Sample Category Title

Investors cheer positive US developments

We've seen a clear shift in risk appetite over the last 24 hours, with the US being the source of most of this as the government looks to avoid a shutdown and the truce deadline with China may be extended.

The shutdown soap opera may be over for now – assuming Trump doesn't throw one final spanner in the works – after Democrats and Republicans agreed on a deal to keep government funded, at the expense of most of the funds the President demanded for his border wall. This is unlikely to deter Trump though who will be seeking alternative arrangements to secure this but will be keen to avoid another shutdown after the finger of blame last month was pointed in his direction.

One of the primary risk factors for the markets is unquestionably the US/China trade war and so a lot depends on those talks – now taking place in Beijing – progress. The rhetoric has been changing week by week but comments from Trump on Tuesday gave investors plenty of cause for optimism, with the President suggesting he very much wants a deal and could let the deadline slide. This means the tariff on $200 billion worth of Chinese imports may not yet increase from 10% to 25% and further tariffs won't be proposed, which is clearly coming as a relief to investors.

Brexit can kicked down the road

The can has been kicked down the road as far as Brexit is concerned, with Theresa May confirming on Tuesday that an agreement has not yet been reached with Brussels and that MPs will have a chance to vote on any new deal by 27 February, a little over a month before Brexit day. If a new deal isn't forthcoming, then MPs will instead have the opportunity to vote on amendments to a motion put forward by the Prime Minister, which means another chance to postpone Brexit or block no deal. For now, the saga continues and the prospects of an eleventh hour deal become ever higher. Still, sterling traders remain relatively chilled about the whole situation with apparent increased no deal risks no fazing them, for now.

Gold gains as USD ends eight day winning streak

The risk rally has brought an end to the eight day winning streak in the dollar, with improved prospects on sino-US talks primarily behind that. This has provided some relief for gold just as the downward pressure was building. We hadn't yet seen the crucial $1,300 support come under any significant pressure but it may have only been a matter of time if the dollar had continued to make gains at the same rate. Gold bulls have shown a strong resilience in the face of an impressive rally in the greenback but how long could they have kept it up? Obviously, global central banks becoming notably more dovish does help.

Oil buoyed by numerous factors on Tuesday

A combination of factors seemed to contribute to a lift in oil prices on Tuesday, a rally that has continued into this morning. The improved risk appetite is of course one of these, as it the better prospects for trade talks but the most important factor is probably the efforts of oil producers to reduce output and counter the oversupply in the markets. Saudi Arabia clearly stands out here as it vowed to reduce output by 500,000 barrels more than it previously committed to by March. This is a welcome development at a time when Russia's compliance is being called into question. The API report showing inventories had fallen by almost a million barrels a day – against expectations of a 2.7 million barrel build – didn't do the rally any harm either.

Daily Pivots: (S1) 110.34; (P) 110.49; (R1) 110.65; More...

Further rise could still be seen in USD/JPY. But we'd expect strong resistance from 61.8% retracement of 114.54 to 104.69 at 110.77 to limit upside to bring near term reversal. On the downside, break of 109.66 minor support will turn intraday bias back to the downside for 108.49. Break will confirm completion of rebound from 104.69. However, sustained trading above 110.77 will dampen our bearish view and target a test on 114.54 resistance instead.

In the bigger picture, while the rebound from 104.69 is strong, there is no change in the view that it's a corrective move. That is, fall from 114.54, as part of the decline from 118.65 (2016 high), is not completed yet. Break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51, which is close to 100 psychological level. Nevertheless, sustained trading above 55 day EMA (now at 110.41) will dampen this bearish view and turn focus back to 114.54 resistance instead.

Market movers today

Key focus in Scandi will be on the Riksbank meeting. We do not expect the Riksbank to make any changes to the repo rate or the repo rate path but would not be surprised to see a softer tone. This is priced in by markets already, however, as SEK has weakened significantly recently (more on page 2).

On the global scene, we will have a number of important releases. In Europe, the UK January CPI and euro area industrial production are due. Especially the industrial production will be interesting as to what extent the end of 2018 was particularly weak.

US CPI for January is due out this afternoon. We estimate CPI core rose +0.2% m/m in January, implying a core inflation rate at 2.1% y/y down from 2.2% in December.

Overnight, first Japan GDP figures for Q4 are due out as well as the Chinese trade balance.

Selected market news

Stock markets continued to rally overnight in Asia. The gains are driven by rising optimism that the US and China will strike a trade deal fairly soon and that it will drive a recovery in the global economy.

US President Donald Trump indicated he could let the ceasefire deadline of 1 March slide a little if a real trade deal with China was close. He also stated that he expects to meet with Chinese President Xi Jinping to close the deal at some point.

Trump also played down the risk of another government shutdown. He indicated in a tweet that he would instead get money from other sources for border protection saying he 'will get almost USD23BILLION for border security' without stating which sources it would be.

Yesterday, we saw a number of ECB speakers on the wires. Most important was Philip Lane (incoming ECB board member set to replace Chief Economist Peter Praet). Lane stressed that the euro area economy was 'pretty strong' and suggested that the setback was temporary.

Furthermore, Bundesbank President Jens Weidmann suggested that there were good reasons to believe inflation would return to target and that current data was a 'soft patch'. Klaas Knot said that 'wait and see' was probably the best approach now. Importantly, it was mentioned that we should not focus on individual data points. These messages suggest an unchanged ECB narrative despite the ECB being set to lower its GDP staff projections at the March meeting. However, uncertainty prevails as the full set of incoming information since the last meeting has not been released yet.

Daily Pivots: (S1) 1.3207; (P) 1.3262; (R1) 1.3290; More...

USD/CAD's retreat from 1.3329 extends lower today and deeper decline might be seen. But we're holding on to the view that decline from 1.3664 has completed with three waves down to 1.3068 already, on bullish convergence condition in 4 hour MACD, just ahead of medium term channel support. Hence, risks will stay on the upside as long as 1.3068 holds. On the upside, break of 1.3375 resistance will confirm this bullish case and target a test on 1.3664 high.

In the bigger picture, structure of the medium term rise from 1.2061 (2017 low) to 1.3664 is not clearly impulsive. Hence, we'd stay cautious on strong resistance from 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685 and 1.3793 resistance to limit upside, and bring medium term topping. But in any case, medium term outlook will stay bullish as long as channel support (now at 1.3086) holds. Sustained break of 1.3793 will pave the way to retest 1.4689 (2015 high). Firm break of the channel support should confirm reversal target 1.2061 low again.

General Trend:

• US Pres Trump: May consider delaying March 1st deadline if nearing a deal with China, but would prefer not to
• Japanese equities extend gains from Tuesday’s session; Securities brokers, Machinery and Electric Appliance companies outperform
• Chinese equities extend recent winning streak following holiday break; Shanghai Telecom Index rises over 5%, IT index gains over 2%
• ZTE rises over 6% in Hong Kong ahead of high-level US/China trade talks
• Xiaomi gains over 4% in Hong Kong, expected to be added to the MSCI China index
• Shanghai Property index underperforms, China new home sales declined by 56% y/y during the Lunar New Year (HK Press article citing data from 17 major cites)
• Energy and Resources companies rise in Australia, financials lag
• Virgin Australia rises over 10%, H1 profits and revenues rose
• New Zealand 10-year yield rises over 7bps after RBNZ policy statement, NZD also gained
• South Korea Unemployment Rate rose to the highest level since 2010; Fin Min says job market situation is ‘grave’
• It remains unclear whether Trump will support government shutdown deal
• Japan Q4 prelim GDP data due on Thursday
• PBOC conducts second ever yuan denominated bill sale in Hong Kong (as expected)
• China monthly auto sales may be released later today
• China Trade Balance expected Feb 13-14th
• High level US/China trade talks due to occur in Beijing on Thursday-Friday (Feb 14-15th)
• US companies expected to report earnings on Wed include AIG, Cisco, DaVita, Louisiana Pacific, MGM, NetApp and Nu Skin (including after hours)

Headlines/Economic Data

Japan

• Nikkei 225 opened +0.8%
• (JP) JAPAN JAN PPI (CGPI) M/M: -0.6% V -0.2%E; Y/Y: 0.6% V 1.0%E
• (JP) Japan Center for Economic Research (JCER): Japan GDP grew 1.2% in Dec v -0.7% prior (first growth in 2 months) – Japanese Press
• 7201.JP Reports 9M Net ¥316.7B v ¥578.1B y/y; Op ¥313.7B v ¥364.2B y/y; Rev ¥8.58T v ¥8.53T y/y; Cuts all guidance
• (JP) Moody's Official: Still 'opportune' time for Japan to proceed with sales tax increase
• 6502.JP Reports 9M Net ¥1.02T v ¥27.0B y/y; Op ¥8.2B v ¥55.5B y/y; Rev ¥2.65T v ¥2.80T y/y; Cuts outlook
• (JP) Japan MoF sells ¥2.0T v ¥2.0T prior in 0.10% (prior 0.10%) 5-yr JGB: avg yield: -0.151% v -0.144% prior, bid to cover: 4.84x v 5.15x prior

Korea

• Kospi opens +0.4%
• (KR) South Korea Jan Unemployment Rate: 4.4% v 3.8%e
• (KR) South Korea Finance Min Hong comments after Jan Jobs Data: Job market in 'grave' situation
• (KR) US Adm. Philip Davidson: Think its unlikely that North Korea will give up all of its nuclear weapons or production capabilities, but seeks to negotiate partial denuclearization in exchange for US and international concessions - Yonhap

China/Hong Kong

• Hang Seng opens +0.1%; Shanghai Composite opens +0.1%
• (CN) US President Trump: May consider delaying March 1st deadline if nearing a deal with China but would prefer not to
• (US) US Treasury Sec Mnuchin: Hopes for productive trade meetings this week - comments from Beijing
• (CN) China PBoC sells CNY20B v CNY20B indicated in offshore-yuan 3-month and 1-yr bills in Hong Kong
• (CN) China President Xi to meet with US trade delegation Friday including Lighthizer and Mnuchin in Beijing - SCMP
• (CN) China PBoC Open Market Operation (OMO): Skips reverse repo operations for 3rd consecutive session; Net: CNY270B drain v CNY100B drain prior
• (CN) Fitch: China shadow financing likely to decline for a second consecutive year in 2019, offshore funding market remains challenging
• (CN) China PBoC sets Yuan Reference Rate: 6.7675 v 6.7765 prior
• (HK) Hong Kong Commissioner for Economic and Trade Affairs Eddie Mak: Sustainable and stable trade ties between China's Hong Kong Special Administrative Region (HKSAR) and the United States are mutually beneficial - Xinhua

Australia/New Zealand

• ASX 200 opened -0.0%
• (AU) Reserve Bank of Australia (RBA) Head of Economic Analysis Heath: perspectives about the domestic economy have shifted
• (NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE UNCHANGED AT 1.75%; AS EXPECTED; Sees keeping OCR at 1.75% through Nov 2020
• (NZ) RBNZ Gov Orr: Reiterates chances of rate cut have not increased, outlook is balanced up or down; does not rule out rate cut, best guess is we hold for a long period - Post rate decision press conference
• (AU) Australia Feb Westpac Consumer Confidence: 103.8 v 99.6 prior; m/m: +4.3% v -4.7% prior
• VAH.AU Reports H1 (A$) underlying pretax 112.3M v 102.5M y/y; EBIT 191.8M, +19.4% y/y; Rev 3.07B v 2.8B y/y; Guides Q3 Rev +7% q/q at least
• TTS.AU.OTC Reports H1 (A$) Net 182.5M v 24.6M y/y; Rev 2.79B v 1.34B y/y; CFO to retire
• EXP.AU Reports prelim H1 (A$) EBITDAI 17.6M; Rev 84.3M; CEO Anthony Ritterresigns, names Chairman Bob East interim CEO
• AOG.AU Reports H1 (A$) underlying Net 12.0M v 36.3M y/y; Rev 144.0M v 208.0M y/y; updates on strategic review
• CSL.AU Reports H1 at cc Net $1.16B v 1.09B y/y; EBITDA $1.72B v $1.62B y/y; Rev $4.34B v 3.99B y/y; narrows FY19 guidance range higher
• (AU) Australia sells A$900M v A$900M indicated in 2.75% Nov 2029 bonds, avg yield: 2.1564% v 2.2988% prior, bid to cover 3.00x v 2.70x prior

North America

• (US) Pres Trump: Can't say I'm happy about border deal; will have meeting on deal later today; does not expect govt shutdown
• (US) Sen Maj Leader McConnell (R-KY): hopes Pres Trump will sign border funding agreement
• (US) Weekly API Oil Inventories: Crude: -1M v +2.5M prior
• (US) Fed Mester (hawk, non-voter): monetary policy doesnt seem far behind or ahead of the curve; inflation likely to move below 2% in first part of the year due to low energy prices; Plans will be finalized for ending balance sheet runoff and completing balance sheet normalization at coming meetings
• (US) Fed's George (hawk, voter): Support for pausing interest rate hikes was to let Fed assess the impact of past hikes

Europe

• (UK) PM May adviser Oliver Robbins reportedly was overheard saying that MPs will be given choice between PM May's deal or lengthy delay to Brexit - ITV News
• (UK) PM May said to have the opportunity to win a late concession from EU leaders at Brussels summit March 21st - US financial press

Levels as of 12:50ET

• Hang Seng +1.2%; Shanghai Composite +1.3%; Kospi +0.4%; Nikkei225 +1.4%; ASX 200 -0.3%
• Equity Futures: S&P500 +0.3%; Nasdaq100 +0.5%, Dax +0.2%; FTSE100 +0.2%
• EUR 1.1324-1.1345; JPY 110.43-110.70; AUD 0.7093-0.7137; NZD 0.6727-0.6853
• Commodity Futures: Gold +0.2% at $1,316/oz; Crude Oil +0.9% at $53.57/brl; Copper +0.4% at $2.78/lb

Short-term Elliott wave view in Nikkei suggests that the Index has ended correction at 20169 as wave ((X)) and starts a new leg higher. Decline to 20169 on 8 February took the form of an Elliott Wave Expanded Flat. An Elliott Wave Flat structure has an ABC label with subdivision of 3-3-5. We can see from the 1 hour chart wave (B) of this FLAT ended at 20970 and wave (C) ended at 20169. Subdivision of wave (C) unfolded as a 5 waves Impulse Elliott Wave structure. Down from 20970, wave 1 ended at 20815, and wave 2 ended at 20895. Wave 3 ended at 20270, wave 4 ended at 20370, and wave 5 ended at 20169.

The Index has since rallied and broke above the previous high on February 5th, suggesting the next leg higher has started. Rally from Feb 9th low (20169) is unfolding as a 5 waves Impulse structure. Up from 20169, wave 1 ended at 20480 and wave 2 ended at 20390. Expect a few more legs higher in the Index to end the 5 waves up. Afterwards, it should pullback to correct the cycle from Feb 9 low within wave (B) in 3, 7, or 11 swing. As far as pullback stays above 20390 low, expect the Index to extend higher. We don’t like selling the Index.

Nikkei 1 Hour Elliott Wave Chart

For the 24 hours to 23:00 GMT, the EUR rose 0.51% against the USD and closed at 1.1333.

In the US data indicated that the US NFIB small business optimism index dropped to a two-year low level of 101.2 in January, compared to a reading of 104.4 in the prior month. Market participants had envisaged the index to fall to a level of 103.0. Meanwhile, the nation’s JOLTs job openings unexpectedly rose to a record high level of 7335.0K in December, defying market expectations for a drop to a level of 6846.0K. The JOLTs job openings had registered a revised level of 7166.0K in the previous month.

In the Asian session, at GMT0400, the pair is trading at 1.1340, with the EUR trading 0.06% higher against the USD from yesterday’s close.

The pair is expected to find support at 1.1285, and a fall through could take it to the next support level of 1.1229. The pair is expected to find its first resistance at 1.1369, and a rise through could take it to the next resistance level of 1.1397.

Moving ahead, traders would keep an eye on the Euro-zone’s industrial production for December, set to release in a few hours. Later in the day, the US consumer price index and average hourly earnings, both for January, along with the MBA mortgage applications, will pique significant amount of investors’ attention. Additionally, the US monthly budget statement for December, would keep investors on their toes.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP rose 0.28% against the USD and closed at 1.2894.

The Bank of England Governor, Mark Carney warned that a no-deal Brexit would create an “economic shock”. Hence, he urged MPs to solve the Brexit standoff and warned of growing threats to the global economy. Further, he stated that Brexit could prove to be an “acid test” for how the global economy might perform under the new rules of trade. Moreover, he added that global trade uncertainty could undermine the global expansion.

In the Asian session, at GMT0400, the pair is trading at 1.2904, with the GBP trading 0.08% higher against the USD from yesterday’s close.

The pair is expected to find support at 1.2855, and a fall through could take it to the next support level of 1.2806. The pair is expected to find its first resistance at 1.2931, and a rise through could take it to the next resistance level of 1.2958.

Trading trend in the Sterling today is expected to be determined by UK’s consumer price index, producer price index, retail price index and house price index, all for January, scheduled to release in a few hours.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD slightly declined against the JPY and closed at 110.45.

On the macro front, Japan's flash machine tool orders declined 18.8% on an annual basis in January, following a fall of 18.3% in the prior month.

In the Asian session, at GMT0400, the pair is trading at 110.65, with the USD trading 0.18% higher against the JPY from yesterday's close.

The pair is expected to find support at 110.43, and a fall through could take it to the next support level of 110.22. The pair is expected to find its first resistance at 110.78, and a rise through could take it to the next resistance level of 110.92.

Looking forward, investors would closely monitor Japan's gross domestic product for Q4, slated to release overnight.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.20% against the CHF and closed at 1.0061.

In the Asian session, at GMT0400, the pair is trading at 1.0056, with the USD trading 0.05% lower against the CHF from yesterday’s close.

The pair is expected to find support at 1.0033, and a fall through could take it to the next support level of 1.0010. The pair is expected to find its first resistance at 1.0086, and a rise through could take it to the next resistance level of 1.0116.

The currency pair is trading in between its 20 Hr and 50 Hr moving averages.