A firmer dollar pretty much across the board, with the exception of the Aussie and the kiwi during the Asian session, with risk sentiment fairly limited. With global terrorism activities still commanding the headlines, this is not that surprising.
USD/JPY extended gains to 113.73 for the first time since March 16th as Prime Minister Abe is expected to announce a delay in sales tax increases in order to avoid a new wave of panic among the Japanese consumers, which could further harm inflation and inflation expectations. As Japanese yields dig deeper into negative territory, the Nikkei warned that ‘negative rates are beginning to bite the BoJ’. The Nikkei share average fell 0.2%, but given the weakness in the yen this may be a sign of some bottoming.
We continue to see oscillation in FOMC speculation, and given that overnight US macro data revealed that consumer spending practically stagnated while inflation stepped back, any notion that the Fed will tighten further in the near term is for now muted. This leaves the US economy growing at a pace of less than 1%.
Last week’s CFTC report showed that net dollar longs declined, which may help account for some of the short-lived bounces in commodities of late too. Oil prices are down 1% in early trade, giving credence to the idea that much of the rise was as a result of short covering. Given that we have seen a lot of positive correlation between equities and oil prices of late, it remains to be seen if the present upside in European indices can be sustained.
Yet another day where global terrorism is dominating the headlines, but financial markets have maintained composure and are effectively climbing that wall of worry. The FTSE is up 0.66% while the CAC and the DAX have added 1.1% and 0.76% respectively.
Financials are the outperformers this morning. According to Bloomberg, lenders are charging higher interest rates for London luxury homes – all this does is tell you that the market is oversupplied and quite likely on the road to weaker prices, but investors are cheering the potential profit margins nevertheless.
Prudential (NYSE:PRU) (+2.63%) is higher on the day despite being removed from the Super Ten Portfolio at HSBC and replaced by NN Group.
While news of the Egyptian Air hijacking would normally be a black mark against the airline and tourism sectors in general, EasyJet (LON:EZJ) (+3.06%) is near the top of the pack, owing to a broker upgrade from BOFAML. The bank commends the valuation of the airliner and has raised its PT to 1800p vs 1660p.
UK miners are enjoying their usual habitat – back in the red.
With Randgold Resources (LON:RRS) (-2.36%) the worst performer on the day -shedding 2.36%- the recent highs around 6660p are very resistant, and the share price may now fall further to the bottom of the 6-week range around 6120p. Gold prices continue to retreat from the high on the back of the stronger dollar, but decent support should come in around $1180/1200/oz due to softer Fed expectations and the signs of stabilization in the equity markets.
Copper, per last Thursday’s note, has failed to push through the 200-day moving average at $2.27/lb. Any break below $2.20/oz would negate the recent rally and put the trend on the back foot.
Weaker growth in developed markets and word that China is building inventories rather than utilizing for construction coupled with the strong dollar would indicate that the 15% gain since mid-January has been built on sand.
Next (LON:NXT) (0.53%) has been unable so far to recoup the losses from last week. It has been removed from the Pan-Europe Buy List by Goldman Sachs (NYSE:GS) while being raised to buy from neutral at Deutsche Bank (DE:DBKGn). This, my friends is what makes a market. Presently trading at 5576p, the stock does appear to be finding some temporary support at 5620p.
Janet Yellen will give a speech today entitled ’Economic Outlook and Monetary Policy' at the Economic Club of New York luncheon, which may, but will probably not, provide some clarity. We can still expect two-sided volatility as the newswires light up.