Martin Armstrong
Armstrong Economics
The Asian markets responded quite positively to the FED’s unchanged decision yesterday with HSI and China Main trading a little over 1% higher across the board. The Exporters did not fare so well, as such, Japan closed a little lower (-0.22%) on the back of a stronger JPY (+1%). China moved the Yuan mid-point from 6.5172 to 6.4961; which really was not much of a talking point.
In Europe we saw the initial burst from cash markets reflecting the FED’s decline from four to two potential rate rises but from then most core indices drifted into the close. DAX and CAC both closed lower on the day whilst the IBEX and FTSE managed small gains. Confidence was hit after the Norwegian CB cut rates from 0.75% down to 0.5%, especially after the FED’s reflection on rates the night before! Energy was the main support throughout exchanges given its renewed vigour over the past two months but that has been dented by banks sudden realization that lower rates will eventually hurt! The peripheral banks are waking to the point that the ECB will need to draw a line, at some stage, in asset quality purchases. Now that the Central Bank is competing directly with corporates for cash the depletion of the middle ground will accelerate. The Italian Bank Banco Popolare fell over 10% today.
The weak USD and a market friendly FED has seen stocks finally making gains for 2016. The DOW closed 155 points higher this evening closing +0.9% on the day. The broader S+P and NASDAQ both made ground closing +0.6% and +0.25% respectively. The VIX hit levels (14) not seen since last November (2015).
The USD Index (DXY) continued to lose ground today, after it was hit yesterday – closing this evening at 94.81 (-1.1%). All core currencies made ground with Euro and GBP both making around 1.25% intraday. WTI managed an almost 5% increase to close the day above the psychological $40 mark. One reason why the Russian Rouble gained 3% against the USD today (closing around 68.10).
US Treasuries saw a revision to yesterdays steepening when 2’s drifted and 10’s performed. The two year note closed this evening at 0.865% while 10’s closed 1.90% (2/10 closed +102.5bp). In Europe German Bunds closed 0.23% (spread US/Germany closes +167bp). Italy 10yr closed 1.27% (-6bp), Greece 8.47% (-12bp), Turkey 9.80% (-24bp) and UK Gilt 10yr closed 1.45% (-7bp).
Investment and financial consultancy services are offered on behalf of Armstrong Economics. PEI does NOT provide personal guided advice for any individuals regardless of residency or nationality. PEI provides forecasting based upon objective computer models in most leading financial centers worldwide through its affiliates and/or representative arrangements. The information provided is believed to be reliable, however accuracy and completeness are not guaranteed. This information is offered to professional investors and institutions. PEI does trade on a proprietary basis in selected markets around the world. PEI accepts NO managed accounts on behalf of any individuals no matter the country of residence or origin. PEI predominantly engages in hedging contracts and currency overlay business on behalf of business and institutions. Individuals seeking to use the forecasting services of PEI should seek the advice of professionals, as appropriate, regarding the evaluation of any specific information, opinion, advice or other content relative to their personal financial investment situation. Keep in mind that a forecast in the local currency of that instrument may prove to be correct but a swing in the underlying currency can make that same forecast dangerous to someone investing in a different currency.
Recommended Content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.