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COMMODITY CURRENCIES REBOUND WITH CRUDE OIL PRICES

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COMMODITY CURRENCIES REBOUND WITH CRUDE OIL PRICES
  • We expect crude oil prices to continue to climb higher in response to months of almost no investments in oil and gas
  • Considering new USD weakness, the Aussie is rising the most against the greenback above 0,72, nonetheless further Aussie weakness cannot be ruled out just yet as iron ore will continue to adjust prices to the downside
  • The New Zealand dollar was also better bid after the country’s trade surplus surprised massively to the upside
  • We continue to expect the single currency to reverse momentum, especially against the USD after Eurozone finance minister and the IMF secured a deal on the Greek debt early this morning
  • BoJ Governor Kuroda confirmed that further stimulus will be added “without hesitation” if the yen strengthens too much and threatens the country’s objective of reaching the BoJ’s inflation target of 2%
  • We believe that 106/107 yen for a single dollar note may be the price to call for a BoJ intervention
  • Fresh stimulus should be added today as there is already massive downside pressure on inflation
  • Unfortunately for Japan, the US economy is also suffering and bearish pressures on the USD/JPY will soon be back before the BoJ will be forced to intervene in a never-ending monetary policy

Crude oil extended gains in New York yesterday as an easing supply glut takes the front stage after months of oversupply worries. The US gauge, the West Texas intermediate, rose as high as $49.35 a barrel, while the international gauge, the Brent crude, tested the $49.26 threshold. We expect crude oil prices to continue to climb higher in response to months of almost no investment in oil and gas. It will take an extended period of time to return to normal, which would favour further crude oil strength.

In the FX market, the US dollar wiped out yesterday’s gains with the dollar index, falling 0.20% to 95.48 after hitting 95.78. Among the G10 complex, the Australian dollar rose the most against the US dollar, rising 0.30% and returning above the 0.72 threshold. Over the past few weeks, the Aussie suffered from a strengthening US, bolstered by increasing Fed rate hike expectations but also enhanced by the collapse of iron ore prices. Indeed, the most liquid future contracts on the Dalian commodity exchange are down more than 30% since the end of April as it slid from roughly 500 CNY/metric tons to 342 CNY/metric tons this morning. Further weakness of the Australian cannot be ruled out as we anticipate iron ore prices to continue to adjust to the downside; however we also expect the greenback to reverse momentum as the market will start to price out a June rate hike, which would provide support to AUD/USD.

The New Zealand dollar, was also better bid after the country’s trade surplus surprised massively to the upside. Exports rose to NZ$4.30bn, beating expectations of NZ$4.08bn and previous month’s reading of NZ$4.20. Simultaneously, imports rose NZ$4.01bn versus NZ$3.98bn median forecast, unchanged compared to March’s data. All in all, the trade surplus printed at NZ$292mn versus NZ$25mn consensus, while the previous month’s reading was upwardly revised to NZ$189mn from NZ$117mn first estimate. NZD/USD surged 0.18% in Tokyo, hitting 0.6764.

EUR/USD remained under pressure as it failed to clearly  reverse the negative momentum in spite of the dollar rally that is losing steam. The currency pair tested the 1.1144 support (low from March 24th) but was able to hold ground above it. We continue to expect the single currency to reverse momentum, especially against the USD, all the more so as the Eurozone finance minister and the IMF secured a deal on the Greek debt early this morning. It should therefore allow financial markets to spend a relaxing summer, free of Greek worries. The market will now focus on the Brexit story, however, according to the latest polls, a Brexit is almost off the table.

Yann Quelenn, market analyst: “Kuroda ready to act, once again: BoJ Governor Kuroda, in a speech held at the Japan parliament this Wednesday, confirmed that further stimulus will be added “without hesitation” if the yen strengthens too much. Indeed, he said that it would threaten the country’s objective of reaching the BoJ’s inflation target of 2% over the medium-term.

For the time being, financial markets do not know which price will trigger an intervention from the BoJ. Yet we believe that this trigger is not very far away from current prices and should lie around 106/107 yen for a single dollar note. Nonetheless, we feel that the BoJ will likely try to avoid any more stimulus and that the price of the yen is only a central bank indicator at which the situation is not sustainable. From our vantage point Kuroda’s declaration was a simple verbal intervention. We do not believe that Japan is satisfied with heaping on even more stimulus.

Supporting our view, most recent CPI data printed at -0.3% y/y so following Kuroda’s comments, fresh stimulus should be added today as there are already massive downside pressures on inflation. However it is true that the JPY is taking a small breath against the US dollar on renewed likelihood of a June Fed rate hike. Unfortunately for Japan those hopes won’t last long, US economy is also suffering,  and bearish pressures on the USD/JPY will soon be back before the BoJ will be forced to intervene in a never-ending monetary policy.”

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Energy stocks drag down FTSE 100, IG Group slides

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Energy stocks drag down FTSE 100, IG Group slides 1

By Shivani Kumaresan

(Reuters) – London’s FTSE 100 slipped on Thursday, weighed down by falls in energy stocks as oil prices slid after a surprise increase in U.S. crude inventories, while IG Group tumbled on plans to buy U.S. trading platform tastytrade for $1 billion.

The blue-chip FTSE 100 index lost 0.4%, while the domestically focussed mid-cap FTSE 250 index also slid 0.4%.

Energy majors BP and Royal Dutch Shell fell 3.2% and 2.5%, respectively, and were the biggest drags on the FTSE-100 index. [O/R]

“What is holding back the UK is a lack of tech stocks to capture the ‘rotation’ back into tech seen since Netflix results,” said Chris Beauchamp, chief market analyst at IG.

“Stock markets overall are much quieter today, looking so far in vain for a new catalyst for further upside.”

The FTSE 100 shed 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy and led to mass layoffs.

British Prime Minister Boris Johnson said it was too early to say when the national coronavirus lockdown in England would end, as daily deaths from COVID-19 reach new highs and hospitals become increasingly stretched.

IG Group tumbled 8.5% after announcing plans to buy tastytrade, venturing into North America after a stellar year for the new breed of retail investment brokerages.

Ibstock jumped 7.3% to the top of the FTSE 250 after the company said fourth-quarter activity benefited from better-than-expected demand for new houses and repairs.

Pets at Home Group Plc rose 2.2% after reporting an 18% jump in third-quarter revenue, boosted by higher demand for its accessories and veterinary services as more people adopted pets during lockdowns.

(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V and Mark Potter)

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Wall Street bounce, upbeat earnings lift European stocks

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Wall Street bounce, upbeat earnings lift European stocks 2

By Amal S and Sruthi Shankar

(Reuters) – European stocks rose on Wednesday after Dutch chip equipment maker ASML and Swiss luxury group Richemont gave encouraging earnings updates, while investors hoped for a large U.S. stimulus plan as Joe Biden was sworn in as president.

The pan-European STOXX 600 index closed 0.7% higher, getting an extra boost as Wall Street marked record highs.

All eyes were on Biden’s inauguration as the 46th U.S. President, with traders betting on a bigger pandemic relief plan and higher infrastructure spending under the new administration to boost the pandemic-stricken economy.

Tech stocks rallied to a two-decade peak in Europe after ASML Holding NV rose 3.0% to all-time highs on better-than-expected quarterly sales and a strong order intake for 2021.

Meanwhile, Richemont rose 2.8%, after posting a 5% increase in quarterly sales as Chinese splashed out on Cartier, its flagship jewellery brand.

Britain’s Burberry jumped 3.9% after it stuck to its full-year goals, saying higher full-price sales would boost annual margins, while Asian demand remained strong.

The pair boosted European luxury goods makers that are heavily reliant on China, with LVMH and Kering gaining between 1% and 3%.

“Any sign that retail spending is picking up in China is going to be a boost to the Western markets and those heavily exposed to it,” said Connor Campbell, financial analyst at SpreadEx.

The European Central Bank is set to meet on Thursday. While no policy changes are expected, the bank could face more questions about an increasingly challenging outlook only a month after it unleashed fresh stimulus to bolster the euro zone economy.

“With the new round of easing measures fully in place and no new forecasts to be presented tomorrow, it should be a fairly uneventful day for the euro,” ING analysts said in a note.

Italy’s FTSE MIB gained 0.9% and lenders rose 1.6% after Prime Minister Giuseppe Conte won a confidence vote in the upper house Senate and averted a government collapse.

Conte narrowly secured the vote on Tuesday, allowing him to remain in office after a junior partner quit his coalition last week in the midst of the COVID-19 pandemic.

Daimler AG jumped 4.2% after its Mercedes-Benz brand unveiled a new electric compact SUV, the EQA, as part of plans to take on rival Tesla Inc.

Germany’s Hugo Boss added 4.4% after Mike Ashley-led Frasers said it boosted its stake in the company.

(Reporting by Sruthi Shankar and Amal S in Bengaluru; Editing by Shailesh Kuber and Arun Koyyur and Kirsten Donovan)

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Miners lead FTSE 100 higher on earnings cheer

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Miners lead FTSE 100 higher on earnings cheer 3

By Shivani Kumaresan

(Reuters) – UK’s FTSE 100 rose on Wednesday as miners gained after a strong production forecast from BHP Group, while encouraging updates from luxury brand Burberry and education group Pearson drove optimism about the earnings season.

BHP Group Ltd climbed 2.8% after it forecast record iron ore production for fiscal 2021, helped by high prices for the commodity. Other miners Rio Tinto, Anglo American and Glencore rose more than 2%.

Global markets rallied in anticipation of more fiscal spending as Joe Biden prepared to take charge as the 46th U.S. president.

“There is a view in the markets that more spending is in the pipeline, after all, Mr Biden will want to start his presidency on a positive note,” said David Madden, market analyst at CMC Markets UK.

The FTSE 100 index rose 0.4% and the domestically focussed FTSE 250 index added 1.4%.

The FTSE 100 has recorded consistent monthly gains since November after the sealing of a Brexit trade deal and hopes of a vaccine-led economic recovery, but has recently lost steam as tighter business restrictions sparked fears of a slow rebound.

Burberry rose 3.9% as it stuck to its full-year goals and said higher full-price sales would boost annual margins and Asian demand remained strong.

Global education group Pearson jumped 8.6% after its global online sales grew 18% in 2020, helped by strong enrolments in virtual schools.

WH Smith Plc surged 10.4% to the top of the FTSE 250 index as its trading during Christmas was ahead of its expectations.

(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V, William Maclean)

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