Financial market research and analysis

The FTSE 100 opened the week on a negative note; mining and energy stocks started the day on the back foot. Investors lack appetite despite the softer pound.

Cable made a bearish start as well. Trend and momentum indicators remain comfortably negative, as sellers are touted at the 1.2300/1.2343 (psychological level / Fibonacci 50% level on January – February recovery).


Deutsche Bank weighs on the DAX

The DAX opened downbeat, as Deutsche Bank (-5.51%) sold off aggressively after announcing a major capital increase by offering 8 billion euros in stocks, besides its plans to proceed with 22 billion euros worth of cost cutting by 2018, to reorganize the bank by bringing the trading and investment banking back again and to name two deputy CEOs. The idea is to separate the consumer business from the corporate business to adjust margins and boost profits. Investors refused to buy into DB’s restructuring plans, given that the latest restructuring, which has taken place last year has not achieved anticipated results and apparently harmed investors’ confidence in the bank’s ability to succeed.


Investors loved the Peugeot deal

In Paris, Peugeot shares jumped past 4% after the agreement to buy GM's Opel and Vauxhall operations for 2.2 billion euros. The deal moves the French carmaker to the Europe's second biggest automaker after the German Volkswagen.


Yellen hints at a steeper Fed normalization in 2017

The US dollar strengthened across the board after the Federal Reserve (Fed) Chair Janet Yellen left little to imagination regarding an interest rate hike in March.

In addition, Yellen also hinted that there could be more tightening in 2017, meaning that the Fed could raise rates more than three times anticipated by the markets. The US 10-year yields are now ready to successfully test the 2.50%.


Francois Fillon loses steam in French presidential race

In France, Francois Fillon refuses to lower his arms in the presidential race, although he has lost support from his party, UMP. There are rising speculations that Alain Juppé would actually win the first round of the election if he replaced Mr. Fillon, who is now referred to as ‘a danger to France’.

Looking back in the history, we clearly observe that pre-election scandals had significant impact on the results. Given that the first round of French elections is due in April 23rd, Mr. Fillon will most probably lack time to gain back the credibility of his party and his voters. According to the latest Bloomberg survey, the probability of Fillon victory fell to 19%. Odds for the independent candidate Emmanuel Macron’s victory rose by 4.30% to 24%, meanwhile Front National’s Marine Le Pen is given 27% chances to win the election. On a side note, Le Pen’s victory is still seen as unlikely at the second and final tour of the election.

The EURUSD extended gains above 1.0620, the 100-day moving average. Solid resistance is eyed pre-1.0706 (major 38.2% retracement on post-Trump rally), if broken, should signal a mid-term bullish reversal, whereas the divergence between the Federal Reserve (Fed) and European Central Bank (ECB) policy outlooks is supportive of a weak euro against the greenback. Therefore, a potential rise toward the 1.07 level could bump into a solid resistance.  


China aims stable growth, reforms

China revised its 2017 growth target slightly lower to 6.5% and more if possible, from 6.5%-7% a year earlier. The inflation target has been kept at 3% year-on-year; the retail sales growth target remained stable at 10%. The People’s Bank of China (PBoC) lowered the M2 money supply target down to 12% and is expected to further tighten the monetary policy in order to ease the recent rise in inflationary pressures due to the sharp US dollar appreciation and the recovery in global oil and commodity prices. Also, a tighter monetary policy would reduce the bad loans and speculative bubbles. Chinese Premier Li has also signaled further liberalization of the Yuan’s exchange rate. News were encouraging for investors, as further financial and regulatory reforms are the major caveats for foreign investors, and it appears that China is decidedly taking measures to allow a good basis for new investments. As a result, China is seeking 6.5% stable and balanced growth.

Chinese stock markets opened the week on a positive note. Shanghai’s Composite (+0.48%) and Hang Seng index (+0.18%) gained as the Yuan traded below 6.90 against the US dollar.


Gold, yen gained on North Korean threat

Gold and yen gained on the back of increased safe haven flows after North Korea fired four ballistic missiles into the Sea of Japan.

As such, gold traded above the $1230 in Asia, after testing the $1220 in the US on Friday. The yen (+0.32%) extended gains against the greenback. The USDJPY remained capped at 114.14 in Tokyo. From a technical perspective, the positive momentum is losing pace as the 50-day moving average (113.75) is testing the 100-day moving average on the downside. Solid offers are presumed pre-115.00 level.

Nikkei (-0.46%) and Topix (-0.20%) retreated on stronger yen.


Aussie rangebound before RBA decision

The AUDUSD rebounded from 0.7546 (200-day moving average) on Friday and is expected to see support before the Reserve Bank of Australia (RBA) meeting due tomorrow. The RBA is expected to keep the cash rate unchanged at 1.5%, yet stay accommodative given that the recent recovery in commodity prices haven’t fully translated into the economic performance. With the US trade worries looming, we expect the RBA to play safe. Therefore, the RBA may lack an encouraging surprise for the carry traders. Stagnation in Aussie yields discourages the fresh buyers, especially given that the US yields improve on hawkish Fed. Below the 200-dma, AUDUSD traders could target the key 0.7517 support, major 38.2% retracement on December to February recovery. This level will distinguish between a potential rebound and a mid-term bearish reversal against the US dollar.