Sample Category Title

Wednesday April 10: Five things the markets are talking about

Global equities are mixed overnight on growth concerns and an escalation in trade tensions. Sovereign bond yields have fallen while the ‘big’ dollar trades steady.

The market will focus on a number of major events today, the ECB monetary policy announcement, EU summit Brexit extension announcement, the FOMC minutes and U.S inflation data.

The ECB meeting is likely to be rather calm. After having played with policy last month, any additional changes are probably sometime away. Expect key interest rates to remain on hold, while the central bank reaffirms its new ‘extended forward guidance’ under which it aims to leave rates.

The market does not expect the ECB to announce any further details of the built-in incentives for the next TLTRO. Investors should expect them to continue with the balancing act between demonstrating that it is not running out of ammunition while still keeping everything close at hand. The ECB is considered to be in a ‘wait and see mode.’ As per usual, expect today’s focus will be on questions and answers at President Mario Draghi’s press conference (08:30 am EDT).

All sterling position holders are waiting for some fresh news from the EU summit on the U.K’s extension request. Yesterday, U.K parliament approved PM May’s plan to ask for a Brexit extension to June 30. Currently, the market expects the U.K to get another Brexit extension, but longer, up to 12-months and not the short June request by PM May. Under this scenario a general election in the U.K is seen as the most likely scenario.

Note: The U.K is technically due to exit the EU on Friday.

On tap stateside: U.S banks will soon begin Q1 reporting. The spring meetings of the World Bank Group and the IMF continue in Washington, while the FOMC will release minutes of its March meeting (2:00 pm EDT).

1. Equities looking for a growth sign

In Japan, the Nikkei dropped to a one-week low overnight as escalating trade tensions between the U.S and EU and worries about the global growth outlook-tired investor confidence. The Nikkei share average ended -0.5% lower, the lowest closing level since April 3. The broader Topix dropped -0.7%.

Down-under, Aussie stocks hardly moved overnight, despite investor appetites taking a sharp hit after the IMF downgraded its global growth forecast a third time since October. The S&P/ASX 200 index, largely unmoved for a second consecutive session, inched up +0.03%. In S. Korea, the Kospi index (+0.5%) saw a late uptick, extending its recent winning streak further into a second week. The Kospi has risen 9 straight days.

In China, stocks ended higher overnight, supported by strength in consumer and healthcare companies. The blue-chip CSI300 index rose +0.3%, while the Shanghai Composite Index closed up +0.1%.

In Hong Kong, stocks ended lower overnight, amid worries over slower global economic growth and trade tensions. The Hang Seng index fell -0.1%, while the China Enterprises Index lost -0.4%.

In Europe, regional bourses are trading mostly higher, coming off earlier lows after a mostly weaker session in Asia overnight. U.S Index futures point a stronger open recouping some of the losses seen Tuesday.

U.S stocks are set to open in the ‘black’ (+0.13%).

Indices: Stoxx600 +0.08% at 386.44, FTSE -0.07% at 7,420.50, DAX +0.40% at 11,898.49, CAC-40 +0.35% at 5,455.42, IBEX-35 +0.32% at 9,437.90, FTSE MIB +0.22% at 21,719.50, SMI +0.40% at 9,579.50, S&P 500 Futures +0.13%

2. Oil edges up amid tightening supply, but economic slowdown caps gains

Oil prices have again inched up overnight amid supply cuts by OPEC+ and U.S sanctions on oil exporters Iran and Venezuela but pressured by expectations that an economic slowdown could soon impede fuel consumption.

Brent futures are at +$70.76 per barrel, up +15c, or +0.2%, from Tuesday’s close, while U.S West Texas Intermediate (WTI) crude oil futures are at +$64.20 per barrel, up +22c, or +0.3%.

Note: Both benchmarks hit five-month highs yesterday, before easing on global growth worries.

Crude prices have been further lifted this week by escalating violence in Libya, a significant supplier of oil to Europe, which produced around +1.1M bpd of crude in March.

Elsewhere, Russia remains a reluctant participant in the supply cuts. It signaled earlier this week that it wanted to raise output when it meets with OPEC in June because of falling stockpiles.

Despite the OPEC+ led cuts and U.S sanctions, not all regions are in tight supply. Stateside, crude oil production has risen by more than +2M bpd since early 2018, to a record +12.2M bpd.

Data yesterday from the API showed that U.S crude stocks rose by +4.1M barrels in the week to April 5, to +455.8M barrels.

Expect dealers to take direction from today’s EIA report at 10:30 am EDT

Ahead of the U.S open, gold continues to trade within striking distance of its two-week high print in yesterday’s session, as investors worry about the trade tensions between the U.S and Europe and as the IMF cut its global growth outlook again. Spot gold is down about -0.1% at +$1,303.14 per ounce, after touching its highest since March 28 at +$1,306.09 Tuesday. U.S gold futures are also down about -0.1% at +$1,307.60 an ounce.

3. Sovereign bonds poised for action ahead of ECB and E.U summit announcements

A lot of new supply has been taken down globally this week (Germany, U.S, Japan, Italy, Portugal), but despite this, dealers are poised for a busy trading day ahead of a slew of key economic data, the ECB meeting, emergency EU summit at which Brexit will be discussed and U.S inflation data.

That been said, it’s no surprise to see sovereign bond yields are lower in early trade, after weak economic growth projections from the IMF yesterday and EU-U.S trade tensions.

Peripheral and longer-dated eurozone bonds have also been helped by the strong bid for yield. Germany’s 10-year government bond yield is seen at -0.008%, whilst the yield on 10-year Treasuries has declined -1 bps to +2.49%, the lowest in more than a week.

In the U.K, the 10-year Gilt yield is unchanged at +1.104%, while in Japan, the 10-year JGB yield fell -1 bps to -0.053%.

4. FX ranges remain tight

FX markets are again quiet as traders remain on the sidelines ahead of today’s key events.

EUR/USD (€1.1274) is steady ahead of the ECB rate decision. The market is not expecting any change in policy with focus on Draghi press conference as the overall outlook had not deteriorated enough for the Governing Council to unveil major new stimulus measures.

GBP/USD (£1.3075) is a tad higher as E.U Leaders seemed poised to offer the U.K a longer extension with an exit clause to avoid a no-deal outcome.

NOK (€9.5949) is a tad firmer after March CPI reading kept the outlook intact for another rate hike by Norges later this year.

5. UK economy grew steadily in February

Data this morning from the ONS showed that the U.K economy grew at a slow, but steady pace in the three months through February, aided by a pickup in demand for U.K goods from buyers worried about the effect on supplies of Brexit.

The economy grew +0.3% December through February, matching the rate of growth achieved in the three months ending in January.

According to the ONS, the expansion was fueled by growth in manufacturing and most services, which offset a drag from the construction sector.

Note: Financial services output has not risen on a monthly basis for a year, a record, exceeding even the length of the slump following the financial crisis a decade ago.

Financial services output is now -2.3% lower than it was in February 2018, ONS data shows.

The ONS said some British factories reported their customers brought forward orders from later in the year to ensure there was no disruption to supplies around the U.K.’s withdrawal from the E.U.

EUR/USD is showing limited movement in the Wednesday session. Currently, the pair is trading at 1.1276, up 0.11% on the day. On the release front, there are no German or eurozone events. The ECB is expected to hold interest rate levels and will release a policy statement. The U.S. releases key inflation data. CPI is expected to improve to 0.3% and Core CPI is projected to climb to 0.2%. As well, the FOMC releases the minutes of the March policy meeting. On Thursday, the focus will be on inflation. Germany posts CPI and the U.S. releases PPI. As well, the Federal Reserve will release the minutes of the March policy meeting.

Central banks will be in the spotlight on Wednesday. The ECB is expected to maintain interest rates at a flat 0.00%, where they have been pegged since March of 2016. Investors will be more focused in the rate statement, as a dovish message to the markets could push the euro lower. ECB policymakers have acknowledged the slowdown which has gripped Germany and the eurozone. The manufacturing sector has been particularly hard hit, as a slump in global demand has hurt exports, such as German cars and auto parts. Last week, the ECB minutes from the March meeting were pessimistic, as policymakers acknowledged that the economic outlook remained bleak. If the rate statement is a repeat performance, the euro is likely to point downward.

On the heels of the ECB decision, the Federal Reserve will release the minutes of the March meeting. At the meeting, the Fed announced that it would taper the reduction of its balance sheet to $15 billion in May, and wind up the taper in September. Currently, the Fed is reducing its balance sheet by $30 a month. The taper marks a loosening of policy, and comes in response to weaker economic data out of the U.S. in recent months. The Fed has become more dovish in 2019, saying that no rate hikes are planned prior to 2020. If the minutes are also dovish, investors could respond negatively and the dollar could lose ground.

The Aussie dollar rallied on Wednesday after neutral tone from RBA Deputy Governor Debelle’s speech that disappointed those expecting more dovish stance.

Adding to positive tone was release of upbeat Australian consumer sentiment (Apr 1.9% vs Mar -4.8%).

Fresh bulls broke above 100SMA (0.7143) attack daily cloud top (0.7153) again, after recovering all losses of the previous day and neutralizing negative signal from Tuesday’s bearish Doji candle with long upper shadow.

Fresh bullish momentum on daily chart supports the action, but overbought stochastic warns of possible repeated stall.

Sustained break above daily cloud would open way towards targets at 0.7168 (21 Mar spike high) and 0.7183 (Fibo 61.8% of 0.7295/0.7003 fall).

Repeated failure at daily cloud top would risk fresh easing as cloud turns lower and next week’s twist would be magnetic, however bullish bias will remain in play while the price holds above 55SMA (0.7117).

Res: 0.7168, 0.7183, 0.7207, 0.7226
Sup: 0.7143, 0.7117, 0.7107, 0.7091

China’s 50 stock index experienced fresh buying interest after beating resistance around the 13,100 level, with the price spiking to a new one-year high of 13,917 early on Wednesday.

While the RSI and the stochastics warn of an overbought market and the MACD suggests a softer trading in the short term as the indicator seems to be losing steam above its red signal line, the market needs to weaken back below 13,100 and the 20-day moving average for traders to resume cautious behavior. The level also coincides with the 61.8% Fibonacci of the one-year old downleg from 14,914 to 10,197. Hence any decisive close below that mark, could shift support down to 12,374, where the price rebounded in late-March. Moving lower, another key barrier is likely to emerge around 11,900 which if broken would switch the medium-term outlook from bullish to neutral.

In the positive scenario, a close above 13,917 and the 78.6% Fibonacci may transform the December uptrend to a more concrete one and fuel further buying interest. In such a case, resistance could initially appear near 14,200 and then at 14,632 before the focus shifts to the 14,914 top.

The New Zealand Dollar has been trading in a horizontal channel pattern against the US Dollar.

The situation could change within this session, as traders and investors await the US FOMC minutes scheduled at 18:00 GMT.

It is important to note that forex traders are expecting the currency exchange rate to make a movement of about 5 to 50 base points range.

Besides, the US CPI and Core CPI data release scheduled at 12:30 GMT could also play a significant role in the currency pair movement during the European trading session.

The US Dollar appreciated about 52 base points against the Canadian Dollar on Tuesday. The surge was stopped by a resistance line formed by the 50-hour simple moving average at 1.3326.

Everything being equal, it is likely that the USD/CAD exchange rate will continue to appreciate within this session. The possible upside target for the currency pair will be at the weekly pivot point at 1.3363.

Although, the US macroeconomic data releases scheduled at 18:00 GMT could change the overall positioning of the currency exchange rate during the following trading session

The Australian Dollar depreciated about 0.43% in value against the US Dollar on Tuesday. The exchange rate breached the weekly R1 at 0.7143 during Tuesday's trading session. However, Wednesday's trading session began with an upside sentiment.

The 200– hour simple moving average was providing support for the currency pair at 0.7110 on Wednesday.

By and large, it is likely that the AUD/USD currency exchange rate will continue its upside momentum within this session. The potential target for the pair will be near a resistance cluster at 0.7177.

US Inflation Data

Equity markets soften as investors avoided risk after the IMF downgraded its global growth forecasts. Crude oil fell on the lower growth outlook and Russian voicing approval with the current level of oil prices. The USD weakened as treasuries yields fell, with safe-haven demand boosting JPY and lesser extent CHF. FX Volatility has vanished or gets pushed to a dark corner of the liquid EM universe. Overall, we see price action as a reaction to the lack of real drivers ahead of today business schedule. The highlight will be the EU response to the UK request for another Brexit extension and ECB policy meeting. Markets expect the extension to be granted which should be GBP positive. From the ECB we could get some discussion on TLTRO and reserve tiers but nothing groundbreaking.

In the US, the CPI inflation report will bring headline which is expected to hit 0.4% m/m on the back of gasoline prices. However, more importantly for Fed policy, core will read a modest 0.1% sending annual core read down .1% to 2.0%. The trend in core will likely generate expectations for the Fed to keep dovish bias. This should be generally negative for USD but within the macro context unlikely to be game-changer. Finally, the release of the March FOMC Minutes will have investors focused on factors driving US growth and discussion over rate cuts (unlikely). Markets are likely to remain in current markets, as investors are pricing in a tail-like event over micro-tuning forecasts.

Careful markets, yet optimism prevails

Financial markets have to digest many different factors during today’s session. First, the international lending entity IMF slashed global growth for the third consecutive time in six months for 2019, then US President Trump announced it will implement tariffs on $11 billion EU products and finally a Brexit (longer) delay as well as ECB monetary policy meeting are nearing.

Thereupon, the International Monetary Fund global growth outlook drop comes with no much surprise, yet remains weakest since 2009 at 3.30% (January: 3.50%) as risks over deteriorating market sentiment, tighter financial conditions for vulnerable economies as well as EU area spillovers and a hard Brexit are considered. Furthermore, US – China trade discord is discounted, as recent progressions are expected to prompt a rebound in business and investor sentiment. According to IMF scenario, major risks derives from Europe and China among other EM economies, despite a raise in China’s growth of 0.10 percentage points (6.30%). We would however nuance the statement, since the situation in Europe, Asia and EM countries have stabilized. The risk of a no-deal Brexit has sensitively lowered as the EU Commission is expected to offer a flexible, longer delay (e.g. 12 months) at the EU emergency summit session from today, while expectations are turning towards a rebound in China’s economy for 2H 2019 by means of policy stimulus initiated earlier last year. For what concerns the recent announcement made by the Trump administration that it is willing to slap tariffs on EU products (incl. aircraft manufacturing industry), we remain confident that a rapid resolution between both counterparts is feasible.

Currently trading at 1.1272, EUR/USD is heading along 1.1250, as caution will remain the final word during today’s ECB meeting.

The dollar index (#DX) is consolidating near local lows before important events. Today, the news feed will be full of events. Investors expect the US inflation report for March, as well as the publication of the FOMC minutes. Earlier, the US Federal Reserve announced that it planned to keep interest rates unchanged until the end of this year. At the same time, the US President Donald Trump continues to criticize the actions of the regulator. He believes that the Central Bank has to ease interest rates, as well as to stop the decrease in the volume of assets on the balance sheet.

Also, investors will be focused on the ECB interest rate decision. Financial market participants expect the regulator to leave the key marks of monetary policy unchanged. Earlier, ECB President, Mario Draghi, said that the regulator was ready to consider the issue of introducing additional expansionary measures in September 2019. We recommend paying attention to the comments by the Central Bank representatives.

Today, a summit of EU member countries will also take place, at which the Brexit issue will be decided. The request by the British Prime Minister Theresa May to extend the deadline for the country's exit from the block will be considered at the summit. Theresa May requests to extend the term of Article 50 of the EU Treaty until June 30, 2019. European Council President Donald Tusk, in turn, offered EU countries to consider a "flexible" extension of the Brexit deadline. He urges to do everything possible to avoid no-deal Brexit. We also recommend paying attention to important economic releases from the UK.

The demand for safe assets is still at a fairly high level amid new tension in trade between the US and Europe, as well as a slowdown in global economic growth. The United States announced the possibility of introduction of additional tariffs on European goods $11 billion worth. The International Monetary Fund has worsened its forecasts for the global economy in 2019 from 3.5% to 3.3%, which is the slowest growth since 2016.

The "black gold" prices are consolidating near annual highs. At the moment, futures for the WTI crude oil are testing the mark of $64.30 per barrel. At 17:30 (GMT+3:00), a report on crude oil inventories will be published in the US.

Market Indicators

• Yesterday, the bearish sentiment was observed in the US stock market: #SPY (-0.51%), #DIA (-0.65%), #QQQ (-0.35%).
• The 10-year US government bonds yield fell slightly. Currently, the indicator is at the level of 2.49-2.50%.

The news feed for 2019.04.10:

• UK GDP at 11:30 (GMT+3:00);
• Manufacturing production in the UK at 11:30 (GMT+3:00);
• ECB interest rate decision at 14:45 (GMT+3:00);
• Inflation report in the US at 15:30 (GMT+3:00);
• FOMC meeting minutes at 21:00 (GMT+3:00).

EU27 to decide on Brexit extension

Today is the day we've all been waiting for, the reason why markets have been so subdued at the start of the week. An emergency EU Brexit summit, ECB meeting and Fed minutes will ensure this is anything but a boring day in the markets.

Theresa May will learn the terms of the UKs article 50 extension today, after the leaders of the other 27 countries meet to discuss her request. There are numerous ideas on the table, from May's June 30th request to Donald Tusks one year "flextension" but it's possible that neither will get the full backing of the EU27. Unfortunately for May, she doesn't hold much leverage and is instead relying on the goodwill of the very peers she's spent the last two years frustrating.

It's very unlikely though that an offer won't be forthcoming, it's just a question of how politically painful it will be for the Prime Minister because with Parliament committing her to an extension and the current deadline two days away, she doesn't have many options. Of course, Parliament could still back her deal by Friday and leave on 22 May but that doesn't seem very likely right now.

ECB meets as IMF downgrades growth forecasts

The ECB meeting today will be an interesting affair, even if the main decisions on interest rates and TLTROs were made last month. There’s been a lot of chatter recently about what can be done to offset the side-effects of the now long-term negative deposit rate for banks and whether the ECB will act to shield them. This may be discussed today and I’m sure Draghi will take some questions on it after. Any hikes now look far away though, especially following last month’s moves.

Today’s meeting also comes as the IMF sharply cut its growth forecasts for the block and US President Trump threatens tariffs against the EU, further pressuring a region already experiencing a slowdown, with Italy in recession and Germany teetering on the edge. The risks to the downside are clearly building but I think we’ll have to wait longer for the central bank to announce any new stimulus measures, should they prove necessary.

Will the Fed go full u-turn?

The Fed minutes will also be in focus today, with the central bank having last month lowered its expectations for interest rates to only one next year and none this year. This is quite the change when you consider they raised rates for a fourth time in 12 months in December, a move that raised a few eyebrows as markets were already in meltdown and economic forecasts for 2019 were being slashed.

The minutes may not offer too much on top of what was already a comprehensive assessment a few weeks ago. Investors will be keen to see what the prospects of a rate cut are in the interim though, with markets already pricing in one this year. We’ve clearly seen a very dovish pivot from the Fed in recent months but I don’t think they’ll be ready just yet to go full u-turn. It would not reflect well on their decision in December.