The U.S. yield curve continued to flatten again overnight following an uber-dovish Federal Reserve. On a slow news day in North America, this flowed through to stocks with the tech sector leading the way with Apple (NASDAQ:AAPL) and Philadelphia Semiconductor Index surging higher. Levi Strauss (NYSE:LEVI) IPO saw the jeans maker jump more than 30% on the day. The USD rebounded despite lower bond yields with the dollar index rising 0.68% to 96.41. This was mostly reflected in the pound and the euro, both of which fell on Brexit jitters.
The days had a distinct “no news is good news” feel about it, with the S&P rising 1.09%, the NASDAQ up 1.42% and Dow Jones gaining 0.84%.
In breaking news, the European Union has announced it will grant the U.K. an Article 50 extension until May 22 provided the U.K. Parliament approves Prime Minister Theresa May’s deal next week. If Parliament still refuses, the extension will only run until April 12 2019. The provisions were as expected and place the onus on the U.K. parliament to get its act together and quickly.
Brexit should provide the headlines in early Asian trading with the day’s other highlight being Japan Consumer Price Index at 0730 Singapore time. There’s no tier-one data from the United States today.
FX
GBP endured a 200 point 1.3000/1.3200 range overnight on Brexit ebbs and flows before closing at 1.3100. Reaction to the EU extension has been muted initially with GBP rising slightly to 1.3122, suggesting the outcome had been priced in. The investor community continues to price GBP as if a no-deal Brexit is not possible, looking for excuses to buy rather than sell. A close look at the text of the EU announcement suggests this is not a guaranteed outcome. The euro also sagged slightly overnight, down 0.36% to 1.1375 on Brexit woes.
Overall though, the currency markets went back into hibernation post the Federal Reserve rate decision, being mostly unchanged against the other majors. This should feed into a quiet and somewhat neutral start for regional currencies in Asia today. It’s likely we’ll see listless headline-driven trading as forex traders turn their attention to next week’s trade talks in Beijing.
Equities
The bright North American session reflects a continuing flattening of the U.S. yield curve and dovish Federal Reserve rather than any specific drivers overnight as equities continue to trade on hope versus reality globally. North America’s rally should flow into a positive start for Asian equities.
Gold
Gold closed USD3 lower at 1,309.00 an ounce after a choppy session as traders locked in short-term profits from the previous day’s rally. Much like the currency markets, gold has returned to its slumber awaiting new drivers. That said, a combination of dovish central banks worldwide, trade tensions and European geopolitical risk should keep the 1,300.00 region well supported.
Oil
Profit-taking sellers emerged in the black gold with Brent crude falling 1.20% to USD67.70 a barrel and WTI falling 0.65% to USD59.85. Like the currency and gold markets, energy traders are forgoing the irrational exuberance of equity traders and being more circumspect ahead of Beijing trade talks next week.