- Japan’s economic outlook does not look constructive as private consumption showed no sign of a pick-up, increasing the odds of another easing move from the BoJ
- Overall, the wait-and-see attitude of the market ahead of the ECB meeting will likely prevent major moves on the FX market but it would however favour safe haven currencies such as the Swiss Franc
- USD/JPY on the medium-term, the pair continued to move sideways between 112.16 and 114.87
- China: Traders lost confidence in the current rebound and dropped riskier assets to rush into safe haven ones
- USD/CHF: On the upside, a resistance can be found at 1.0038, while on the downside a support lies at 0.9847
- EUR/CHF: As we are getting closer to the ECB meeting, the risk remains clearly on the downside for the pair
- It is clear that the ECB will lower its deposit rates to -0.4%. In addition, we firmly believe that negative interest rates are set to be adopted as well as an increase to the current bond-buying program amount of €60 billion per month
The JPY strengthened further against the US dollar amid better-than-expected GDP figures. The Japanese economy contracted -0.3%q/q in the December quarter last year, beating median forecasts and first estimates of -0.4%. In spite of this relatively good news, Japan’s economic outlook does not look constructive as private consumption showed no sign of a pick-up, while exports fell 0.8% and imports plummeted 1.4%. Overall, the lack of dynamism of the Japanese economy casts a shadow over the inflation outlook, increasing the odds of another easing move from the BoJ. USD/JPY is currently trading at around 113, down 0.45% since Tokyo’s open. On the medium-term, the pair continued to move sideways between 112.16 and 114.87.
Apart from the Japanese story, global financial markets were broadly driven by the release of the Chinese trade data. Exports fell an astonishing 20.6%y/y (in yuan terms) in February, missing the consensus of -11.7% and below the previous reading of -6.6%, while imports contracted 8.0%y/y versus -11.7% expected and -14.4% in January. Just a couple of days after the NPC unveiled the new GDP target range of 6.5%-7%, the massive drop in exports and sluggish imports raises concerns about the country’s ability to meet this new objective. As a result, traders lost confidence in the current rebound and dropped riskier assets to rush into safe haven ones. Gold rose 0.45% to $1,273 an ounce, while other commodity prices turned red. Copper was down more than 1%, palladium fell 1.15%, while the West Texas Intermediate plummeted 0.95% to $37.54 a barrel.
On the FX market, the Swiss franc and Japanese yen gained ground as risk-off sentiment returned. USD/CHF fell almost 1% from Monday’s high, down to 0.9915 from 1.0012. On the upside, a resistance can be found at 1.0038 (high from February 29th), while on the downside a support lies at 0.9847 (low from February 16th). Overall, the wait-and-see attitude of the market ahead of the ECB meeting will likely prevent major moves on the FX market but it would however favour safe haven currencies such as the Swiss Franc. After rising 1.20% last week, EUR/CHF was able to consolidate slightly below the 1.10 threshold as fears of a SNB intervention kept short-sellers on the sidelines. However, as we are get closer to the ECB meeting, the risk remains clearly on the downside for the pair.
On the equity market, European futures are blinking red across the board, following the negative lead from Asia. The Footsie was down 0.71%, the DAX fell 0.63%, while in Switzerland the SMI was down 0.62%. US futures are also trading lower as the S&P fell 0.53%, while the Nasdaq was down 0.64%.
Yann Quelenn, market analyst: ECB to push gold higher: “With two days until the ECB meeting preliminary seasonally adjusted Q4 Eurozone GDP will be released this morning. Consensus expects data to remain unchanged at 0.3% q/q and 1.5% y/y. Eurozone growth is definitely very weak.
We believe that such as low GDP growth rate is not sufficient to trigger larger inflationary pressures. Eurozone CPI fell into negative territory, in January at -0.2%. The fundamentals are somewhat alarming and current monetary policy has yet to prove its efficiency. It is clear that the ECB will lower its deposit rates to -0.4%. In addition, we firmly believe that negative interest rates are set to be adopted, if not this month then this will happen in June.
We also think that Draghi may decide to raise the amount of the bond-buying program to above €60 billion per month. We do not expect much of this strategy and we do not think it will generate enough inflation. This strategy has not proven successful for the U.S. or Japan and therefore we remain skeptical about the possible success this kind of monetary policy will have for Europe. Repeating a strategy that does not work will not make it work. The only winner will be gold, which has simply had the best start to the year.”
Today traders will be watching the unemployment rate from Switzerland; industrial production from Germany, Turkey and Spain; current account balance from South Africa; CPI from Switzerland; GDP from the euro zone; housing starts and building permits from Canada.