The rather concerning China trade data continues to have a legacy in this market as the safe haven trades have found some demand once more. The big question is whether it is enough to de-rail the risk recovery. It is too early to know, but there are still some key markets that need to be watched. The oil price which is still a big driver of market sentiment (with a big positive correlation to equity markets) dropped by its biggest margin since the rally began 4 weeks ago, and has dragged equities with it. Oil has formed some support in the Asian session today, but once again traders will be looking for signals to drive sentiment. Wall Street closed lower last night by 1.1% and with the safe haven yen strengthening the Nikkei has also weakened by 0.8% today. European markets are cautiously trading around the flat line in early moves today as a higher oil price helps to generate support, although positioning ahead of the crucial ECB meeting tomorrow could also be a factor.
There is also a sense of mild safe haven positioning in the forex markets, with the yen remaining the outperformer, whilst every other major is weaker against the US dollar. An interesting feature of this move has been that the gold price corrected yesterday despite the apparent demand for safe havens and is also lower again today. The support for the oil price means that both WTI and Brent Crude are around 0.5% higher.
In the European session the UK Industrial Production is the main focus with the expectation for +0.2% coming after the data unexpectedly fell negative last month at -0.3%. Then in the afternoon we get the monetary policy announcements of two central banks, although neither are expected to make any sort of move to cut rates. The Bank of Canada at 1500GMT is expected to maintain rates at +0.50%, whilst the Reserve Bank of New Zealand is expected to hold fire at +2.50% at 2000GMT. Watch out for any jawboning though following recent strength in the respective currencies, with a lack of inflation also potentially there to be cited as a reason to remain accommodative. There is also the EIA oil inventories report at 1530GMT with an expectation of a further build in crude stocks by 4.0m barrels.
Richard Perry
Market Analyst. hantecfx.com
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