FTSE 100 +14 points at 7264
DAX +17 points at 11975
CAC +9 points at 4981
Euro Stoxx 50 +3 points at 3391
As expected, the Reserve Bank of Australia (RBA) maintained the cash rate unchanged at 1.5%. In its accompanying statement, the RBA hinted at medium-term risks to the Chinese growth and the reflation trend in most developed economies, cited that the resulting recovery in commodity prices has been a boost to the Australian economy and the cheap Aussie helped, warning that appreciation in the currency could complicate the recovery process onwards. Given that the labour market remains mixed and conditions in the housing market vary considerably, it is appropriate to keep interest rates low in Australia for an extended period of time. The low inflation is also consistent with the accommodative monetary policy.
All in all, the RBA’s dovishness matched the expectations and the AUD/USD held ground above 0.7577 and recovered to 0.7633 posterior to the RBA’s announcement. The AU 10-year yields remained above 2.80%, yet failed to increase the carry appetite against the US dollar as the US 10-year yields hit 2.50% on Monday. Lacking carry appetite, combined to downside correction in iron ore prices since end February are expected to cap the upside approaching the 0.7700 handle, before 0.7740 (Feb peak) and 0.7785/0.7800 mid-term resistance. The 200-day moving average (0.7546) has acted as a solid support since mid-January.
The yen (+0.05%) has again been among rare G10 gainers against the greenback in Tokyo. The USD/JPY sold into 104.08, despite a widening US-Japan yield spread. It appears as the actual inflows toward the yen are mostly safe-haven amid North Korea threats. There is a clear lack of positive momentum to fight back the 115.00 offers.
Nikkei (-0.18%) and TOPIX (+0.01%) were offered the most of the session and turned flat into the daily close.
Chinese H-shares were among the biggest gainers in Asia. Hang Seng (+0.45%) advanced, as Shanghai Composite (+0.13%) remained on the back foot as the US dollar strengthened past 6.90 in Shanghai.
The US dollar consolidated gains, as markets remain comfortably long USD moving into the Federal Reserve’s (Fed) March meeting. The Fed is expected to raise rates by 25 basis points, and may deliver a hawkish accompanying statement hinting at a steeper policy path in 2017 than previously anticipated.
Gold is among the biggest losers as improved US yields encourage investors to move toward the US sovereigns. The precious metal traded at $1224 in Asia and has further room to $1210 (major 38.2% retracement on December – February rise) before the mid-term positive trend is questioned.
UK PM Theresa May has yet another tough day before the House of Lords, as the UK lawmakers want to guarantee their right to reject her final Brexit proposal if it is not satisfactory enough. Some industries in the UK have already started to feel the pinch after the country voted to exit the European Union on June 23rd. The most recent example is the Peugeot’s deal to buy GM’s European operations, including Vauxhall plants that would wipe out some 4500 jobs given that the UK will no longer be part of the EU and PSA may want to repatriate jobs to the mainland Europe.
The FTSE 100 erased 0.33% on Monday. Industrials (-0.44%) retreated on Vauxhall worries, mining stocks (-0.77%) lead losses. The FTSE legged down to 7238p, yet the cheap pound appears to be supportive of the FTSE stocks into the European open on Tuesday. The FTSE 100 is expected to begin the day slightly firmer in London. Yet the cheaper pound’s benefits to the FTSE will depend on news regarding the amendment to May’s Brexit draft and the budget statement. In case of further stress, the UK stocks could extend losses to 7285p (20-day moving average) and 7225p (50-day moving average).
Cable consolidates losses before the UK’s budget announcement due on Wednesday. Chancellor of the Exchequer Hammond is expected to deliver a cautious statement, which would include higher taxes to finance extra social spending instead of higher government debt. This means that the Bank of England (BoE) has not much to worry about a fiscal expansion, hence could remain seated on its accommodative monetary policy. The pound is expected to remain under selling pressure pre-1.2394/1.2410 (50 and 100-day moving averages).
Across the Channel, European stocks, led by Germany, are boosted on the back of higher global growth prospects and perhaps expectations that some businesses could decide to move toward the mainland Europe after the Brexit. Nevertheless, the 7.4% month-on-month contraction in German factory orders in January could dent the appetite in the DAX at the start of the session in Frankfurt.
In France however, the election shenanigans dent the appetite in the financial markets. Alain Juppe said he would not run for the election, as a scandal hit hard Francois Fillon’s campaign. Left with Fillon only, the French right camp could lose more blood. The question is who between Emmanuel Macron and Marine Le Pen would be more susceptible to catch the undecided UMP voters?