Financial market research and analysis

Quite a cheerful open in the European markets as the populist PVV was defeated by its major rival in Dutch general election on March 15th.

Dutch election results revived hope that the populist movement may have not spilled over the core European Union members. It especially revived faith that Marine Le Pen’s Front National could experience a similar rattle on the upcoming French elections.

FTSE 100 climbed past 7400p at the open. Mining (+2.48%) and energy stocks (+0.82%) rallied on the back of firmer oil and commodity prices.

Glencore (+4.49%), Rio Tinto (+3.36%), BP (+1.14%) and Royal Dutch Shell (+1.45%)

Gold miners surged as gold recovered past $25 after the FOMC meeting.

Randgold Resources (+4.45%), Fresnillo (+5.09%)


Yellen delivered a dovish rate hike

The Federal Reserve (Fed) raised the interest rates by 25 basis points as broadly anticipated. Janet Yellen delivered a dovish accompanying statement. She said that the Fed is moving closer to its policy targets, adding that the policy remains accommodative and the Fed rates should be gradually increased to reach a neutral stance. However, the US dollar sold off across the board as she didn’t hint at the next rate hike, nor showed too much concern regarding Donald Trump’s fiscal plans.

The US dollar sell-off is the readjustment of the hawkish expectations, which have apparently, went ahead of themselves in the two weeks on the run up to the FOMC’s March meeting. This being said, the Fed remains on a hawkish diverging path vis-à-vis its G10 counterparts. The mid-term US dollar bias remains positive.

As a knee-jerk reaction to the Fed announcement, the US 10-year yields slipped below 2.50%, as the US stocks rallied. The S&P500 gained 0.84% and the Dow Jones recovered 0.54%. Energy stocks lead gains as the US oil crude inventories unexpectedly contracted by 200K barrels last week, versus 3.3 million rise expected by analysts and 8.2 million barrels expansion announced a week earlier. Financials traded on the back foot as Janet Yellen pushed back the Fed hawks and pulled the rate hike expectations back toward three rate hikes, instead of four in 2017.

The global risk-off should seduce the US stock traders this Thursday. The Dow Jones is called 50 points firmer at the US open.

As of today, the US sovereign markets assess 50.2% probability for a June rate hike.


BoJ to buy ‘more or less’ 80 trillion yen worth of bonds

The Bank of Japan (BoJ) held fire at its March policy meeting. The BoJ left its short-term rate at -0.10%, and kept its yield-curve control policy and asset purchases target unchanged.

The BoJ said to maintain its monthly bond purchases at ‘more or less’ the same pace, in line with the annual target of 80 trillion yen. Hence, the BoJ dissipated the tapering speculations after the recent decline in its weekly purchases. In fact, the yield-curve control strategy is an efficient safety net for the BoJ’s credibility. With the US yields trending higher, the BoJ will have the possibility to buy more JGBs to maintain the 10-year yield at about zero percent.


BoE to maintain status quo

It is Bank of England’s (BoE) turn to announce its policy verdict. The BoE is expected to maintain the status quo at today’s MPC meeting. Released yesterday, the UK’s softer wages growth should not be a concern for Governor Mark Carney, who believes that slower wages are sign of stabilization in the UK’s labour market and should decrease the pressures on consumer prices. Moreover, Carney has already committed to walk the UK through the potentially hard Brexit times. In this respect, the BoE would be ready to tolerate higher inflation. In the light of the political and financial developments, the BoE has no reason to make a move today.

Cable rallied to 1.2309 for the first time in two weeks, yet traded under selling pressure in Asia. The key resistance is eyed at 1.2338 (major 38.2% retracement on February – March decline), before 1.2408 (50% level, 50 and 100-day moving averages)


SNB to revise up its inflation expectations

The Swiss National Bank (SNB) is expected to revise its inflation forecasts higher, while keeping the sight deposit rate at -0.75% to prevent the safe haven investors from rushing back to the franc.

Europe’s political uncertainties represent a decent upside risk for the franc. The USDCHF slipped below parity in the aftermath of the FOMC meeting, yet rapidly found buyers given that the mid-term US dollar projections remained comfortably positive. The pair is expected to regain the 50, 100-day moving average zone of 1.0048/1.0067 as soon as the Fed trading is shattered.


Positive breakout in EURUSD

Netherlands had good news for the euro. PM Mark Rutte’s Liberal Party beat Geert Wilders’ populist and anti-Islam Freedom Party (PVV) at yesterday’s general election.

PVV obtained 19 seats in the 150-seat lower house of Parliament, versus 32 seats secured by PM Mark Rutte’s Liberal Party and 20 seats taken by Christian Democrats.

The EURUSD rallied on the sweet combination of Dutch election results and the Fed announcement. The pair stepped in the bullish consolidation zone after clearing the 1.0707 (major 38.2% retracement on post-Trump decline). Stronger positive trend suggests a potential extension of gains to 1.0820/1.0830 (Fibonacci’s 50% level / 2017 resistance). We remind that the downside euro risks prevail on the run up to the first round of the French election due on April 23rd.


Aussie gains to hit mid-term resistance

The AUDUSD soared to 0.7717 in Sydney on the back of broad-based USD depreciation. The mixed jobs report dent the appetite in Sydney. Australian unemployment rate unexpectedly rose to 5.9% in February from 5.7% a month earlier. Yet, the economy added 27.1K full-time jobs versus 33.5K part-time jobs lost. On the short-run, the pair is considered in the positive trend above 0.7632 (major 38.2% retracement on post-Fed rally) and could make another attempt to the 0.7785/0.7800 mid-term resistance. In the medium term, improved US yields could prevent carry traders from pushing the pair above the mid-term resistance.