Subdued Start To Quiet Week

Overview: The Lunar New Year celebration made for a quiet Asian session while a light diary in Europe saw subdued turnover. Equity markets are narrowly mixed. Among the three large markets open in Asia Pacific, Australia and Japanese equities rose while India slipped. European bourses are little changed, putting the Dow Jones Stoxx 600 four-day advance at risk. Benchmark 10-year bond yields have edged up.  The dollar is firmer against most of the major and emerging market currencies. Of note, the dollar is knocking on JPY110, while the euro remains pinned near the lows seen after the US employment data (~$1.1450). The March light sweet crude oil future contract is pushing further through key resistance near $55.  

Asia Pacific

China reported is Caixin service and composite PMIs over the weekend. The services PMI eased to 53.6 from 53.9, holding up a little better than expected, and helped by an increase in new export orders. The composite fell to 50.9 from 52.2. The impact of the numerous stimulus efforts has yet to be felt. However, it does seem as if the pace of decline is ebbing. Economic readings around the Lunar New Year holiday are skewed, which means clean data, as it were, may not available for another month, by which time we expect the stabilization to be more evident. That said, further easing of monetary policy (interest rates and/or required reserve ratio) is still expected to be delivered.  

The Reserve Bank of Australia meets tomorrow. The 8.4% drop in December building approvals after a revised 9.8% decline in November brings the overall level of approvals to their lowest level since the middle of 2013 and 40% off the cyclical peak in November 2017. The central bank will likely offer a less optimistic economic assessment, but it will probably stop shy of signaling a rate cut.  

The dollar reached JPY108.50 after the Fed's pivot last week, a two-week low. It began today near JPY109.50 and firmed to almost JPY110, its high for the year. There are two options that are defending it: A $360 mln option at JPY109.85 and $1.6 bln at JPY110.00 expire today. There is also a $450 mln option struck at JPY110.10 that will also be cut today. The Australian dollar is pulling back after almost reaching $0.7300 after the FOMC.  The A$1.58 mln in expiring options at $0.7240-$0.7250 are less impactful now given the Aussie's pullback below $0.7230. Support is seen between $0.7185 and $0.7200.   

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Read more by Marc on his site Marc to Market.

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