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JPY hedging activity surges ahead of Golden Week - EMEA Brief 24 Apr

Guest IG-Andi


  • Hedging activities in JPY are building up as the Golden week in Japan approaches. Japanese markets will be shut for 10 days from Friday’s close in occasion of the accession of the new emperor to the throne. The situation could prove risky as this was the sort of environment where we saw flash crashes in the JPY against USD and AUD back in January.
  • The S&P benchmark was up 0.9% on the day, following strong earnings releases on Tuesday. The performance could be moderate for the rest of the week as investors await the USD Gross Domestic Product due on Friday.
  • Lacking strong corporate earnings, Asian equities did not follow the ride of US stocks on Tuesday and were slightly down. Noticeable Q1 earning releases in Europe today are Facebook Inc (DE), Carrefour SA and Dassault Systemes SA.
  • Oil keeps rallying and surged to its highest levels in six months after the US said that it would take a harder line against countries that breach its oil embargo on Iran. At 7am WTI June futures crude were 0.17% up on the day. Crude prices have steadily risen from January on concerns over Civil war in Lybia and sanctions against Iran, despite increased US output.
  • Gold fell to nearly a four-month low on Tuesday on strong earnings in US and stronger dollar. Low volatility is expected in the precious metal as investors wait for solid macroeconomic data releases such as inflation numbers.
  • US longer term Treasury yields were slightly down on reports of Asian buyers targeting the long-end of the curve. Assuming no sudden major events, not much volatility is expected on rates ahead of US first-quarter GDP data due on Friday. 
  • On Bitcoin, the 50-day moving average crossed the 200-day moving average in what is known as “golden crossover” in technical parlance. While the event could be more a confirmation of the recent upward volatility surge than an indication of the future trend, speculators are still indissolubly divided amongst those who see Bitcoins as a new Tulip Mania and strong supporters. Meanwhile, every day $400 to $800 million worth of Bitcoins are exchanged but 60% to 80% of the transactions are speculative.

Asian overnight: Asian markets were unable to sustain the positive mood from the US, where the S&P 500 hit a new record closing high. A warning from Texas Instruments about slowing chip demand hit Samsung, which fell 2.2%, while overall the Kospi fell 1.3%. Japanese car makers were also under pressure after media reports that Nissan would cut earnings estimates due to weak sales in North America. The Australian dollar fell sharply after CPI data showed weaker-than-expected inflation, raising the chances of a rate cut by the RBA. 

UK, US and Europe: May seems to be considering one more desperate move to get her deal amended by different factions and passed within one month. While there is no clarity on why talks with the Labour leadership would be different this time, a consensus could save her party from a possibly disastrous outcome in the next European elections. Developments in May’s odyssey are likely to significantly pressure the Sterling before the European elections.

Today’s economic calendar includes German IFO data and US crude inventories, plus a rate decision from the Bank of Canada. Earnings today include Boeing, Caterpillar, Microsoft and Facebook. 

South Africa: Commodity prices are mostly lower this morning and emerging market currencies are mostly weaker today as well. Tencent Holdings is flat on the day, expectant of a similar start for major holding company Naspers. The BHP Group is down 0.34% in Australia, suggestive of a lower open for local mining counters.

Economic calendar - key events and forecast (times in GMT+1)

Econ Cal 24 Apr.PNG

Source: Daily FX Economic Calendar

9am – German IFO index (April): business climate index to fall to 98 from 99.6. Markets to watch: EUR crosses

3pm – BoC rate decision: no change in rates expected. Markets to watch: CAD crosses

3.30pm – US EIA crude inventories (w/e 19 April): previous week saw a fall of 1.4 million barrels. Markets to watch: Brent, WTI

Corporate News, Upgrades and Downgrades

  • Boohoo reported a 49% rise in pre-tax profit for the full year, to £76.3 million, while revenue rose 48% to £856.9 million. 
  • Associated British Foods saw a 2% rise in revenues in constant currency in its first half, to £7.5 billion, but adjusted operating profit fell 2% to £639 million. Good profit growth at Primark was offset by a fall in earnings in the AB Sugar unit. 
  • CRH reported a 3% rise in like-for-like sales for Q1, helped by milder weather and better pricing across product lines. 

Hastings upgraded to overweight at JPMorgan
Rocket Internet upgraded to buy at Bankhaus Lampe
Saga upgraded to neutral at JPMorga

ADO Properties downgraded to hold at HSBC
Anglo American downgraded to neutral at JPMorgan
Direct Line cut to neutral at JPMorga

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