NEWS AND ANALYSIS

Incisive market commentary and expert opinion

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
 
+ Show blog menu

Categories

Menu

Expand 2017 <span class='blogcount'>(231)</span>2017 (231)
Collapse 2016 <span class='blogcount'>(483)</span>2016 (483)
Expand December <span class='blogcount'>(23)</span>December (23)
Expand November <span class='blogcount'>(41)</span>November (41)
Expand October <span class='blogcount'>(37)</span>October (37)
Expand September <span class='blogcount'>(41)</span>September (41)
Expand August <span class='blogcount'>(52)</span>August (52)
Expand July <span class='blogcount'>(38)</span>July (38)
Expand June <span class='blogcount'>(42)</span>June (42)
Expand May <span class='blogcount'>(42)</span>May (42)
Collapse April <span class='blogcount'>(45)</span>April (45)
PM Bulletin: Exxon Mobil - a proxy for crude?
29 Apr 2016
AM Bulletin: Equity sell-off continues
29 Apr 2016
PM Bulletin: JPY update
28 Apr 2016
AM Bulletin: BOJ disappoints
28 Apr 2016
Holiday Schedule: Early May Bank Holiday
27 Apr 2016
PM Bulletin: BOJ meeting
27 Apr 2016
AM Bulletin: FOMC in focus
27 Apr 2016
PM Bulletin: GBPUSD
26 Apr 2016
AM Bulletin: Markets directionless
26 Apr 2016
PM Bulletin: Apple
25 Apr 2016
Weekly Bulletin: Party like it’s 1999?
25 Apr 2016
PM Bulletin: Big move in USDJPY
22 Apr 2016
AM Bulletin: Weaker earnings weigh on US indices
22 Apr 2016
PM Bulletin: Silver’s pump and dump
21 Apr 2016
AM Bulletin: US indices edge closer to all-time highs
21 Apr 2016
PM Bulletin: ECB meeting look-ahead
20 Apr 2016
AM Bulletin: Silver surge drags gold higher
20 Apr 2016
PM Bulletin: Silver update
19 Apr 2016
AM Bulletin: Dow tops 18,000
19 Apr 2016
PM Bulletin: US indices continue to push higher
18 Apr 2016
Weekly Bulletin: The Fed, China, oil and the yen
18 Apr 2016
PM Bulletin: Brent crude
15 Apr 2016
AM Bulletin: Quiet start to Friday’s trade
15 Apr 2016
PM Bulletin: EURUSD chart
14 Apr 2016
AM Bulletin: Equity rally continues
14 Apr 2016
AM Bulletin: Equities push higher
14 Apr 2016
PM Bulletin: JP Morgan Chase
13 Apr 2016
PM Bulletin: Silver chart
12 Apr 2016
AM Bulletin: Equity rally runs out of steam
12 Apr 2016
PM Bulletin: Schlumberger
11 Apr 2016
Weekly Bulletin: Yen strength remains a concern
11 Apr 2016
PM Bulletin: Stock indices ending the week on a high
08 Apr 2016
AM Bulletin: “Risk-on” again as yen retreats
08 Apr 2016
PM Bulletin: JPY update
07 Apr 2016
AM Bulletin: Oil surge boosts equities
07 Apr 2016
PM Bulletin: Gold struggling to build on Q1 gains
06 Apr 2016
AM Bulletin: Firmer start for global indices
06 Apr 2016
PM Bulletin: USDJPY heading towards 110.00
05 Apr 2016
AM Bulletin: Crude weighs on equities
05 Apr 2016
Weekly Bulletin: Yellen or the data – what to believe?
04 Apr 2016
PM Bulletin: Holiday spending money
04 Apr 2016
April: Non Farm Payrolls Out Today
01 Apr 2016
AM Bulletin: Waiting for Non-Farms
01 Apr 2016
PM Bulletin: Non-Farm Payroll post mortem
01 Apr 2016
Expand March <span class='blogcount'>(41)</span>March (41)
Expand February <span class='blogcount'>(42)</span>February (42)
Expand January <span class='blogcount'>(39)</span>January (39)
 
 
 

 

Indices Update

There has been a bounce-back in the major stock indices in early trade this morning. This is due to a pull-back in the yen and a recovery in the oil price. The yen has given back some of yesterday’s gains after Japan’s Finance Minister Taro Aso said the government would take action to halt the yen's climb. However, these are just mere words and there has been no evidence of outright intervention so far. Some believe that Japan’s policymakers’ hands are tied when it comes to intervention anyway, so rhetoric is all they’ve got. If so, then there’s every chance that the yen will continue to strengthen.

Yesterday was all about the continued surge in the Japanese yen. The USDJPY had flirted with the technically and psychologically important 110.00 level on Wednesday. But once it broke below here the pair fell sharply as the yen flew higher and was soon trading below 108.00. It took a while for index traders to absorb the implications of the yen’s move. This was understandable as many were still focussed on the sharp rally in oil which helped to lift equities the day before. They were also feeling positive towards equities following the release of minutes from the FOMC’s meeting back in March.

The minutes were viewed as dovish as the FOMC referred on a number of occasions to global (read China) risks. One reading of this is that the next US rate hike (when/if it comes) will have little to do with where the unemployment and inflation data is. In other words, expect lower rates for longer.

However, the yen’s move is currently more significant. The USDJPY hit its lowest level since October 2014. This was when the Bank of Japan boosted its QQE programme and effectively left it open-ended.

A stronger yen is very bad news for the Japanese economy which is struggling with tepid growth and low inflation. It is particularly worrying as Japan’s policymakers and the Bank of Japan have taken unprecedented fiscal and monetary measures to weaken the currency. The yen’s move is having an adverse effect on equities as it suggests that Japanese policymakers have run out effective tools to provide further monetary stimulus. If so, then Japan is in trouble. Additionally a loss of confidence in one major central bank could have serious repercussions for others. If investors come to lose faith in the ability of monetary authorities to stimulate their respective economies, then the outlook will be bleak for financial markets.

The FTSE 100 index closed at 6,136.9 down 24.7 points on the day, or 0.4%

The German DAX fell 93.9 points or around 1% to finish at 9,530.6

The US30 closed down 174.1 points to finish at 17,541.9 The S&P 500 fell 1.2% to close at 2,041.9 while the Nasdaq 100 lost 1.5% to close at 4,475.3

Equities Update

UK retailer Marks and Spencer (MKS) reported that overall group sales were up 1.9 percent in the 13 weeks to 26 March. But sales in the “clothing and home” division fell by 2.7% on a like-for-like basis over the same period. Nevertheless, the decline was less steep than the consensus expectation although the division has seen just one quarter of like-for-like sales growth in 21 quarters. On food, M&S said that like-for-like sales were unchanged, but it had seen its market share grow to 4.3% thanks to the opening of 80 new stores over the past year. There were also improvements to the firm's website including increased website speeds and ease of navigation. Sales from M&S.com rose 8.2%. The stock ended 3% higher at 433 pence.

Commodities Update

Oil paused yesterday following Wednesday’s surge. Back then crude was already sharply higher and enjoying a countertrend rally when US inventories were released for the week ending 1st April. These showed a drop of 4.9 million barrels on expectations of a 3.1 million build. Crude oil flew higher in the immediate aftermath of this surprise slump. Not only that but both contracts built on these gains as the session progressed suggesting that fresh buying was coming in on top of some panic short-covering.

But the rally reversed sharply yesterday afternoon as the yen continued to strengthen. The yen’s move is having an adverse effect on equities and the oil price as it suggests that Japanese policymakers have run out effective tools to provide further monetary stimulus. On top of this, oil also came under pressure after the release of fresh inventory build at the Cushing, Oklahoma hub. There was surprise that a key pipeline shutdown had not reduced crude flows to the storage base by as much as expected.

Gold and silver were both sharply higher in early trade yesterday.  In part this was to do with the weaker dollar in the wake of the dovish FOMC minutes which were released on Wednesday evening. But that wasn’t the only reason. If equities were a bit slow on the uptake when it came to appreciating the ramifications of yesterday’s yen surge, then precious metals’ traders were far quicker to the ball. As the USDJPY fell further below 110.00 investors sought out the two precious metals as safe havens. They bought up both to diversify away from the uncertainty of equity and bond markets, and the volatility of FX. Despite this, gold struggled to hold above resistance at $1,240. Investors may want to see how Japanese policymakers react to the yen’s rally before increasing their long-side exposure to precious metals further. 

Forex Update

The US dollar weakened further yesterday. This followed on from the release of minutes from the Fed’s FOMC March meeting on Wednesday. The minutes were viewed as dovish as the committee repeatedly referred to global (read China) risks. It looks likely that the next US rate hike will have little to do with the domestic unemployment and inflation numbers. In other words, expect lower rates for longer.

But once again the main FX story was the strength of the yen. The USDJPY fell to its lowest level since October 2014. This was when Japan’s policymakers extended their monetary stimulus programme in an effort to drive the currency lower to boost exports and inflation. Usually markets expect Japan to intervene whenever its currency strengthens sharply. However there is a problem in that Japan takes over the chairmanship of G7 next month where all members have said they won’t intervene to weaken their currencies.

Another complication is that currency interventions are typically short-lived. Instead investors may have to wait to see if the BOJ announces further stimulus measures at its next meeting later this month. The major concern is that Japan’s excessive debt-to-GDP ratio makes it particularly vulnerable to deflationary pressures which are increased by yen strength.

Upcoming events

Today’s significant economic events include the release of Swiss CPI, UK Manufacturing Production, Industrial Production and Trade Balance. We also have Canadian Housing Starts and employment data and a speech from Federal Reserve Bank of New York President William Dudley.


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


Add a comment Add comment            

 

 
© 2017 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.