Financial market research and analysis

Quite a surprise in terms of Japanese GDP this morning. Real gross domestic product (GDP) for the January-March period expanded an annualized 1.7 percent against expectations in a Reuters poll for a 0.2 percent rise. On a quarterly basis, GDP grew 0.4 percent against a poll forecast of a 0.1 percent quarterly gain. While some could attribute at least part of this to the leap year effect and downward revision to previous quarterly growth, domestic demand contribution to GDP also inched up 0.2 percentage points thanks to higher spending. Business investment remains a key bug bear and it’s expected that the government will hold a fairly flexible policy stance amid developments in China and global market volatility.

Widely expected to announce new fiscal stimulus during the G7 Summit this month as part of his "Abenomics 2.0" program, we still await news on whether this sales tax will be delayed.
The USDJPY hovers near the 109 level now as the renewed appetite for the greenback pushes the dollar to a 2 week high amid increased speculation that a June rate hike may still be on the table. Despite all the loose monetary policies, it would not be surprising to see the Yen garner additional strength should equity markets sell off.

All eyes on the FOMC minutes this evening. Sure, the probability for a hike in June has increased threefold but it remains at a paltry 12%.  Much of this increased hawkishness is derived from some non voting FOMC memebrs stating that the June meeting was live.

Today's Fed minutes may help in giving further clues as to its future intentions but given the EU referendum is set to take place on 23rd June it might be foolhardy of the FOMC to hike rates without the full story - it may well backfire should the Brexit side carry. One would imagine that such an event would be dollar positive as a result of risk off flows and this might not be all that beneficial for the US given that most of the western world is either cutting rates or on the cusp of doing so.

Goldman Sachs, fresh from calling a bottom in the oil price has now issued an equity neutral note for the next 12 months - they remain overweight cash.

Given that Eurozone CPI was expected show a 0.2% drop year on year and came in as expected, we may well be set for even deeper negative rates from the ECB - it all depends whether Mario Draghi himself oil prices have in fact bottomed and may lead to an increase in inflation owing to potential base effects over the second half of the year.
With the dollar also firmly in the driving seat and diverging monetary paths still very much front and centre, the EURUSD has slipped below the 1.13 mark.

Oil inventories later this afternoon may shed more light on this but given that we're near the key physiological resistance level of $50/bbl, there is more room for a supply glut surprise than a sudden uplift in global demand. Should Canada begin to pump more earlier than expected then this recent surge may turn out to be a mere blip.

UK labour data was good with the employment rate hitting a record high. A decent rise in average earnings and the fact that the unemployment rate remained at 5.1% is good news. The claimant count fell in April, to 738,000 but the prior month was upwardly revised to 14,700 – the largest gain mom since September 2011. Many will attempt to correlate this with the Brexit narrative but the early Easter holiday may well have impacted here.
The FTSE is down 0.3% with miners providing the main drag as copper prices hit a three month low and profit taking set in.
The undertain demand from China will likely continue to be a theme for the foreseeable fututre. Antofagasta has also stated that it expects coppoer prices to remain muted for the next 2 years.