Financial market research and analysis

The global equity markets made a bearish start to the week, as investors continue questioning the efficiency of central bank policies.

The focus is once again on leading monetary policies. Although the most monitored announcements from the Bank of Japan (BoJ) and the Federal Reserve (Fed) are now behind us, the echoes are weighing on market sentiment.

Asian stocks continued their journey south from 14-month highs, while oil (WTI +0.61, Brent +0.41%) was better bid as Algeria said that Saudi is willing to act on the same oil market. This week’s informal OPEC meeting should give more clarity.

At his speech on Monday, the Bank of Japan (BoJ) Governor Kuroda reiterated that the bank is ready to use all possible tools in order to reach the 2% inflation target in the mid-term. Negative rates and the long-term rate target are shown as key additional steps. The market reaction has been subdued in Tokyo, given that the negative rates have given meagre results in terms of their impact on the real economy.

The USDJPY remained flat in Tokyo, as the Nikkei (-1.25%) and Topix (-1.02%) retreated from their multi-month highs.

In Europe, the European Central Bank (ECB) President Draghi will be on a political tour with the ECB's message, in hope of convincing politicians that their help is crucial for the economic recovery. The EURUSD is bid above 1.1205 (major 38.2% retracement on Sep 21st to Sep 22nd recovery).

FTSE opened downbeat on the lack of global appetite. All sectors opened in red. Financials (-1.06%) sold-off the most at the open. Basic materials (-0.74%) and energy stocks (-0.91%) are under decent selling pressure.

BP (-1.26%), Royal Dutch Shell (-1.10%).

Finally, over in the US, the first of three televised presidential debates between Hilary Clinton and Donald Trump will be in focus.


Turkey downgraded to junk at Moody’s

Moody’s downgraded Turkey’s credit rating to junk following the July 15th failed military coup attempt. The rating agency cited that ‘risks of a sudden, disruptive reversal in foreign capital flows, a more rapid fall in reserves and, in a worst-case scenario, a balance of payments crisis has increased’, adding that the deterioration in central banks independence and the repetitive interest rate cuts despite failure to meet the inflation target eroded the country’s 'institutional strength’.

The USDTRY jumped above 2.9828, the major 38.2% retracement on Jul 19th to Aug 16th retreat, signaling the end of the negative trend building since the failed coup. Further deterioration in lira should encourage a stronger US dollar towards the 3.00/3.05 zone.