Volatility in the Nikkei has led to another choppy session despite the fact that the yen was a touch weaker. Japanese PM Abe has stated that competitive FX devaluation should be avoided, likewise any arbitrary intervention.
Paradoxically and somewhat surprisingly, the launch of NIRP by the central bank has only resulted in a stronger currency. It’s possible that the market is challenging BoJ Governor Kuroda ahead of the April 28th meeting and goading him to do more. It’s certainly clear that cutting the rates into deeper negative territory has not prevented the yen from appreciating by 10% in the Q1.
From a technical perspective, any fresh retreat below the 110 marker could well see the yen continue to strengthen against the dollar. The potential for a move to 106 over the medium-term cannot be ruled out, particularly if risk aversion ramps up.
In China, PMI services rose in March, thus Shanghai stocks switched to gains. Higher oil prices have also helped, giving a positive swing in Hong Kong and Sydney. Oil and energy companies led gains overnight as crude gained 2.73%.
This semi-optimism has found its way into UK markets this morning, with energy the best performing sector. Crude oil inventories later today will be the cornerstone for whether this oil rally can continue in the short-term. A build of 3.1m barrels is expected.
A reversal of fortunes this morning, with the mining sector leading the FTSE gainers. How sustainable this will be is anyone’s guess. Housebuilders were on top yesterday and now languish near the bottom of the index – profit taking to a point, but it would also seem that many are waiting for news on the Berkeley (LON:BKGH) (-0.88%) deal where they are apparently on the cusp of approval from planners to build 652 homes in West London.
A marginally weaker euro is helping other European indices shake off yesterday’s negative shackles. German industrial production fell 0.5% last month – better than the -1.8% expected - but really only serving to underpin the weakness in manufacturing there in recent months.
The higher oil price has taken the sheen of EasyJet (LON:EZJ) (-1.97%), but the release of passenger statistics for March are likely to blame here too. There were 611 cancellations in March with the majority due to strike action in France.
Anglo American (LON:AAL) (+3.48%) stock had its “hold” rating restated by analysts at Deutsche Bank (DE:DBKGn) in a report released on Wednesday.
Shire PLC (LON:SHP) (+2.59%) now viewed as a target should the Allergen/Pfizer deal break as a result of the tax inversion rules in the states.
CRH (LON:CRH) (+1.9%) raised to overweight v neutral at JP Morgan.
Next (LON:NXT) (+1.6%) raised to buy v sell at Haitong.
Glencore (LON:GLEN) (+1.69%) sells $2.5bn stake in Agriculture unit – continues to deleverage.
The dollar is mixed before the FOMC minutes due later in the day. We also have speeches from Fed members Mester and Bullard bookending the release of the minutes, which will only add to the choppiness as a result of their inevitable mixed messages.
The dollar index has stalled below the 95 mark as US bond yields remain soft. The S&P 500 failed to clear the 2080 resistance on Monday, while the Dow seems capped at 17840 for now. Further conviction that the Fed will not move rates any time before Q4 could rejuvenate the appetite in the US stocks. On this basis, however, the default risk in the US stocks would rise. According to BoFA analysts, a higher debt ratio across the country would likely dent risk sentiment and ensure some reluctance on the part of investors.