- European futures are blinking green across the screen
- Despite rumours to the contrary it is very unlikely that the BoJ intervened as they cannot afford to take another half measure - like they did with the negative interest move a couple of weeks ago - as it would further damage the bank’s already fragile reputation
- USD/JPY, we believe there is still some downside potential for the pair
- EUR/CHF consolidated yesterday’s gains and held ground above the 1.10 threshold
- We would not be surprised if USD/CHF recovers over the next few days
- There is evidence that the Chinese slowdown is not over
- The Aussie, which remains under significant pressure, may cause Governor Steven to further ease monetary policy
- We remain bearish on the Aussie and the Loonie over the medium-term
Crude oil printed a fresh 13-year low yesterday during the US session. The US crude benchmark, the West Texas Intermediate, fell another 3.70% on Thursday before bouncing back in overnight trading as fears of oversupply eased. WTI was up 4.46%, while its counterpart from the North Sea, the Brent crude, rose 4.69%.
On Thursday Japanese markets were closed for National Foundation Day and reopened in pain for the last trading session of the week. The Nikkei 225 closed significantly lower, down 4.84% as traders caught up with the rest of equity markets. In Hong Kong, the Hang Seng settled down 1.01%, which does not bode well for the Chinese re-open next Monday. Elsewhere, in Australia the S&P/ASX fell 1.16%, in New Zealand the NZX was down 0.89%, while in South Korea the Kospi slid 1.41%. In the EM complex, Thai equities were down 0.38%, the Indian Sensex slip 0.71%, while Indonesian equities were down another 1.16%. European futures are blinking green across the screen.
In the FX market, rumours regarding a potential intervention from the BoJ to stop the yen's sharp appreciation are fading as the central bank did not provide any comment. In our opinion, it is very unlikely that the BoJ intervened as they cannot afford to take another half measure - like they did with the negative interest move a couple of weeks ago - as it would further damage the little credibility they have left. USD/JPY stabilised around 112 in Tokyo after reaching its lowest level since October 31, 2014. We believe there is still some downside potential for the pair; however traders are still trying to understand what happened yesterday - when USD/JPY spiked two figures in less than 5 minutes - and will likely remain sidelined before the weekend break.
The Swedish central bank surprised the market on Thursday by cutting its benchmark interest rate by 0.15% (versus 0.10% expected), pushing the repo rate further into negative territory, down to -0.50%. USD/SEK jumped 1.30% on the news, up to 8.4770, but returned quickly to its initial level at around 8.37. Over the last few months, the market reactions to interest rate cuts from central banks around the globe appear to have had a weaker impact on the market - USD/SEK needed just six hours to return to its pre-announcement level.
EUR/CHF consolidated yesterday’s gains and held ground above the 1.10 threshold. USD/CHF was moving sideways between 0.9715 and 0.9754 in Tokyo; however the pair is having a hard time breaking its 200dma (currently at 0.9731) to the downside. We therefore would not be surprised if USD/CHF recovers over the next few days.
***Yann Quelenn, market analyst: “Low oil prices are set to continue. It seems that the era of oversupply is far from being over. Brent is trading around $31 a barrel and Australia and Canada’s weakness should continue. Both country's current accounts are in deficit - Australia has a deficit of $21.2 billion and Canada is lying at $11.5 billion. Their economies are mostly reliant on financial inflows coming from their commodities industries. We believe that the current commodity war will continue as long as the global environment and especially geopolitical aspects remain uncertain.
In Australia, the Reserve Bank announces it is keeping its interest rates at 2% amid strong recent unemployment data for the last quarter 2015. Yet, Australia is very dependent on China which represents its main partner. There is evidence that the Chinese slowdown is not over (lower gas consumption growth for example). As a result, aggregated demand for Australia’s goods should keep on suffering and impact overall Australian revenues. The Aussie remains under significant pressure despite trading above the psychological level of 0.70 U.S. dollar. This is why Governor Steven is now envisaging to further ease monetary policy.
For the time being, there is one silver cloud for Australia and Canada. Gold has soared by 16.74% since the beginning of the year. This should provide some additional revenues necessary for these two countries. Yet, we remain bearish on the Aussie and on the Loonie over the medium-term.***
Today traders will be watching the inflation report from Spain; GDP from Italy; industrial production and GDP from the Eurozone; retail sales and Michigan sentiment index from the US.