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FTSE lower ahead of BOE

Perhaps the market was overly pessimistic on the slew of corporate earnings. Everyone expected a weak first quarter for the banks but markets move on results versus expectations so the fact that JP Morgan delivered results that were slightly better than forecast has solidified the upside in equity indices and we now witness US indices at their best levels this year.

Gold is a casualty of this renewed risk sentiment. It’s down 0.6% this morning to $1235/oz; off the lows but still unable to really grapple with the $1300/oz level for the time being.

Singapore’s central bank unexpectedly eased its monetary stance, adopting a policy last used during the 2008 global financial crisis, as economic growth in the trade-dependent city-state ground to a halt. Gross domestic product posted zero expansion on an annualized basis in the first quarter compared with the previous three months. With the lack of inflation and the less than upbeat assessment of the global economy from the International monetary Fund earlier this week, we can likely expect similar moves form some countries in the coming months.

Asian indices are also enjoying gains; in particular the Nikkei which has risen 3.23% this morning helped by a weaker yen. Japan’s 30-year government bonds pared gains that had pushed yields to a record low, after an auction of the debt met weaker demand and showed a growing lack of investor confidence about what the price of the securities should be.
China’s GDP release on Friday still looms and is expected to be slightly lower than +6.8% y/y in Q4 but better than market expectations, thus the rosy sentiment could well continue.

In view of the recovery in the dollar, it’s no real surprise that the People’s Bank of China set the yuan fix overnight at its softest level so far this month. This ended three days of appreciation and marked the biggest drop since Jan 7th. The central bank set the daily fixing of the local currency at 6.4891 to the dollar on Thursday, the lowest level in more than two weeks. The yuan in Shanghai fell 0.07 percent in a third day of declines to 6.4818 at 11:07 a.m. local time.

Oil prices, normally the dictator of equity market direction are lower again today despite hitting 2016 highs earlier this week.
Mixed U.S. government data   showed a bigger-than-expected build in crude stockpiles, rising gasoline demand, and falling oil production.
The Energy Information Administration reported U.S. crude inventories increased by 6.6 million barrels, bringing the total in storage to 536.5 million barrels in the previous week.

Oil weakness is in part due to this supply glut but caution is also abounding ahead of the Doha meeting later this week. The strong dollar is also a contributor to the current weakness. The dollar index extended Wednesday’s rebound from a nine-month low, as traders weighed chances of interest-rate increases by the Federal Reserve after retail sales and wholesale prices unexpectedly declined last month.

Today promises to be macro heavy with Eurozone and US CPI due as well as an update on where the Bank of England stands in respect of monetary policy – the short answer is nowhere – and expectations for near term tightening are certainly not at the forefront.
Comments from European Central Bank member Constancio in respect of the limited effect of negative rates and his doubts on helicopter money may not be the reasons for euro softness, but it hasn’t hurt. The single currency has for now relinquished the 80p mark against the pound and trades at 1.1263 against the dollar. Any indication that Consumer price index is weaker than slated will likely see the intraday low of 1.1234 under attack.

The FTSE, following yesterday’s surge is consolidating and being led lower by Burberry and Persimmon. Miners are also giving up some of their recent gains.

Unilever PLC (-0.35%) reported a rise in underlying sales for the first quarter as it sold more products at higher prices, but headline results were weighed down by currency volatility.

Persimmon (-3.02%)
reported a strong start to 2016, with private sales rates and average selling prices continuing to rise after the strong growth it reported in 2015, but noted planning delays is "hindering the drive" to boost house volumes.

Biggest FTSE riser is Johnson Matthey (+1.4%) after Credit Suisse ups to outperform

Burberry (-6.47%)
warned of a “challenging demand environment” after a tough year in which the luxury British has struggled to recover from a sales collapse in Hong Kong and Macau.

Debenhams (+3.75%)
chief executive Michael Sharp submitted his resignation to the board today while announcing solid results for the UK department store chain. It reported pre-tax profit of £93.8m, in the six months to February 27, up from £88.9m in the same period last year. However, group like-for-like sales growth slowed, rising 1.1 per cent on a reported basis from the 1.3 per cent growth seen last year.