For now follow the USD bears
Today’s play is to buy risk, sell volatility. January’s Open Market Committee meeting of the US Federal Reserve, minute of which will be released this week, should show confidence in US economic growth. The decline of the VIX volatility index and the recovery in equities has offset concerns of slightly higher interest rates.
Yet we will not be lulled into complacency. When the European Central Bank and the Bank of Japan start “normalization”, this will likely trigger a sustained, extended correction that bears expect. We see additional volatility through September. US fiscal spending will accelerate, thanks to the Bipartisan Budget Act of 2018 which will boost federal outlays by $67.9 billion in 2018 and $184.3 billion in 2019. This could push the Fed to tighten faster, increasing the risk of a hard landing in the USA.
Tokyo, Sydney and S. Korea continue their expansion
Japanese equities continue their expansion on Monday. The TOPIX ended the day at 1775 (+2.17%) following strong decrease of -7.09% two weeks ago, supported by Real Estate (+2.79%), Utilities (+2.44%), Industrials (+2.34%) and Materials (+2.04%). The technical structure of the index suggests further short-term rise toward hourly resistance at 1803 (07/02/2018 high). The Nikkei 225 also closed higher, heading above 22K at 22149 (+1.97%) and heading toward hourly resistance at 22354 (07/02/2018 high).
Stocks in Sydney and South Korea ended the day in positive territory, with the S&P/ASX 200 at 5942 (+0.64%) and the Kospi increasing up 0.87% at 2443, while Hong Kong and China remain closed for holiday.
This week we will be looking at Australia Reserve Bank Meeting Minutes (Tuesday) and US FOMC Meeting Minutes (Wednesday), both giving the tone on markets for the coming days.
