Sunday 18th February 2018
February 16th 2018: Mike van Dulken & Henry Croft at Accendo Markets, commented to clients this morning: “FTSE 100 Index called to open +30pts at 7265, maintaining a shallow uptrend towards 7300 since Monday, but in a bearish rising wedge that could yet see the uptrend scuppered. Bulls need a break above 7275 overnight highs to extend the uptrend; bears want to see a troubling of rising lows around 7245 to put the uptrend in jeopardy. Watch levels: Bullish 7275, Bearish 7245. Calls for gains at the open come after solid gains on Wall St and a largely positive session for Asian markets (ex-China and HK for Lunar New Year) as global volatility continues to ease, back below its long-term average of 20, and equities maintain their recovery course. Japanese stocks are higher despite a stronger Yen, after BoJ Governor Kuroda was nominated for a second term, while further USD weakness (meaning stronger GBP and EUR) helps commodities like Oil and Gold. However, Australia’s ASX is the odd one out, in the red with Miners and Financials under water, the former having a potential negative knock-on for the FTSE … Gold has broken above $1357 resistance as the US dollar extends its decline. The precious metal is trading a fresh 3-week high as the global reserve currency falls to a fresh 3-year low. Despite retreating from overnight highs of $1360, former resistance at $1357 is proving supportive. This afternoon, US Import Price Index will be the final US inflationary print that could influence USD … Crude Oil benchmarks have climbed higher overnight, bouncing from intersecting support yesterday afternoon, however remain hindered by January falling highs resistance. Global benchmark Brent touched $65 before retreating marginally from its highs, off yesterday’s $63.4 lows, while US crude has dipped from $61.8 from yesterday’s lows of $59.7 -- EFG Eurobank in Athens reports that the February 19th Eurogroup will discuss, among other things, the implementation of the remaining prior actions under Greece’s third programme review, which constitutes a precondition for the disbursement of the next loan sub-tranche of €5.7bn. The deadline for the submission of binding offers for the acquisition of 66% of the Hellenic Gas Transmission System Operator (DESFA) expires today. According to the Hellenic Statistical Authority (ELSTAT), inflation returned into negative territory in January this year after 13 months of expansion with the Consumer Price Index dropping by 0.2% on a year on year basis. Fitch is scheduled to release its updated review on the Greek sovereign today --- US Treasury yields retreated from yesterday’s fresh multi-year highs as investors are becoming cautious, indicating no rush to price in a steeper path of Fed rate tightening in the coming months, in spite of higher than expected US inflation data for January. With respect to global equity markets, risk appetite looks to continue to recover with the VIX volatility index moving below 20. In FX markets, the USD extended recent losses with the DXY index dropping to three-year lows earlier today weighed down by lingering US structural woes and the perceived erosion of its yield advantage - The European Parliament’s Economic and Monetary Affairs Committee will give its opinion next Wednesday on a proposal to create a single, clear and fair European corporate tax regime, dubbed the “Common Consolidated Corporate Tax Base” (CCCTB), which would also embrace digital firms. One major feature is to ensure that companies are taxed where their profits are generated, in a bid to crack down on profit shifting - Chris Iggo, CIO, fixed income, at AXA Investment Managers in a client note today says investors are moving money out of fixed income funds in response to higher yields and negative returns. “Now that volatility is rising; and yields have moved higher, there are outflows. It is not clear where the money is immediately going but the flows do suggest that, at least based on behavior, investors think things will get worse before they get better in bond-land. As I write, the 10-year benchmark US Treasury yield is closing in on 3%. This is the highest level since the beginning of 2014 and represents a 160 basis points (bps) increase in yields since the low reached in mid-2016. The pattern, if not the actual size of the move or the level of yield, has been the same in the German bund and UK gilt markets. It might be that investors are getting out of bonds a bit late,” he says. Iggo also notes that investment grade corporate bond credit spreads are more or less unchanged, year-to-date, but have widened in the last two weeks in response to higher equity market volatility, explaining that: “For long-term followers of US high yield, that benchmark yield is now back above 6% for the first time since the end of 2016. European high yield bonds have not seen such a large move, but the benchmark yield is back above 3%. I doubt that these yields are enough to entice investors back into fixed income just yet, especially when sentiment is bearish and expecting higher yields as we move further into the regime of monetary normalisation. Indeed, the risk scenario is now not about being short but about being long” - Miles Eakers, chief market analyst at Centtrip reports this morning that: “Global stock markets continued to make gains overnight following another positive day on Wall Street. The US S&P 500 is now up close to 8% from last week’s nadir. Equity prices increased after the US Bureau of Labor Statistics released its Producer Price Index (PPI). The PPI, which measures the average change in the selling prices received by domestic producers for their output, showed prices rose by 2.7% on an annualised basis, further supporting robust US economic growth. Market participants have for now brushed aside last week’s ‘healthy’ correction, with global stocks all on the way up. The euro and the pound strengthened against the US dollar, as the latter continues to weaken across the board.” - Are emerging market (EM) equities set to resume their outperformance versus those in developed markets (DMs) after proving their resilience during the global correction? NN Investment Partners (NN IP) thinks they will. NN IP’s analysis suggests that EM equities underperformed those of DMs by just two percentage points during the global correction of the past weeks. The asset manager also notes that the traditional weak links, such as Turkey, Brazil and Colombia, were not responsible for the underperformance, having held up well and even outperforming the EM average, the analysis shows. The only market that clearly underperformed is China. Maarten-Jan Bakkum, senior emerging markets strategist, NN IP, says in a client note today: “The Chinese market and particularly the Chinese Internet names were the segments that had inflated the most within global emerging markets during the previous months. While the Chinese underperformance should not have been a big surprise, it remains remarkable that other EMs that should be more sensitive to big movements in DM interest rates have held up so well. We are therefore inclined to buy into weakness in China and increase our underweights in markets such as Turkey, where macro imbalances are large, economic policies are becoming more unorthodox and higher DM bond yields should eventually push local rates higher.” Even so, there is a caveat. NN IP anticipates that the EM-DM outperformance trend in equities that started two years ago will be sustained only as long as the rising bond yields in the US and Europe do not force EM central banks to tighten policy; thereby keeping EM financial conditions easy and supporting the EM domestic demand growth recovery -

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst, OANDA
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. He covers central banks and global economic and political trends for OANDA. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and financial services marketing from the University of Toronto.

As the World Cup kicked off late last week, investors may be more concerned with player injury reports and score sheets than economic releases. But as the U.S. dollar dipped versus the yen on Monday and with a midweek Federal Reserve meeting on the horizon, investors will weigh the violent turn of events in Iraq and Ukraine.

Trading volume is expected to remain low even as the armed conflicts in Iraq and Ukraine continue to drive geopolitical risk upward. Commodities and safe havens continue to be bid as uncertainty grips certain markets while others seem impervious, awaiting the interest rate implications and central bank hints that will be delivered this week.



Old Lady maintains the status quo on interest rates but ECB steals the show

After strong fundamental indicators were published in the U.K. recently, GBP/USD appreciated by 0.10%, but the financial limelight this past week shone brightly on the European Central Bank (ECB) and the U.S. nonfarm payrolls (NFP) report.

Though market expectations for both events were significant, neither the ECB nor the NFP data offered investors a significant change in direction.

The ECB announced a negative deposit rate; the first by a major central bank. The move is designed to fight deflation, but it’s seen as a double-edged sword that could be at best ineffective and at worst accelerate stagnation if banks pass the cost back onto clients. In general, the ECB’s actions lacked depth and the market’s reaction made that abundantly clear as investors were not ready to buy USD.


Trading was back in full force after the United States Memorial Day and United Kingdom Spring Bank Holiday. There was no UK data releases expected on Tuesday and the highlight was the speech by the Bank of England's Governor at the Inclusive Capital Initiative. In the US the main releases were USD positive.

The US Purchasing Managers Index (PMI) came in above expectations at 58.8. This figure also beat last months print of 55. Consumer Confidence in May also surprised to the upside. The Manufacturing indicators were mixed with the Richmond Fed beating expectations while the Dallas Fed numbers under performed.

The GBP/USD was falling from 1.6862 levels and after breaking through the 1.68 support levels, only to get a small boost to rise above it after Carney's speech. The main driver on the fundamental side was the BBA mortgage data that could signal further restriction from the Central Bank to curb the demand for mortgages.


Though few radical policy changes are expected, some of the developed world’s major central banks will make public statements this week, each aiming to use rhetoric to push their respective agendas forward.

The Reserve Bank of Australia (RBA) will publish the minutes from its March 4 policy meeting on Monday. Investors will be keen to know the details behind the RBA’s decision in which the nine-member board chose to hold the Australian cash rate steady at 2.5%. The minutes are also expected to show a return to the AUD overvalued narrative, as more exporters lean on the central bank to act -- the currency continues to trade over 0.90. Expect further comments on the Australian employment front too. Housing and exports are recovering, but unemployment continues to rise and that may encourage the RBA to follow in the footsteps of its trans-Tasman counterpart, the Reserve Bank of New Zealand, and raise its rates.


On February 3rd, the Ben Bernanke era at the United States Federal Reserve came to an end. After eight years as the Fed’s chairman, Bernanke now joins the Brookings Institution, an influential Washington, D.C.-based think tank. Janet Yellen, who served as Bernanke’s deputy, is now the Fed’s chair and she is the first woman to hold that position at the world’s most powerful central bank. However, she was not the Obama administration’s first choice. The president initially favoured former Treasury secretary and senior White House economic adviser, Lawrence H. Summers. When Summers voluntarily withdrew himself from the list of nominees last September following a big uproar, Yellen became the frontrunner.

Thursday, 19 December 2013 19:35

It’s Full-Steam Ahead for Abenomics in 2014

Prime Minister Shinzo Abe embodies Japan’s economic comeback. Elected prime minister for a second time following a landslide victory for the Liberal Democratic Party (LDP) in December, 2012, the 59-year-old conservative, centre-right politician is keen to ensure his second tenure at the helm of the world’s third-largest economy is far more remarkable than his previous term in office. In his first go-around as prime minister in 2006-07, Abe had the misfortune of succeeding one of Japan’s most popular politicians, Junichiro Koizumi, the fifth longest-serving prime minister in Japanese history. Abe became the 90th Japanese prime minister – and the youngest since the Second World War – on September 26, 2006. But the LDP suffered mightily during his first tenure, and it was ousted from power for the first time in decades. Abe subsequently resigned from politics. Five years later he returned to the LDP fold, wiser, inspired, and focused. In a July 2013 interview with Foreign Affairs magazine, he admitted he failed to prioritize his agenda during his first reign in office and hard lessons were learned. This time, he would be bold, and he made bold promises to the Japanese people.

Wednesday, 18 December 2013 20:49

Bernanke tapers in final FOMC

Ever since it was announced in May by Fed chairman Ben Bernanke everyone knew the taper was coming. The main issue was that there was no schedule along with the announcement. Now in the final FOMC led by Bernanke the Fed announced a $10 billion taper. There will be $5 billion less in the long-term Treasury bonds budget and another $5 billion cut to the mortgage-backed securities monthly amount. It is a "token" taper, but it is clear Bernanke believed it was the right choice and it making things easier for his successor Janet Yellen. Following the Q&A he did mention Yellen had been consulted and is onboard with the tapering program.


Abenomics has been praised of late for arresting the deflation in assets and consumer and producer profits, in turn sparking investor enthusiasm, and returning vim and vigor to the Japanese economy. Two diverging indicators supported and attacked the effectiveness of the economic action plan named after Prime Minister Shinzo Abe, suggesting progress has been mixed to date.

The good news is Japanese exports rose by 16.5% in October compared to one year ago and the yen has devaluated by close to 20% since the “three arrows” of Abenomics – unprecedented fiscal stimulus, a big boost to government spending, and structural reform – were deployed. However, the Japanese economy has only partially benefitted from a weaker yen as stock market fortunes and exports have grown.

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