A tragic beginning to the day with the explosions in Brussels airport. Our thoughts go out to the victims’ families at this time. The initial reaction in financial markets has seen airline stocks open lower, Easy Jet is down 4.2% while Ryanair opened down 3.3%. We see a degree of safe haven capital flow with gold, the bund and the yen in demand.
Overnight, we had updates from Japan’s finance minister who essentially stated that no fresh stimulus was required and that the effect of NIRP would need to be monitored for the next 3 months. There is still a possibility for rates to go to even deeper negative territory and we now see inversion in long dated bonds The 30-year Japanese government bond yield struck a record low as the flattening of the curve continued amid persistent investor demand for debt that still offer positive yields. The JGB yield curve through the 10-year maturities now yield below 0% dragged down under the Bank of Japan's negative interest rate policy. USD/JPY had traded steady in the Asian session but has relinquished the 112.00 level on safe haven flow which is supporting the downside in equity markets today.
The RBA was rather upbeat which gave a boost to the Aussie dollar. Governor Stevens sees the economy improving even with a mixed jobs picture.
Eurozone PMI data releases were overshadowed by the events in Brussels but it was the usual story with manufacturing looking softer. Germany’s services PMI rose to a 3 month high while its manufacturing PMI showed the slowest growth in 16 months. It fell to 50.4 from the previous 50.5.
In France, the services sector’s PMI rose to 51.2, from 49.2, but manufacturing dipped to 49.6 from 50.2.
Closer to home, UK CPI was the key event this morning. The inflation rate remained at 0.3% annually (0.2% m/m) in February, somewhat weaker than economists had expected. The pound had softened in the run up to the release, in the main owing to comments from Moody’s investor services that the recent budget was ‘’credit negative’’ but has since retaken $1.43. Chancellor George Osborne must be fretting at this point; the latest public finance figures, just released, show that Britain borrowed £7.1bn in February, a good margin more than the 5.9B expected.
European bourses were under pressure this morning giving substance to the view that any upside yesterday was merely short covering. Much of the sentiment is of course being driven by the Belgian explosions but some of the initial losses have been pared and indices are off the lows. The Dax is down 0.58%%, and the Cac is down 0.28%.
Gold is bid and trades up 0.6% to $1251/oz; this has given a boost to the precious metal producers. Fresnillo and Randgold have all seen gains. Much of the gains are to be seen in defensive stocks with supermarkets and healthcare capturing most of the upside.
Travel and airline stocks are taking the brunt of the sell-off on the back of the tragic events in Brussels.
The financial sector is out of favour too. Barclays (-2.27%%) has been cut to hold at HSBC owing to the hold on dividend and the downgrade in earnings.
We call the Dow lower to 17600.