Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets
Calm restored in Asia
Sentiment is somewhat improved in Asian trade in the absence of fresh developments from the Yemen conflict. Currency moves remain key at the moment and there are signs the greenback might be looking to start gaining momentum yet again. The greenback has been a sleeping giant since the FOMC meeting and this has allowed some of the risk currencies to get back in the game against it. EUR/USD for example managed to find a bottom a couple of weeks ago and this took the pair back to around the 1.1000 mark. The pair had been holding at around that level for a period but it just seems to be starting to subside now. It seems the medium term trajectory for the greenback remains upward and the more positive data we receive, the more conviction bulls will have around this trade.
There has been plenty of Fed commentary this week and while different members have varying opinions on when to expect lift-off; the data will clearly do the talking. All eyes will be on Fed Chair Janet Yellen today as she speaks on ‘The New Normal for Monetary Policy’. Fed Vice Chair Stanley Fischer also speaks separately in Frankfurt, but I doubt this speech will offer much more than his comments earlier in the week. Janet Yellen has been very balanced and controlled in her language recently and it’ll be interesting to see how market interprets her comments this time. We also receive revised Q4 GDP out of the US.
Mixed data from Japan
USD/JPY has also been interesting to watch, particularly on a day when we’ve had a raft of economic releases out of Japan. While the CPI reading was relatively in-line with expectations (remaining at zero after stripping out impact of sales tax hike), household spending and retail sales remain negative. The data wasn’t enough to cause any volatility for the yen and traders continued to focus on the yen weakening due to reduced safe haven demand. This allowed the Nikkei to rally on a day where several companies are trading ex-div. Around 120 points worth of dividends came out of the Nikkei today, but given how strong the performance in equities has been, I think most of that would have gone straight back into the market. As a result, buying dips in the Nikkei remains a compelling strategy.
ASX 200 bounces back
Apart from the greenback attempting to liven up again, the other key theme at the moment is watching the developments in Yemen and trying to position for the assets that are likely to move the most as a result of it. While oil rallied in Asia yesterday, it has been somewhat calm today and this has seen energy names give up some of their early gains.
The ASX 200 has been among the leaders around the region today as we recover some of the sharp drop experienced towards the close of Thursday’s trade. Needless to say the move was an equity options expiry related exaggeration. It’s almost as if normal service has resumed for the local market with good demand for the yield plays. Some of the healthcare names are also coming back to life and I feel this is in anticipation of renewed USD strength.
Firmer open for Europe
Ahead of the European open, we are calling the major bourses firmer. There isn’t much on the European calendar today but there has been talk Greece will be releasing some reform measures by Monday. Should we see EUR/USD resume its downtrend then I feel equities will respond positively to this. The DAX in particular has had a strong correlation to the currency lately and would be the biggest beneficiary of renewed euro weakness.