Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets
While US markets bounced after recent weakness, Europe remained quite choppy with investors focusing on Greek concerns and the latest round of the TLTRO. With such a disappointing uptake (€129.8 billion), it’ll only get harder for the ECB to reach its goal of expanding the balance sheet by around a trillion euros. With that in mind, investors were reluctant to bid European equities higher and this saw some mixed moves across the board. Although the majority of the TLTRO was taken up by Italian banks, it was the DAX that continued to outperform.
Perhaps the fact the uptake has been subdued with a total of €212 billion from a couple of issues means the ECB will have to step up efforts to reach its balance sheet goals with asset purchases. This could mean QE is on the way in which case it would work out to be a positive for markets. However, ECB members have recently indicated they will assess data in Q1 before making a call and therefore it doesn’t seem there is immediate urgency for QE.
Yen weakness resumes
In another clear sign of the divergence between the US and the rest of the world, US data steamed ahead yesterday with retail sales and unemployment claims both coming in ahead of estimates. Jobless claims fell to 294,000 (versus expectations of 297,000) and retail sales advanced 0.7% (versus 0.4% expected).
The greenback and equities rallied in response with traders having clearly been waiting for order to be restored on that front. Heading into next week’s Fed meeting, not many will be brave enough to short the greenback. USD/JPY has sprung back to life heading into election weekend. The pair had been under pressure all week and traders have started to position themselves for the elections.
USD/JPY managed to pop back above 119 and the Nikkei has put on well over 1%. Prime Minister Shinzo Abe is expected to win a majority and press on with his economic policies. As a result investors are using recent weakness as an opportunity to buy into the elections. Monday’s trade will be all about reacting to the election results and comments by officials.
China data on the radar
Markets in China are mixed, while the ASX 200 is cautious ahead of a raft of releases from China. On the docket today we have Chinese fixed assets, retail sales and industrial production. Analysts feel after the benign inflation reading earlier in the week, manufacturing activity retreating and with imports dropping sharply, there is a good chance the data will fall short. Whether this means stimulus calls grow or not will then be key for how risk trades heading into the weekend. Remember we also have new yuan loans, aggregate financing and money supply data due out between today and Monday.
Weaker open for Europe
Ahead of the European open we are calling the major bourses weaker, with pessimism continuing after the disappointing TLTRO uptake. On the calendar we’ll have industrial production and UK construction output to look out for.
In the US we have PPI, consumer sentiment and inflation expectations to look out for. Of course we also can’t ignore the price action in oil and this is likely to remain a dominant theme in the near term. EUR/USD weakness seems to be back in play and traders will be eyeing a retest of lows in the $1.225 region.