Financial market research and analysis

Traders have been met with choppy conditions this morning as earnings season kicks off and the strength of the yen continues to confound.

Japanese stocks traded south, Nikkei and Topix lost 1.30% and 1.61% respectively. Money continues exiting Japan for the 13th straight week, almost 36 billion dollars worth of stock have been sold. But the yen strengthened for a seven day in a row in Tokyo. The USDJPY hit a fresh 17-month low of 107.62 despite the outflowing cash. This simply means that investors, who are selling the Japanese securities and buying foreign bonds, are also hedging the FX risk away. Hedge funds are the most bullish in yen since 1992. Stops are eyed into the 107.50/107.00. A further sell-off toward the 105 mark is a story that the majority of traders remain ready to buy despite the overbought yen.

China saw a decent rally in equities overnight as producer price numbers showed deflation has started to moderate in China. Energy players rose in Sydney on Friday’s rally in oil prices. The rally in China did not suffice to pull the European stocks higher at the open. The sudden reversal in oil prices is weighing on energy stocks at the European open. We could see higher volatility in oil markets moving into April 17th summit in Doha.

A warning shot, this time from the IMF in respect of negative rates and their usefulness keeps EURUSD trading sideways for now, below the $1.14 level.
Brexit risk and signs of increasing populism has limited euro upside and the fact that some peripheral bond yields have been steadily marching higher in the past few days is also showing the degree of vulnerability of the Eurozone.

The safe haven flow is not simply confined the Japanese yen – gold prices are also higher in the main owing to dollar weakness. The cautiousness is also manifesting itself in the Swiss franc has seen some demand despite SNB’s Jordan’s warnings for potentially more negative rates in franc.

Volatility in sterling remains high as Brexit talks push aside any other topic that could interfere with the pricing of the risk. The UK inflation figures as well as the BoE meeting are expected to attract little attention this week. For long-term players and option traders, analysts started warning that such volatility in sterling and the dramatic level of shorts trigger a tremendous rally in case of an unfavourable Brexit vote on June 23rd.

Miners lead gains in London due to firmer commodity prices in Asia. The sudden reversal in oil prices into the European open hit the oil companies. Financials opened higher yet rapidly reversed gains. HSBC and Barclays slipped in the red shortly after the open.
 
Rio Tinto (+0.86) was among top gainers despite news that the company has doubled its payment terms in a move that will force embattled suppliers to wait up to 90 days to be paid.

Glencore (+0.48%)
Anglo American (+0.33%)
Randgold (+0.98%)

We call the Dow Jones higher by 45 points to 17621.