Asian markets closed on a higher note on the final trading session of the week despite the fact that the economic data – the BOJ CPI came short of expectation. The reading of 1.1% was below the forecast of 1.2% or the previous print of 1.3%. Nonetheless, investors didn’t pay much attention to this number and bought the equity markets on the hopes that G20 meeting, which is taking place over in Asia, will have a coordinated action and this can help them to battle the feeble global growth.
It is this hope, which is pushing the sentiment higher over in Europe and investors are open to hold riskier assets. Although, it appears that these hopes which are banking on a positive outcome of G20 meeting could be very similar to those promises when a candidate is running for election- a lot of promises and heart warming talks, but in reality they are nothing. I will not be surprised if we get a similar outcome for this meeting, which may help the equity market for a few days, but the lack of any follow through could fade the investor appetite for holding any riskier assets.
For the DAX index, in order for us to be certain that we are not in a phase of dead cat bounce, we need to break the 10K with a strong momentum, because currently, the pace or the momentum, which are citing could run out of steam, as we approach this level. Similarly, for the FTSE 100, a level of 6200 and 6400 does represent a significant threat, but if we break above the levels, the upward momentum could be very strong.
If the G20 finance minister could knit a Shanghai Accord – a similar one like the Plaza Accord, could send a stout message that a coordinated action is very much is the outcome and investors need not to worry about the currency devaluations, as such response is in agreement with other major officials who will take appropriate measures to help the central which is fighting for devalue their currency. But, once again the reality appears that such an outcome has equal odds as someone winning a lotto and this could press the equity markets lower next week if investors are only holding the riskier assets on the back of these hopes.
As for the oil market, traders are once again on “Hopium” a similar thing like opium juts in this, it is based on hopes and hence the new term “Hopium”. The March meeting will gain more and more attention as we move close to this meeting and investors will be looking at three different scenarios, cut output, hold output and increase output. More focus will be if they cut output as some big players have already agreed to hold this at current level and this will be the key element behind the trading action for oil traders.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam