FTSE +29 points at 7322
DAX +65 points at 12061
CAC +21 points at 5038
Euro Stoxx +16 points at 3453
The U.S. dollar pared losses after recording the largest pullback since Donald Trump’s election as the President of the U.S. in November 2016.
The risk appetite improved in Asia, as the sell-off in U.S. dollar halted. The foreign direct investment in China surprisingly expanded by 9.2% on year to February, versus 4.2% contraction expected and 9.2% retreat recorded a month earlier.
Hang Seng index gained 0.59% and Australia’s ASX 200 advanced by 1.30%. Shanghai's Composite (-0.59%) traded on the back foot, as PetroChina (NYSE:PTR) lost 1.01%, China Petrol retreated 0.70% and Air China (SS:601111) dropped 2.44%.
The Nikkei (+1.01%) and Topix (+1.10%) rose as the USD/JPY held the ground above 110.00 level. The quarter-end and fiscal year-end inflows into the yen could limit the upside potential in the USD/JPY. Option barriers trail up from 111.00/112.00 at today’s expiry.
The U.S. stocks rebounded after slipping below their 50-day moving average for the first time since November 9th, U.S. presidential election. The sentiment vis-à-vis the ‘reflation’ scenario is weakened following Trump’s defeat on his health-care replacement plan, which has somehow been perceived as a warning that the ‘phenomenal’ fiscal reforms could bump into resistance as well. The increased volatility hints at a rising stress across the U.S. stocks; the VIX index jumped as much as 17%.
Gold tested the 200-day moving average, $1260, on the upside. Softer U.S. yields suggest that a second attempt could be successful to push the price of an ounce to $1264 (February 26th and 2017 high), then to $1280. Support is eyed at $1240 (weekly support).
The Chicago Federal Reserve (Fed) President Evans said he would expect one more U.S. rate hike in 2017 and two if the data justifies, versus the general consensus of two more rate hikes. Dallas Fed’s Kaplan said he would support more rate hikes if the economic growth continues. The June Fed rate hike expectations dropped to 50%. The Fed hawks drawback could justify a further pullback in the U.S. dollar against the majors.
The U.S. reflation pullback has triggered a rush toward the euro and the Eurozone sovereign bonds. The German bunds saw decent demand on Monday. Combined to Angela Merkel’s victory in Saarland State, the Germany 10-year bund yields retreated to below 0.40% for the first time in March; the French 10-year yields fell to 0.97%.
The EUR/USD advanced to 1.0905 after clearing the 200-day moving average resistance (1.0850). The pair consolidated gains above 1.0856 in Asia. The next critical resistance is eyed at 1.0932 (major 61.8% retracement on post-Trump rally) before the 1.10 mark.
The focus slowly shifts to the UK, as the country prepares to officially trigger the Brexit on Wednesday. The Brexit Secretary David Davis said that the Britain will not pay the 50 billion pound divorce bill as mentioned by the EU officials. In addition, the Scottish Parliament will vote today on whether or not to pursue a second independence referendum. Rising political uncertainties around the UK could shake up the pound over next trading sessions. The GBP/USD retraced from 1.2615, after having traded above its 200-day moving average for the first time since June 23rd Brexit vote.
The FTSE 100 picked up some negative momentum; the MACD (Moving Average Convergence Divergence) is set to step into the bearish consolidation zone. The combination of stronger pound and cheaper oil continues weighing on the UK’s largest stocks. An eventual pound weakness due to Brexit concerns may remain insufficient to revive stock investors’ appetite. The FTSE is expected to start the session firmer on Asian optimism, yet the downside risks prevail.
The WTI neared the $47 per barrel for the second time in four trading sessions. In the dirt of concrete plans from the OPEC to reduce production, the buyers’ camp remains lethargic. A further slide toward $45 is possible, with short-term resistance building at $48.95 (minor 23.6% retracement on February-March sell-off / 200-day moving average).