+3.26%) raised to buy v underperform at BOFAML.
Imperial Brands (LON:IMB) (+2.2%) raised to buy at Goldman Sachs.
Wolseley (LON:WOS) (+1.81%) and CRH (LON:CRH) (+1.12%) raised to buy from neutral at BOFAML.