FTSE +12 points at 7355
DAX +10 points at 11973
CAC +8 points at 5001
Euro Stoxx 50 +4 points at 3420
Several major central bank meetings will be on the agenda of this week. The Federal Reserve (Fed), the Bank of Japan (BoJ), the Bank of England (BoE) and the Central Bank of Turkey (CBT) will announce their latest policy verdicts throughout this week. Expectations vary.
The machine orders in Japan contracted by 3.2% on month to January; consequently machine orders declined by a significant 8.2% on yearly basis. The yen depreciation has not reversed the declining trend. The producer prices in February rose by 0.2% m/m as expected, pushing the yearly figure to 1% versus 0.5% y/y printed a month earlier.
The Bank of Japan (BoJ) meets later in the week and is expected to keep the monetary stance accommodate. Nevertheless, according to many, the BoJ could hint at tapering in monthly asset purchases given that it has already reduced the pace of its asset purchases over the last month. Bloomberg reveals that at the current speed, the BoJ would miss its annual asset purchases target of 80 trillion yen. They would buy 66 trillion yen instead and announce a target range for the 10-year JGB yields.
While the bank is willing to stay loose on its policy, it also wants to minimize the implications of negative interest rate environment, especially for the pension funds and financial institutions. In fact, if there were a good time for the BoJ to test an eventual readjustment in its bond purchasing program (QQE), it is certainly now given that the hawkish Fed divergence should keep the buying pressures limited on the yen. The market expectations for the USD/JPY are biased on the upside. JP Morgan revised its USD/JPY year-end forecast to 105.00 from 99.00.
The near term direction in USD/JPY will depend on this week’s BoJ and Federal Reserve (Fed) monetary policy meeting. The USD/JPY started the week slightly bid against the greenback. Light offers are eyed at 115.00/115.50 (weekly resistance), before the critical 115.92 (major 61.8% retracement on December – February decline). Buyers trail up from 113.55 (50-day moving average & weekly support).
Nikkei (+0.15%) and TOPIX (+0.22%) traded marginally higher on stronger yen.
Hang Seng (+1.11%) outperformed its Asian peers, as National Bureau of Statistics said that the Chinese industrial production expanded by 6% in the first two months of 2017.
Big banks lead gains in Hong Kong moving into the Fed meeting. HSBC Holdings PLC (HK:0005) (+2.30%), ICBC (HK:1398) (+2.85%) and Bank of China Ltd (HK:3988) (+2.91%) saw solid demand, as prospects of higher US interest rates improved the revenue expectations across the financial businesses.
The US dollar softened against the G10 majors at the Asian session.
The Federal Reserve (Fed) monetary policy meeting is the main highlight of the week for the US dollar traders. The FOMC is expected to raise the Fed funds rate by 25 basis points to 0.75% to 1.00% on Wednesday. Although the Fed rate hike is priced in at 100%, the Fed watchers will be focused on the dot plot to catch any hints regarding the future of the Fed policy.
The Fed could steepen the rate normalization in 2017 and hike rates more than three times as anticipated until the beginning of March. The consensus shifts toward an overall 100 basis points hike via four actions in 2017. If the Fed’s accompanying statement is sufficiently hawkish, the US dollar could take another ride on the upside. According to the latest CFTC data, the net speculative USD long positions surged to the highest level since February.
Meanwhile, the net euro short positions expanded to the highest levels since early January. The EUR/USD has been strong at the start of the week. The pair extended gains to 1.0707, the critical 38.2% retracement on post-Trump decline, and bumped into a first lines of offers. Put options trail below 1.0735 at today’s expiry. The upside potential could be limited at 1.0820 (Fibonacci 50% level) on the back of the solid divergence between the cautious European Central Bank (ECB) and the hawkish Fed. If capped the EURUD could retrace to 1.0648 / 1.0605 (50 and 100-day moving average respectively).
Cable gained 0.15% against the US dollar, on the back of a broadly softer greenback. Trend and momentum indicators remain comfortably bearish, as the Brexit worries dent the buyers’ appetite. The House of Commons will vote today to authorize, or not, PM Theresa May to start Brexit talks by the end of March. Traders remain seller on rallies. The Bank of England (BoE) will deliver its monetary policy verdict on Thursday and is expected to maintain the status quo. Any hawkish surprise from the Fed could encourage the GBP-bears for a further slide toward the 1.20 mark.
The cheap pound is supportive for the FTSE. Mining stocks could outperform at the London open on the back of firmer copper futures (+1.35%), while declining oil prices could shred couple of points from the energy stocks.
The barrel of WTI traded down to $47.90 in Asia, in the continuation of headwinds following last week’s solid increase in the US oil inventories. If the US keeps the current production pace, the OPEC cuts could no longer sustain the global oil prices but reducing supply. WTI-bears are touted at $50.