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AM Bulletin: Equities and oil slip in early trade
31 Mar 2016
PM Bulletin: Non-Farm Payroll look-ahead
31 Mar 2016
AM Bulletin: Yellen comments boost risk appetite
30 Mar 2016
PM Bulletin: Is a dovish Janet really that bullish?
30 Mar 2016
AM Bulletin: Yellen to speak
29 Mar 2016
PM Bulletin: US indices running into resistance
29 Mar 2016
AM Bulletin: Profit-taking ahead of holiday weekend
24 Mar 2016
PM Bulletin: Dollar correlations
24 Mar 2016
AM Bulletin: Equities head higher
23 Mar 2016
PM Bulletin: Melt-down in precious metals
23 Mar 2016
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22 Mar 2016
Weekly Bulletin: US dollar on the back foot
21 Mar 2016
AM Bulletin: USD sell-off boosts oil
18 Mar 2016
PM Bulletin: A look at the S&P500 and FTSE100
18 Mar 2016
AM Bulletin: USD down on dovish Fed
17 Mar 2016
PM Bulletin: USDJPY
17 Mar 2016
AM Bulletin: All ears and eyes on FOMC
16 Mar 2016
PM Bulletin: Reaction to the “Sugar Tax”
16 Mar 2016
AM Bulletin: BOJ unchanged
15 Mar 2016
PM Bulletin: FOMC look-ahead and the USD
15 Mar 2016
Weekly Bulletin: Central banks still in focus
14 Mar 2016
PM Bulletin: Gold
14 Mar 2016
AM Bulletin: Confusion reins
11 Mar 2016
PM Bulletin: EURUSD revisited
11 Mar 2016
AM Bulletin: ECB meeting in focus
10 Mar 2016
PM Bulletin: Mr Draghi fires his bazooka
10 Mar 2016
AM Bulletin: Markets consolidate
09 Mar 2016
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09 Mar 2016
AM Bulletin: Chinese data weighs on equities
08 Mar 2016
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08 Mar 2016
Weekly Bulletin: ECB expected to boost stimulus
07 Mar 2016
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07 Mar 2016
March: Non Farm Payrolls Out Today
04 Mar 2016
AM Bulletin: Markets quiet ahead of Non-Farms
04 Mar 2016
PM Bulletin: Meanwhile, over in silver...
04 Mar 2016
AM Bulletin: Equities consolidate
03 Mar 2016
PM Bulletin: Non-Farm Payroll look-ahead
03 Mar 2016
AM Bulletin: Equities soar
02 Mar 2016
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02 Mar 2016
AM Bulletin: See-saw day ends in losses for US equities
01 Mar 2016
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01 Mar 2016
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 Tuesday 15 March 2016

AM Bulletin: BOJ unchanged

 

 

Indices Update

There were no surprises from the Bank of Japan in terms of its policy actions as nothing changed, and this was as expected. However, the Nikkei fell and yen jumped after the BOJ said that negative rates impair the function of financial markets, and suggested that there won’t be any further cuts into negative territory. This suggests that the BOJ believes it made a policy error in January. It also must cast doubts over similar moves from the ECB, although arguably the latter has put in place measures which offset many of the problems of negative rates as they apply to the banking sector.

It was a mixed session for global indices yesterday. European equities were sharply higher on the open, playing catch-up after a strong Wall Street rally on Friday which carried through to Asian Pacific markets. Even a clutch of poor Chinese data releases over the weekend failed to dent investor enthusiasm for equities. Money supply, New Loans, Industrial Production and Retail Sales all disappointed. However, during the National People's Congress on Saturday PBOC Governor Zhou Xiaochuan insisted that “The current monetary policy is prudent with a slight loosening bias." Given that the PBOC cut interest rates six times since November 2014 and reduced the amount of cash that commercial lenders must hold as reserves only the other week, it’s understandable if investors feel that further stimulus could be on the way under this “prudent” policy. In addition, the PBOC once again fixed the yuan higher against the US dollar.

Last week ECB President Mario Draghi chucked the kitchen sink at markets. There was some concern after he signalled that the central bank may have reached its limits when it came to stimulus. However, the broad range of measures announced has done much to renew confidence in the European banking sector.

US equities ended mixed, despite a sharp sell-off in crude. Investors look set to hold off from taking on additional stock market exposure ahead of the Federal Reserve‘s two-day meeting which ends tomorrow.

The FTSE 100 index closed at 6,174.6 up 34.8 points on the day, or 0.6%

The German DAX rose 159.1 points or 1.6% to finish at 9,990.3

The US30 closed up 15.8 points to finish at 17,229.1 The S&P 500 fell 0.1% and closed at 2,019.6 while the Nasdaq 100 rose 0.1% to end at 4,367.3

Equities Update

European banking stocks continued to rally yesterday, buoyed by the prospect of ECB stimulus. Banks in Italy, Spain and Portugal did particularly well. Usually a cut in the ECB’s main rates could be guaranteed to hit banking stocks hard. The lend/borrowing margins get compressed as banks find themselves unwilling to pass on a negative rate to their customers. However, the ECB combined their rate cuts with other measures designed to help Euro zone banks. These will reward them for lending outside the central banking system. Italian bank Monte dei Paschi di Siena ended the day 10.2% higher at €0.635. Italian newspaper La Repubblica reported that Prime Minister Matteo Renzi had intervened in an attempt to arrange a potential acquisition of the bank.

Commodities Update

Oil was lower in early trade yesterday and extended its losses as the US session got underway. Brent fell back under $40 per barrel while WTI continued to trade at a discount of around $2. Crude prices slipped after Iran said it wasn’t prepared to discuss any output freeze until it gets its own production up to 4 million barrels per day (bpd). This target looks unlikely to be hit until the end of this year.

Last week the Kuwaiti oil minister said that the country would: “….go full power ahead if there’s no agreement” on an oil production freeze while insisting that they weren’t interested in being party to any arrangement if it didn’t include Iran. Also, it now turns out that the meeting to discuss the ceiling that was set for 20th March has been postponed until April. The bottom line is that, after all the euphoria which greeted the Saudi/Russia/Venezuela/Qatar “agreement” to an output freeze, it’s proving difficult even to set a date for an OPEC/non-OPEC meeting.

There has been much talk recently that the low for oil is now in. Both contracts slipped a few dollars below $30 per barrel. For Brent this occurred on 20th January and just three weeks later for WTI. There followed a period of short-covering and fresh buying which has led to both oil contracts gaining over 45% from their respective lows. But we could be due a more protracted pull-back. There is evidence that companies involved in exploration and production are selling long-dated oil futures contracts to lock in higher prices. The spreads for futures over cash going out two years or more have fallen dramatically. However, much now depends on the trend in the US dollar, which in turn depends on the Fed’s rate decision on Wednesday. If the Fed hikes or proves to be particularly hawkish then we can expect the dollar to strengthen and oil to come under further pressure.

Gold and silver both rallied in early trade yesterday but fell back as the US session got underway. There was no particular reason for the sell-off other than a mild rally in the US dollar. Gold hit a 13 month high on Friday while silver continues to flirt with the $15.80 level – just above the 76.4% Fibonacci retracement of the October-December 2015 sell-off. Both metals continue to benefit from the flight to safety buying which followed the New Year sell-off in equities. Yet despite a stunning start to the year gold and silver appear to be losing their upside momentum. This could prove to be another well-deserved period of consolidation, and the longer gold holds above $1,240 on a closing basis then the more confidence we can have in it building on recent gains. Silver remains the most volatile of the pair but is still attracting plenty of buying interest. Much now depends on where the US dollar goes from here. Investors won’t want to push the greenback too far up or down ahead of Wednesday’s US Federal Reserve rate decision and the FOMC’s latest economic projections. It’s worth remembering that gold and silver perform best when investors lose faith in central banks.

Forex Update

Currencies were relatively subdued in early trade yesterday and it looked as if we were getting back to normality after last week’s volatility following the ECB meeting. The US dollar was generally firmer, only losing ground to the Japanese yen. Meanwhile, the euro lost ground against all the majors, ceding yet more of the gains it made on Thursday.

Now that we have the Bank of Japan and ECB meetings out of the way, all eyes focus on the US Federal Reserve meeting which takes place today and tomorrow. It may be sensible to consider that a 25 basis point rate hike is still a possibility, even if the market has completely written off any chance of it happening. That being the case, investors appear to be preparing themselves for no change in the headline, but a hawkish statement. It seems reasonable to assume that the Fed will want to keep a rate hike on the table for the June meeting. After all, if the FOMC is too dovish, then investors will start to worry about any troubles the committee sees coming up on the horizon. So assuming a hawkish statement and given the looser monetary policies from the ECB we should anticipate further dollar strength. But something tells me that the Fed won’t want to encourage a rash of dollar buying. After all, the greenback has already strengthened considerably over the past eighteen months, and a stronger dollar will put further downside pressure on oil and other commodities. On top of that it hurts US multinationals and is a considerable burden to emerging markets with large dollar-denominated debts. For these reasons the FOMC’s Economic Projections will be studied carefully.

Upcoming events

Today’s key data releases are all from the US and include Retail Sales, PPI, the Empire State Manufacturing Index and Business Inventories.

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: AM Bulletin

Category: AM Bulletin


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