Following yesterday’s inexplicable ramp in stocks, which perhaps was driven by the collapse in oil (which sent energy companies higher because a 30x energy forward PE is cheap), and by the latest battery of disappointing economic data which made it less likely the Fed will proceed with a tightening move, overnight futures have given up a portion of the gains, and were trading down 0.3% at last check. And yet, if yesterday’s weakness was driven by USD weakness, today’s jump in the EURUSD above 1.06 (on absolutely disastrous German ZEW investor index print) is now somehow responsible for risk offness? And, adding confusion to insult, the 10 Y is down to 2.05% and in danger of re-entering a 1% handle. Sadly, nothing makes sense any more and today’s conclave of central planners in the Marriner Eccles building ahead of tomorrow’s 2pm FOMC “impatient” announcement isn’t going to make it any better.
But it isn’t just the Fed – as expected, the BoJ stood pat on their existing monetary policy with Kiuchi the only dissenter. In terms of the main takeaway, the BoJ warned that Japanese CPI could reside at 0.0% for the time being due to lower energy prices but said that additional easing was not required for now. Nonetheless, the BoJ will continue to examine ongoing risks to the economy and expect their 2% CPI threshold to be reached during 2015/16 fiscal year. As such, little market reaction was seen with the Nikkei 225 (+0.99%) holding on to its opening gains stemming from the positive Wall Street close alongside yesterday’s broadly weaker USD. Elsewhere, the Shanghai Comp. (+0.5%) has pulled off its best levels heading into the European open despite originally continuing the trend seen yesterday amid ongoing expectations for further easing.
European equities trade mostly lower by around 0.2-0.5% in a pullback of yesterday’s substantial gains, with the exception of the FTSE 100 which is trading higher by around 0.5%. UK stocks have been led higher by a rebound in energy names following yesterday’s notable underperformance despite both WTI and Brent actually once again trading lower this morning. One thing to note for UK energy names is that they are set to benefit from tomorrow’s UK budget with Chancellor Osborne set to unveil a new investment allowance in an attempt to counter CAPEX reductions. Fixed income markets have failed to gain any meaningful direction with newsflow relatively light thus far and a relatively mixed German ZEW and in-line Eurozone inflation report. Gilts outperform but merely on a catch up basis given the moves higher seen in USTs after the Gilt close yesterday. As was the case yesterday, newswires are reporting that Russian troops have been placed on full alert in the Baltic region. However, this is due to ongoing training drills and as was the case last week.
FX markets have once again been largely swayed by fluctuations in the USD-index which moved lower alongside the European open in a similar vein to yesterday ahead of the FOMC meeting. Despite the USD-index pulling off its worst levels in recent trade, EUR trades higher and AUD has pared its overnight losses after the RBA minutes revealed the central bank had considered another rate cut before opting to instead adopt a data dependent approach. Nonetheless, GBP has bucked the trend as political concerns heading into the UK general election has seen GBP/USD move back below 1.4800 ahead of tomorrow’s UK budget release. Finally, USD/JPY has traded in a relatively tight range with a large (750mln) option expiry at 121.25-30 providing some magnetism for price action.
