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Dollar falters - Risk on

Japanese industrial production may have slumped at a faster-than-expected speed in February (-6.2% m/m) according to the preliminary figure. The Nikkei and the Topix sold-off in Tokyo, while the USDJPY eased back to 112.25. As we are approaching the month/quarter end, the USDJPY could be an interesting buy on dips into the 110.60 (March low) starting from April due to a relocation of the yen repatriated for the end of the quarter and also on the anticipation of a looser fiscal policy from Abe's government.

Dollar gives up the ghost
The strong dollar gave up the ghost yesterday in the aftermath of Yellen’s fairly dovish speech. The use of the word ‘gradual’ and the need to proceed ‘cautiously’ given global risks was construed by the markets as a signal that further monetary tightening was by no means imminent. The biggest hit came certainly from Yellen's suspicion on 'more slack in the labour market than obvious from unemployment rate' and on the FOMC's limited ability to respond through conventional policies given the very low level of interest rates. The expectation for the next Fed hike has been pushed to November.

This has naturally led to some yield seeking in risk assets and the ‘Dovish Janet’ effect on global indices has been palpable with the S&P500 finally breaking above 2050 and European indices following the lead this morning. EURUSD is also bid and should capture additional gains in the absence of ECB jawboning. It presently trades at 1.1324. German preliminary CPI may add its own brand of volatility – the HICP number is expected to show 0.7% month on month gain while remaining flat on an annual basis.

Equity markets surge

The equity bulls will be cheering Janet Yellen today as the FTSE trades up 1.32% with all sectors capturing gains. Leading the way is the materials sector as commodities received a boost on the back of the weaker dollar. The volatility in these individual mining stocks cannot be overstated – with very wild swings in the likes of Anglo American and Glencore since the beginning of the year. Sustainability is the key here, yet fundamentally it would seem that little has changed in respect of demand.

Market remain at the mercy of central banks and it is ultimately dollar direction that will dictate market moves for the time being.

Copper prices are little changed- trading at $2.19/lb and still below that key 200 day moving average.

Gold recouped some of its recent losses yesterday but now oscillates in the mid-point of its recent range, unwilling to break below $1200/oz and equally uncomfortable with the idea of breaking above $1300/oz- the key resistance point.

Anglo American +7.53%
BHP Billiton +5.41%
Rio Tinto +5.18%
Glencore +5.15%

Standard Chartered (+6.29%) is consolidating near its lows – a high riser on the day but ultimately still at the mercy of emerging market growth. It has received a buy rating by Berenberg bank. The bank set a target price of 750p on the company’s stock

Marks and Spencer (-1.36%) has been cut to hold at Jeffries. Growing unemployment fears risk, weaker consumer confidence are all the reasons given. Clearly the potential Brexit issues are already starting to be felt and risk is being adjusted accordingly.

Next (flat) has been upgraded to hold at Jeffries.

Carnival (0.19%) due to release H1 earnings at 1.15pm. Under pressure since the beginning of the year, the stock has rebounded.  Analysts expect the company to announce earnings of $0.32 per share for the quarter. CCL has been the subject of a number of analyst reports. HSBC reaffirmed a “buy” rating and issued a GBX 4,500 ($64.07) price target on shares of Carnival plc in a research note on Wednesday, January 6th. Natixis boosted their price target on Carnival plc and gave the company a “buy” rating in a research note on Monday, December 21st. Deutsche Bank reaffirmed a “buy” rating c in a research note on Wednesday, December 16th.

The ADP employment is due today and the consensus is 195K private jobs added in March vs 214K a month ago. The NFP guesses in the most recent Bloomberg survey retreated to 205K from 208k yesterday. A soft ADP read could leave the US dollar in bears' hands before Friday's NFP print. 

Given recent correlations in the oil price to equity indices, crude oil inventories will be closely watched later this afternoon. Both WTI and Brent are higher this morning, adding 1.38% and 1.07% respectively – much of the gain can be attributed to the softer greenback and a fairly consensus view that the recent rally has been little more than a reversion to mean. A build of 3.1m is expected – somewhat less than the 9.4m stash shown last week which marked historically high levels for the time of year.

We call the Dow Jones higher 90 points higher to 17723.