Equities across Asia finished in positive territories after a firmer close in Wall Street and an increase in risk sentiment as crude prices stabilize. Not even Industrial Profits of China posting the biggest losses in 4 months, could dampen spirits as the Nikkei 225 traded up 2.7% while the Shanghai Composite index finished up 0.2%. Today sees data in the form of Japanese Retail sales being released with analysts predicting a 0.2% increase y/y. A better than expect number will see the JPY gain across the board which might increase expectations of further stimulus after BoJ`s dovish comments last week.
US equities closed firmly in the green after risk sentiment has been reversed in light of stable oil prices. Most gains came through from the energy sector but 3M and Johnson and Johnson did their part to lift the DJIA up 1.78%, as they closed the day at +5% and +4.4% respectively after stellar earning reports. The S&P 500 finished up 1.41% and the NASDAQ-100 finished up 0.89%. Another cause for celebration in the US was the better than expected CB Consumer Confidence which printed 98.1 vs the expected of 96.6.
Today sees important data in the form of the Federal Funds Rate (expected to remain unchanged) and the FOMC statement. Markets will be looking to see what the FED has to say about its DEC rate rise of 0.25%. A more hawkish tone by the FED will see the USD gain further strength against its counterparts as the deviation between their monetary policies widen due to an improved US economy, this will lead to strong moves in FX as the USD Index breaks above its current range and tested waters above 100, Indexes would continue to drop as commodity prices weaken. However should the FED come out with a dovish tone, and given recent dips in oil prices, very plausibly so, we would see the USD weaken across the board as the dollar Index breaks for the 95 level which will give many USD bears, stuck in current squeezes across the board, a welcomed break as the world’s largest economy takes a step back in line with its counterpart economies.
The Kiwi will be on edge as the RBNZ releases its rate statement, Official Cash rate (expected to remain unchanged at 2.5%) and Trade Balance (expected at -130M) later today. Markets will be looking for forward guidance from the RBNZ as the bank interprets the recent cuts it made to the Cash Rate. A more hawkish tone in which stability in growth and inflation are seen, will see the NZD gain across the board as signs of recovery emerge. However, it is more likely that a dovish tone will prevail with analysts stating that a further cut to the Cash rate is not off the cards after sub-par fourth quarter CPI data and falling milk prices.
Crude oil rallied yesterday after unconfirmed reports from suppliers stating that they may be ready to cut production, the rally was short lived as US API Crude Oil Inventories showed an increase week on week of 11400k barrels vs the expected 46000k. Oil continues to weaken as Russian officials state that there was no firm decision to lower oil supplies, further dismissing yesterdays rumors. Crude is currently range bound between 30 and 33 dollars with today’s Crude Oil Inventories (previously at 4.0 M) and the FOMC statement expected to be the catalyst for breaking out of these levels.