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BOJ punctures risk appetite

‘Disappointment’ best describes the sentiment in Japan overnight. The Nikkei sold-off aggressively after Japanese traders came back from their lunch break as the BoJ decided to maintain the annual asset purchases steady at 80 trillion yen and the bank rate unchanged at -0.10%. The yen surged immediately. You could almost hear a whoosh of carry unwind as the USDJPY nosedived to 108.73 as knee-jerk reaction; the EURJPY tumbled by more than three big figures.

Gold bounced higher after having briefly tested the 100-hour moving average ($1240) on the downside. A break above $1260 would ultimately put the bias on additional upside for the metal.

In the US, the Federal Reserve sounded slightly more hawkish than anticipated. Concerns regarding the global and financial developments were nowhere to be found within the FOMC statement. The FOMC highlighted the improvement in the labour market and stated that the economic conditions are expected to evolve in the right direction to deliver a good base for gradual increases in Federal Funds (FF) rates. Clearly, the market remains sceptical faced with such optimism. The US dollar index remains under pressure, surrendering the 94.00 level while the 10 year yields fell back to 1.80%. The Fed is willing to keep the possibility of two Fed rate hikes on the table for this year, but the market is not convinced just yet.

The bitter combination of hawkish Fed and weak earnings announcements in the US pulled the Dow below the 18000 mark; the Nasdaq could again slip below the 4400 depending on how much vindication the Fed will see after the US GDP release. First quarter GDP is expected to be revised half way down to 0.7% q/q annualised, from 1.4% previously. This is clearly not in line with the Fed’s upbeat policy outlook. Hence, a soft GDP read will certainly keep the Fed hawks side-lined, but could well fail to convince a majority to switch back to the buy side of the game.

Unemployment claims are expected to keep the down trend with 258K expected this week – slightly higher than previous 247K recorded.

It’s starting to feel like Groundhog day when it comes to bank earnings. Poor results equates to a surge in the share price.

Investors were met with 58% drop in net profit in the first quarter, to 236 million euros ($267 million) compared to the same period last year from Deutsche Bank this morning. The shares traded as high as €17.54 in early trade but have since pared back – the stock is presently higher by 2.5%.

This lack of risk on sentiment has found its way to our shores too and thus European indices are notably softer. A number of companies also trade ex-div today which puts additional pressure on the FTSE.

Legal and General (-5.55%)
ITV (-5.95%)
Unilever (-1.69%)
Relx (-1.64%)
Informa (-2.1%)
Travis Perkins (-1.48%)
Barratt Dev (-1.28%)
Merlin (-1.84%)

Anglo American (+2.54%) Sold niobium and phosphate business for $1.5bn

Rolls Royce (+2%) Looks to cut costs even more in a bid to boost profit by £1bn

Fresnillo (1.96%) Higher as gold prices up 0.75%

Taylor Wimpey (+0.96%) said its trading has been unaffected by the upcoming referendum on European Union membership, despite a series of estate agents warning of a slump in home sales. Its order book was up 7.5 per cent from the same time last year to 8,811, and its total value up 16.6 per cent to £2.2bn.

Intu Properties (+1.57%) raised to neutral v sell at Goldman

We call the Dow Jones 141 points lower to 17900.