FTSE +2 points at 7360
DAX flat at 11990
CAC +4 points at 4978
Euro Stoxx flat at 3400
Oil extended losses to $47.09 as Saudi Arabia increased its oil production above 10 million barrels per day, hence retracing its January cut by roughly 30%. The Brent crude tanked to $50.25 for the first time since November 30th, when OPEC decided to cut production at the Vienna meeting.
The weekly data on the U.S. crude oil inventories is due today and analysts expect the oil inventories to have expanded by 3.3 million barrels, versus 8.2 million barrels printed a week earlier. Any positive surprise in U.S. oil inventories could revive the oil bears and push the barrel of WTI below $47. An eventual reversal in global oil output trend could pave the way for a further slide to $45.
The Dow Jones (-0.21%) and the S&P 500 (-0.34%) as energy stocks lead losses.
The Federal Reserve (Fed) is expected to announce 25 basis points increase in interest rates today. While the Fed has little chance to hold fire, the major focus is on whether it will be a hawkish or a dovish hike. The Fed’s dot plot is what is expected to move the global markets. The USD appetite depends on the Fed members’ future rate projections. At the beginning of the year, the Fed was expected to proceed with three rate hikes in 2017. A hawkish stance would shift the expectations toward four rate hikes instead. In fact, depending on how the fiscal policy evolves, the Fed could hike rates up to 100 basis points to cool down an eventual overheating in the economy.
The U.S. dollar index remains above the 100-day moving average (100.95). We are prepared for two-sided volatility. Given that the interest rate hike is entirely factored in the U.S. dollar and the U.S. sovereign bond markets, the level of hawkishness, or dovishness, should determine the short-term direction.
The U.S. dollar softened against the majority of its G10 counterparts in Asia, except the yen.
The USD/JPY has again been interrupted by 115.00/115.50 offers yesterday and consolidated in the tight range of 114.63/114.88 in Tokyo. A positive breakout above 115.50 should encourage a solid positive momentum to challenge 115.92 (major 61.8% retracement on December – February decline). Failure to clear resistance could trigger a short-term bearish reversal for a mid-term slide toward the 112.00/111.50 zone.
Gold hovers around the $1200 waiting for how the Fed expectations will shape up at today’s policy announcement. A hawkish hike could encourage investors to move more capital to yield bearing assets, such as bonds, and divest from their gold holdings. The key short-term support is eyed at $1193 (Fibonacci’s 50% on December – February recovery), if broken could suggest a further slide to $1180 (January 26 low). The SPDR Gold Shares (HK:2840), the world’s largest gold ETF, traded at a six-week low ($114.025), with trading volumes less than 30% of the fifteen day average.
It is the Election Day in Netherlands and the results are due on Thursday. Although the far-right PVV outstands as one of the biggest parties, Geert Wilders is unlikely to find allies to form a coalition, a situation which hinders the immediate gravity of the situation in Netherlands.
Yet, a populist victory would have wider implications for Europe moving into the first round of the French presidential election due on April 23rd. An eventual populist trend in Netherlands could revive expectations that the French populist Marine Le Pen could actually win the presidential race, in which case, the future of France in the EU and the Eurozone will be in danger. Furthermore, an eventual Frexit could also place the EU integrity under pressure. Therefore, PVV’s success could have a widespread domino effect across the European Union only several days after the UK’s Parliament gave PM Theresa May the green light to trigger the Brexit.
Click here to watch ‘Dutch Election: Will it shake the euro?’
The worries surrounding the European politics is weighing on the single currency. After EUR/USD's failure to break above the critical 1.0707 (major 38.2% retracement on post-Trump decline) on Monday, the cross sold off to its 100-day moving average (1.0605) and has gathered enough momentum to extend losses toward the 1.0500/1.0490 mid-term resistance. The EUR/USD’s short-term trajectory depends on the combination of Fed/Dutch election. Less hawkish Fed, and/or a negative surprise for Dutch populists could trigger a relief rally in the euro complex.
The EUR/GBP held ground above the 0.87 level. Potential headwinds should see support pre-0.8600 (200-day moving average) unless the Dutch election reveals higher-than-expected worries on Thursday.
Rising negative momentum in EUR/CHF hints at the possibility of a temporary slide below 1.07 as euro-skeptical investors may find it safe to park their cash in Switzerland. Though, money will unlikely remain in the Swiss franc for long in the global reflation picture, given that the Swiss National Bank charges 0.75% on sight deposits.
In the UK, the GBP/USD rebounded after hitting a two-month low of 1.2108 yesterday. Due today, the labour data is the focus of traders. The average earnings in Britain are expected to have eased to 2.4%y/y in three months to January from 2.6% printed a month earlier. The slowdown in wages growth is a sign of stabilization in the labour market according to Bank of England (BoE) Governor Mark Carney and should have a gradually decreasing impact on inflation. The BoE meets tomorrow and is expected to maintain the status quo. Traders remain seller on rallies as the Brexit uncertainties weigh on the sentiment.
Cheaper pound failed to convince the FTSE buyers yesterday. The FTSE 100 closed the day 0.13% lower. Energy stocks are in focus today, as the U.S. data could squeeze the market in one direction or the other. The FTSE is expected to open slightly firmer in London, yet should bump into solid 7400p offers.