Financial market research and analysis

Oil down, a choppy session in Asian equity markets and a stronger yen (but for USDJPY). It almost feels like things are returning to the norm. Shanghai’s Composite dropped by 3.78% and the Hang Seng wrote-off 1.34% after the PBoC showed less appetite to add more stimuli on stronger growth outlook.

Yesterday’s surge in oil prices was ultimately down to a weaker dollar and misplaced hopes that the Kuwaiti strike might continue and thus put a dent in the present supply glut so little surprise this morning that oil is down around 2.5% on news that Kuwait workers ended their strike. The weakening dollar is still the main story here. Given that the dollar index is approaching pivotal levels on foot of weaker US macro data, any additional bad news might be the nail in the coffin for Fed hawks. Various Fed members have attempted to berate present market expectations as wide off the mark – the market is still dubious, with few expecting any further tightening until the second half of 2016.
I suppose it begs the question – was the USD over valued recently and only now returning to a more realistic level as the market pencilling in no more than one more additional hike this year becomes consensus? Certainly any big move through 94.00 on the dollar index will help to decide the answer here.

In Japan, the fall in Japanese bond yields also keeps the headlines busy. The BoJ Governor Kuroda reiterated that there are still many bonds that the BoJ could buy and there is no technical limit for negative rates. At this point it feels like Kuroda is considering throwing everything but the kitchen sink at the problems facing the Japanese economy.
His previous commitment to negative interest rates was merely met with a strengthening yen so one can hardly blame him for trying. 10-year yields have slipped to 0.13%. 30 and 40-year yields have hit record lows of 0.30% and 0.3050% respectively as investors pile into longer-term papers. The 15-year yield could well be the next one to slip below zero. Pressure is growing for the use of helicopter money, whereas Kuroda warned that it would contradict the legal framework. The market is for now building up stronger expectations for further BoJ stimulus and there is rising speculation for some type of combined fiscal and monetary action.

In a further nod to the weaker greenback and easing speculation of near term rate hikes, silver futures have entered a bull market Money managers, bullish on silver than ever, increased their net longs by 30% last week. Gold has extended gains to $1258.
 
The upside attempts in EURUSD are expected to bump into offers at 1.14 and above before tomorrow’s verdict. Mario Draghi is due to speak later at the ECB Generation Euro competition, in Frankfurt where we may get some insight into what to expect tomorrow. Little more than jawboning and the usual plea to governments to give the ECB a dig out in respiect of economic stimulus are likely. German PPI prices were softer than expected, printing 0.0% m/m versus the tiny 0.2% rise expected and with oil prices once again taking a turn for the worse, Draghi may have to a little more to get inflation on an even keel.

The FTSE has slipped back below the 6400 mark. Profit taking to some extent but ultimately being dragged down by the mining sector. While GBPUSD has retreated to 1.4347 following Mark Carney’s comments that London could lose its power as a financial centre should the Brexit vote carry.
Before all that, we’ll get a look at the UK employment picture. The unemployment rate for February is set to remain at 5.1%, with the claimant count down by around 10,000. Average earnings including bonuses are expected to have risen by 2.3% in February up from 2.1% a month earlier.
Even a stellar report here will be unlikely to move the BoE into tightening mode especially ahead of the EU referendum. In fact, the market is fully expecting a rate cut over and above any hike.

A more circumspect early trading session with some profit taking and an eye on falling oil prices keeping risk appetite at bay.

Vodafone (+0.17%) raised to buy v neutral at BOFAML.

Burberry (-1.7%) cut to neutral v buy at Goldman Sachs citing tougher luxury demand environment.

BHP Billiton (-1%) has cut full-year iron ore guidance by 10 million tonnes after a severe Pilbara region wet season, in a move expected to further bolster iron ore prices following Rio Tinto’s 2017 guidance cut announced yesterday. In its third quarter report, BHP said bad weather and the start of a rail maintenance program had cut 2015-16 West Australian production guidance (including minority partners’ share) from 270 million tonnes to 260 million tonnes — a cut of 4 per cent.

The rest of the mining sector is also dragging the FTSE lower.

Glencore (-2.65%) Anglo American (-2.84%)

Equally BP (-1.1%) is taking a turn lower on back of the fall in oil prices.

Arm Holdings (+1.45%) posted pre-tax profits of £137.5m in the first quarter of 2016, beating analyst expectations and shrugging off wider concerns about the semiconductor industry. Quick to dispute any idea that a decline in iPhone production would be a massive problem for future revenues, Arm said that .1bn chips containing its technology were shipped in the first quarter and that more than half of chips shipped were for non-mobile markets.