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JAPAN CURRENT ACCOUNT SURPLUS SURGES, FINANCIAL MARKETS STABILISE

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By Arnaud Masset, market analyst, Swissquote Bank

  • Despite this morning’s consolidation, the bias remains on the downside in USD/JPY, although the yen will need a fresh boost to clear the 105-106 support area. If broken, the road towards 100 will be wide open
  • The Swiss economy continues to suffer from the strength of the franc as the unemployment rate rose from 2.9% in 2012 to 3.5% in March 2016, while the unemployment rate in the euro zone fell to 10.3% from 11.4% over the same period
  • EUR/CHF stabilised at around 1.0875 after hitting 1.0843 yesterday, its lowest level since early March, as ECB members reiterated that the ECB will do whatever is needed to return inflation to target
  • Upside pressure on the Swiss franc has increased substantially since the beginning of the year as markets wait for the ECB to pull out the bazooka again
  • Overall, the market has not switched to risk-on but is rather consolidating after yesterday’s sharp moves
  • AUD/USD: We believe it is just a matter of time before the pair tests the 0.7477 support once again and breaks to the downside

USD/JPY took a breather after hitting 107.67 in the late European session on Thursday. The pair rapidly reversed momentum and returned to around 108.70 as traders wonder whether there is still downside potential after such a debasement. The BoP data showed that Japan’s current account surplus rose for 20 straight months in February, reaching 2.43 trillion yen (versus 2.3 trillion yen median forecast) from 520 billion yen in January due to sustainable improvements in the trade balance and solid income from tourists. However, the recent strengthening of the Japanese yen may eat into part of the extra made by Japanese exporters due to the weakness of the yen. Despite this morning’s consolidation, the bias remains on the downside in USD/JPY; however the yen will need a fresh boost to clear the 105-106 support area. If broken, the road towards 100 will be wide open.

In Switzerland, the unemployment rate fell to 3.6%, matching forecasts, down from 3.7% in February. However, the seasonally adjusted measure rose to 3.5% in March from 3.4% in the previous month, suggesting that the Swiss economy continues to suffer from franc strength. Indeed, the unemployment rate rose from 2.9% (s.a.) in 2012 to 3.5% in March 2016, while the unemployment rate in the euro zone fell to 10.3% from 11.4% over the same period. EUR/CHF stabilised at around 1.0875 after hitting 1.0843 yesterday, its lowest level since early March, as ECB members reiterated that the European Central Bank will do whatever is needed to return inflation to target. Upside pressure on the Swiss franc has increased substantially since the beginning of the year as markets wait for the ECB to pull out the bazooka again.

In the commodity complex, the recovery in crude oil prices helped the Aussie, the Loonie, the Kiwi and the NOK to reduce yesterday’s sharp losses. AUD/USD hit 0.7550 in Sydney after failing to break the 0.75 support area. However, we believe it is just a matter of time before the pair tests the 0.7477 support (low from March 24th) once again and break to the downside. USD/CAD is also erasing yesterday’s gains as the CAD gained 0.30% against the USD dollar with the pair down to 1.31 after hitting 1.3181. Overall, the market has not switched to risk-on but is rather consolidating after yesterday’s sharp moves.

Equity returns are mixed this morning with most of Asian regional markets blinking red across the board, with the exception of Japanese markets. The Nikkei and the Topix indices were up 0.46% and 1.18% respectively. Mainland Chinese shares moved lower with the CSI 300 index down 0.73%. In Hong Kong the Hang Seng slipped 0.13%. Finally, in Europe, futures are pointing towards a higher open with futures on the Euro Stoxx 600 up 0.60%.

Today traders will be watching the CPI report from Switzerland; industrial production, manufacturing production and trade balance from the UK; IBGE inflation from Brazil; housing starts, unemployment rate and participation rate from Canada; wholesale inventories and Fed Dudley’s speech from the US.

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Lindt & Spruengli aims for 6-8% sales growth, announces share buyback

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Lindt & Spruengli aims for 6-8% sales growth, announces share buyback 1

By Silke Koltrowitz

ZURICH (Reuters) – Swiss chocolate maker Lindt & Spruengli said on Tuesday it aimed for 6-8% organic sales growth this year thanks to pent-up demand after the pandemic hit its business and made net profit slide last year.

Chocolate makers are grappling with subdued demand as consumers buy fewer chocolates as gifts or while traveling during the COVID-19 pandemic, and Lindt has also been hit by the temporary closure of its own stores.

Net profit fell 37.5% to 320.1 million Swiss francs ($349.53 million) in 2020, the maker of Lindor chocolate balls and gold foil-wrapped Easter bunnies said in a statement.

But the company said it was convinced that the chocolate market, and in particular the premium segment it operates in, would continue to grow in the future.

It said it expected organic sales to grow 6-8% this year and then, from 2022 onwards, 5-7% per year in line with its medium term guidance.

The Zurich-based company also announced a new share buyback programme of 750 million francs from June this year to the end of next year and will pay out a dividend of 1,100 francs per registered share and of 110 francs per participation certificate.

It had paid out an exceptionally high dividend for its anniversary last year.

“Overall, a solid print with cash flow and the announcement of a buyback the main positive surprises,” Kepler Cheuvreux analyst Jon Cox said, adding the outlook was also upbeat, but more or less in line with street expectations.

Lindt & Spruengli had already flagged a 6.1% drop in 2020 organic sales in January. The contraction in sales led its operating profit margin to fall to 10.5%, from 13.2% in 2019.

It said the margin should return to 13-14% this year and then to 15% in 2022.

($1 = 0.9158 Swiss francs)

(Reporting by Silke Koltrowitz; Editing by Riham Alkousaa and Brenna Hughes Neghaiwi)

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Asian shares perk up as calmer bonds ease jitters

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Asian shares perk up as calmer bonds ease jitters 2

By Julie Zhu and Koh Gui Qing

HONG KONG/NEW YORK (Reuters) – Asia extended the global rally in stocks on Tuesday as a halt in a recent bond markets sell-off eased investor nerves and lifted riskier assets, although oil prices were on the defensive on fears of slowing Chinese energy consumption.

MSCI’s broadest index of Asia-Pacific shares outside Japan firmed 0.97% while Japan’s Nikkei was slightly down 0.12%.

Australian shares continued their climb on Tuesday, with S&P/ASX 200 index rising as much as 1.05%, its highest since Feb. 19, as a rollout of another vaccine in the United States and optimism over a coronavirus relief package boosted hopes of a quicker global economic recovery.

Chinese blue-chips gained 0.58% in early trade while Hong Kong’s Hang Seng advanced 0.9%, helped by steady and robust demand from investors in mainland China for shares in the Asian financial hub.

China will begins its annual session of parliament on Friday in Beijing, which is expected to chart a course for economic recovery and unveil a five-year plan to fend off stagnation.

U.S. stocks [.N] rallied overnight, with the S&P 500 posting its best day in nearly nine months, as bond markets calmed after a month-long selloff.

For now, all eyes will be on Australia’s central bank, which holds its monthly policy meeting on Tuesday. Analysts expect the Reserve Bank of Australia to hold key rates at a historic low but focus will shift to commentary about its quantitative easing programme.

“There’s everything to like about the rally in EU and U.S. equity markets,” said Chris Weston, the head of research at Pepperstone Group Ltd in Australia.

“Financials outperformed, with 95% of stocks in the S&P 500 gaining on the day,” he said, adding that “clearly investors are seeing the world in a new light”.

U.S. stocks were roiled last week when a sell-off in Treasuries pushed the 10-year Treasury yield to a one-year high of 1.614%. The 10-year yield was edging lower in early trade at 1.4204%. [US/]

However, demand for riskier assets did not slug the dollar, usually regarded as a safe-haven currency, as investors bet on fast growth and inflation in the United States. The U.S. dollar index gained 0.14% in early trade against a basket of currencies to stand at 91.142, within sight of a three-week high hit overnight. [USD/]

The Australian dollar was down 0.25% at $0.77510 ahead of the RBA meeting.

A stronger greenback weighed on gold, and the precious metal was on the defensive at $1,711.4100 an ounce early Tuesday. [GOL/]

The exuberance in risk assets did not help energy markets. Oil prices fell more than 1% overnight after data showed China’s factory activity growth slipped to a nine-month low in February, owing in part to disruptions over the Lunar New Year holiday. There were also fears among energy investors that OPEC may increase global supply following a meeting this week. [O/R]

Brent crude fell 1.27% to $62.88 a barrel, while U.S. West Texas Intermediate crude lost 1.3% to $59.85.

(Reporting by Koh Gui Qing and Julie Zhu; Editing by Sam Holmes)

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Dollar holds advantage over low-yielders, A$ looks to RBA

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Dollar holds advantage over low-yielders, A$ looks to RBA 3

By Hideyuki Sano

TOKYO (Reuters) – The dollar stood firm against its low-yielding peers on Tuesday on bets of a faster economic recovery and greater tolerance of higher U.S. bond yields, while the Australian dollar looked to guidance from the country’s central bank.

The dollar index last stood at 91.014, having hit a three-week high of 91.139 overnight, with its February peak of 91.600 seen as a possible next target.

The U.S. currency rose to 106.89 yen on Monday, its highest since late August, and last stood at 106.84 yen while the euro dipped to $1.2049, near its lowest level in almost two weeks.

The common currency was under pressure as top officials from the European Central Bank sounded alarm over rises in bond yields.

President Christine Lagarde said on Monday the ECB will prevent a premature increase in borrowing costs for firms and households.

Policymaker Francois Villeroy de Galhau was even more explicit, saying some of the recent rises in bond yields were unwarranted and that the ECB must push back using the flexibility embedded in its bond purchase programme.

Traders were quick to sense the marked difference in tone between the ECB and the Federal Reserve.

Richmond Federal Reserve President Thomas Barkin said on Monday the uptick in long-term bond yields so far seems to suggest an adjustment to stronger growth and inflation outlook.

Atlanta Fed President Raphael Bostic said last week that bond yields remain comparatively low, while Federal Reserve Chair Jerome Powell has also shown no undue concerns about rising bond yields.

“Central banks continue to take diverging views on the signals sent by the recent rise in yields. The U.S. Fed is taking it as a positive signal,” Tapas Strickland, director of economics and markets at National Australian Bank in Sydney, said in a note.

The U.S. economic recovery is also seen on a firmer ground, already bolstered by prospects of a $1.9 trillion relief package from the Biden Administration and successful rollouts of COVID-19 vaccinations.

A survey by the Institute for Supply Management (ISM) released on Monday showed U.S. manufacturing activity increased to a three-year high in February amid a surge in new orders.

As a result, the gap between U.S. and European bond yields has been widening in a boost to the dollar; the 10-year yield differentials between U.S. Treasuries and German Bunds reached 1.76% on Monday, the highest in a year.

The safe-haven Swiss franc softened to a near four-month high of 0.9160 franc per dollar overnight and last stood at 0.9146.

Against the euro, the franc changed hands at 1.1023 to the euro, not far from a 1-1/2-year low of 1.1098 touched last week.

The Australian dollar traded at $0.7774, having risen 0.75% on Monday on rising risk appetite, with focus now squarely on the looming policy meeting of the Reserve Bank of Australia.

The RBA’s monthly policy meeting on Tuesday is widely expected to reinforce its forward guidance for three more years of near-zero rates.

It has stepped up bond buying following the global bond market rout, and any further warning against rising yields could cap its latest rebound, analysts said.

“The market has been in a euphoria for some time and everybody says the dollar will weaken on rising risk appetite. But oil prices dipped yesterday and gold also slipped. If commodity markets are waking up to the reality, then we could see some weakness in commodity-linked currencies,” said Makoto Noji, chief FX strategist at SMBC Nikko Securities.

Elsewhere, bitcoin also jumped back in tandem with gains in risk assets, trading at $49,129 and pulling away from Sunday’s three-week low of $43,021.

(Reporting by Hideyuki Sano; Editing by Shri Navaratnam)

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