Monday Morning Coffee: Markets Update
Market Update: Mostly positive for APAC region stocks, little movement in Europe.
Mon, 06 Mar 2023 08:50 AM CET
Today's important market events:
APAC stocks were mostly positive on March 6, with the Nikkei 225 outperforming after topping the 28k level for the first time this year, while the ASX 200 was positive as strength in tech, financials, and the consumer sector offset the weakness in the mining industry. The KOSPI gained as softer-than-expected CPI data eased the pressure for the BoK to resume rate hikes. Meanwhile, the Hang Seng and Shanghai Comp traded mixed with early pressure after China set its slowest growth target in over two decades. European equity futures indicated a higher open on March 6, with the Euro Stoxx 50 up 0.4% after the cash market closed up 1.3% on Friday.
The DXY softened amid the mostly positive risk tone and recent pullback in yields, while the EUR/USD eked mild gains owing to the softer dollar and following comments from ECB’s Lagarde that underlying inflation will stay high and they must take whatever measures necessary to bring inflation back to 2%. The GBP/USD was uneventful amid a lack of catalysts, and the USD/JPY remained subdued beneath 136.00 due to the dollar retreat and narrowing yield differentials. Antipodeans were rangebound with price action choppy ahead of the RBA rate decision.
On Friday, US stocks and bonds saw a strengthening trend without any clear trigger, and the dollar closed near lows. The trend started in the European morning and continued through the US session, with big tech leading the strength in US equities. Although there was a brief pullback in bonds after the US ISM Services came in hotter-than-expected, Treasuries ultimately printed new highs into the close with the cash 10yr yield falling below 4%. The S&P 500 (SPX) rose by 1.61% to 4,045, the NASDAQ Composite (NDX) increased by 2.04% to 12,290, the Dow Jones Industrial Average (DJIA) gained 1.17% to 33,390, and the Russell 2000 (RUT) added 1.35% to 1,928.
The majority of bourses in the APAC region were positive, following the gains on Wall Street last Friday. The ASX 200 was positive, with strength in the tech, financial, and consumer sectors, although gains were limited ahead of the RBA rate decision tomorrow. The Nikkei 225 outperformed, led by SoftBank, following reports that its Arm unit is seeking to raise at least USD 8bln from a US IPO. The KOSPI gained after softer-than-expected CPI data eased the pressure for the BoK to resume rate hikes, and South Korea unveiled a plan to ease tensions with Japan regarding wartime forced labor compensation. However, Hang Seng and Shanghai Comp. traded mixed, with early pressure after China set its slowest growth target in over two decades, and the PBoC’s operations resulting in a significant net liquidity drain of CNY 329bln. Nonetheless, some of the losses were pared given that China also made several support pledges and following the announcement of further inclusions to the Stock Connect. US equity futures took a breather and just about extended on last week's highs with the help of softer yields, while European equity futures are indicative of a higher open with the Euro Stoxx 50 up 0.4% after the cash market closed up 1.3% on Friday.
DXY weakened due to the positive risk tone and decline in yields. The EUR/USD pair saw slight gains due to the softer dollar and comments from ECB's Lagarde about taking measures to bring inflation back to 2%. GBP/USD remained uneventful while USD/JPY was subdued beneath 136.00 due to the dollar retreat and narrowing yield differentials. Antipodeans were rangebound ahead of tomorrow's RBA rate decision. The PBoC set the USD/CNY mid-point lower than expected. Norway's government lowered its GDP growth forecast for 2023 and 2024 while prioritizing expenses related to the war in Ukraine, public services, and helping those in need.
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In commodity markets, crude futures declined as WTI retreated from resistance near the USD 80/bbl level due to China's weakest growth target in more than 25 years. Meanwhile, higher Saudi official selling prices (OSPs) for April failed to boost prices. Saudi Arabia raised the Arab light crude OSP to Asia to Oman/Dubai + USD 2.50/bbl, while to Northwest Europe was set at ICE Brent + USD 1.00/bbl, and the OSP to the US was maintained at ASCI + USD 6.65/bbl.
The price of spot gold is stable but near a recent high, and this is potentially due to a weaker US dollar. The second sentence implies that copper futures are not showing a clear trend and are trading within a certain range. The positive risk sentiment in Asia is supporting copper prices, but this is being countered by weaker demand from China, which is the world's largest consumer of copper.
Geopolitical developments around the world. In Ukraine, the town of Bakhmut is under severe pressure with fighting intensifying, and Russian army and Wagner Group forces have made further advances in the suburbs. The US Chairman of the Joint Chiefs of Staff, General Milley, visited Syria to assess the mission, which drew condemnation from Syria. In Iran, the IAEA report stated that high-level assurances have been given that issues related to safeguards will be resolved and technical discussions will take place soon. In North Korea, the country has criticized the US and South Korea's joint military drills, calling on the UN to intervene and demanding an immediate end to the exercises. North Korea has also emphasized the importance of its nuclear weapons in maintaining the balance of power in the region.
ECB President Lagarde has stated that underlying inflation will remain high in the near term, and a 50 basis point rate hike later this month is increasingly certain. She added that the ECB must take whatever measures necessary to bring inflation back to its target of 2%. In the UK, a Citi/YouGov poll has revealed that public inflation expectations for the next 5-10 years have risen to 3.8% in February from 3.5% in January. Inflation expectations for the next year have also increased to 5.6% from 5.4%, reaffirming the continued upside risks that have plagued UK inflation expectations.
Developments in the fixed income market. The 10-year US Treasury (UST) futures have continued to gain, following a recent pullback in yields, with the US 10-year yield trading below 4%. In Europe, Bund futures have remained firm above 131.00, despite Friday's advances and softer-than-expected PMIs. The prices were unfazed by the ECB President Lagarde's hawkish reiterations. Meanwhile, the 10-year Japanese Government Bond (JGB) futures remained directionless, with no additional purchases by the Bank of Japan (BoJ). Participants are waiting for BoJ Governor Kuroda's last policy meeting scheduled later in the week.
General news Information source from multiple newswires.
The article and the data is for general information use only, not advice!
The Trade Academy Team