IG Morning Call

[MongiIG]

The Japanese yen remains near its 34-year low of around 151.95 per US dollar hit last week, despite repeated warnings from Tokyo about the yen's slide. The Japanese finance minister reiterated warnings to yen bears on Tuesday as Japan tries to prevent a destabilizing currency fall. While initially shocked by stronger-than-expected US manufacturing data raising doubts about Fed rate cut timing, markets seem to be taking evidence of economic strength in their stride. Investors remain wary of a higher-for-longer rates narrative, but most analysts think the Fed is more concerned with easing inflation and the labour market. European stock markets are set for a higher open after holidays, with the STOXX 600 index closing at a record last week. Investors will watch European manufacturing and inflation data to assess the economy's health and the ECB's likely rate path. A growing number of ECB policymakers support rate cuts, with June seen as the most likely timing according to economists polled by Reuters.

 

[MongiIG]

Asian shares rose overnight, with the Nikkei gaining 1.6%, as the Japanese yen weakened against major currencies. The yen's decline is seen as safe by investors, given the threat of intervention capping the dollar's rise versus the yen at 152. Currencies like the Canadian dollar hit 16-year highs against the yen, aided by higher oil prices. Commodities like copper and gold also rallied, with copper reaching a 13-month peak, potentially boosted by China's measures to promote auto sales and EV purchases. Gold topped $2,300 an ounce, attracting momentum buyers concerned about rising government debt levels. The oil price rise could exacerbate inflation pressures for central banks. OPEC+ maintained its output cuts, while Fed Chair Powell reiterated rate cuts are coming if data allows. However, Fed officials giving speeches on Thursday may differ on the rate outlook. Market pricing suggests a June start to Fed cuts is expected, though the anticipated pace and depth of cuts has moderated. Treasury yield rises hint at a higher neutral rate perception. Upcoming US data on jobless claims today and nonfarm payrolls tomorrow will be closely watched.

 

[KoketsoIG]

With no data of note on today's economic calendar, a quiet session is likely to follow Friday's volatile Non-Farm payrolls day which led to a recovery in equity indices. Much stronger-than-expected US payrolls pushed back Fed rate cut expectations for the June meeting to around 50% (from over 60% previously). US treasury yields are trading back at levels last seen in November while the US dollar is depreciating once more and the gold price hits a new record high. Earlier this morning German exports dropped more than expected but industrial output growth topped forecasts. This week will see the ECB's, RBNZ's and BOC's April monetary policy meetings as well as the publication of the FOMC minutes.

 

[KoketsoIG]

US inflation data surprised markets by coming in 0.1% higher than expected, driving yields and the dollar back up to pre-Christmas highs. This has increased focus on whether the European Central Bank will signal an upcoming rate cut, potentially as soon as June, at its policy meeting today. Unlike the U.S., eurozone inflation unexpectedly fell in March amid economic stagnation and a softening labour market. If the ECB flags a June rate cut, it would put European policymakers ahead of the Fed, which markets don't fully price in for a cut until November. This had supported the euro leading up to the meeting. The dollar's broad strength has also pressured the yen past the 152 level versus the dollar that had prompted past intervention talk from Japan. China faces yuan weakness despite efforts by its central bank to steady the currency. Fitch also cut its outlook on China's sovereign rating amid tensions with the US over manufacturing capacity. Commodity prices like oil have risen, adding to inflation pressures. 

 

[MongiIG]

A generally weak session in Asia overnight saw the Hang Seng tumble 1.5%. Yesterday's ECB meeting left investors expecting that central bank will be the first to cut rates, with June the likely point. The BoE is expected to follow in August, and the Fed in September, a sharp change from the start of the year, when markets were forecasting a March rate cut. The Japanese yen remains near 34-year lows against the US dollar, prompting intervention warnings from Japan's finance minister. European equities are set for another weekly decline, while the start of the U.S. earnings season with big banks reporting could impact market direction.

 

[KoketsoIG]

Fears of a wider regional conflict in the Middle East weighed on market sentiment overnight, though a higher open is expected for the Dax. This flight to safety was triggered by news of an Iranian strike on Israel with hundreds of drones and missiles, raising concerns over potential Israeli retaliation. Safe-haven assets like gold and the US dollar strengthened, though the Japanese yen weakened to a 30-year low against the dollar, highlighting that interest rates remain the primary market focus despite geopolitical risks. Oil prices dipped in Asian trading as the risk of Iranian retaliation was already priced in last week. While the US has stated it will not take part in a counter-offensive against Iran, the volatility index remains near five-month highs, reflecting heightened market nervousness. Any further oil price increases could add to inflationary pressures, complicating central banks' efforts to control rising consumer prices. This week, markets will closely watch US economic data releases, including retail sales and comments from Federal Reserve officials, for clues on the monetary policy outlook amid persistent inflation concerns. The US earnings season is also underway, with mixed results from major banks getting the season off to a lacklustre start.

 

[MongiIG]

Rising geopolitical tensions in the Middle East and expectations of higher US interest rates for longer have dampened risk appetite in financial markets. This led to a sell-off in Asian stocks, a strengthening US dollar, and further weakness in the Japanese yen to levels not seen since the mid-1990s against the dollar. European markets are expected to open sharply lower, with a focus on UK labour and wage data for clues on when the Bank of England may start cutting rates. Markets see August as most likely for BoE rate cuts to begin. The Federal Reserve is seen as unlikely to rush rate cuts after strong US retail sales data. Market pricing now sees less than two Fed rate cuts in 2024 instead of the six expected earlier. Safe-haven flows are boosting demand for the US dollar and gold amid Middle East tensions. China's GDP beat estimates but weak March data raised concerns about its economic recovery. UK employment data showed a rise in the unemployment rate for February, to 4.2%, while wage growth remained steady at 5.6%. 

 

[MongiIG]

Mainland Chinese stock markets bucked the broader selloff trend in Asian markets on Wednesday. China's CSI 300 index rose 0.5%, while the CSI 2000 small-cap index surged 5.3%. This came after the Chinese securities regulator stated that companies not complying with calls to increase dividend payouts will not face mass delistings, providing relief. In contrast, Japan's Topix index fell 0.9% despite strong March trade data showing rising exports. UK inflation data showed consumer prices rose 3.2% annually in March, higher than expected at 3.1%, renewing debate on when the Bank of England may start cutting rates. Core UK inflation eased to 4.2% from 4.5% in February but was still above the 4.1% forecast. In the US, stocks closed lower for the third straight session on Tuesday. The S&P 500 slid 0.2% and Nasdaq lost 0.1% after Fed Chair Powell warned rates may need to stay higher for longer to tame inflation.

 

[AshishIG]

Financial markets had a rough week amid escalating tensions in the Middle East after reports of explosions and a possible Israeli airstrike in Iran. This added to investor concerns following disappointing corporate results and hawkish comments from Federal Reserve officials. The news from Iran drove up prices for safe-haven assets like gold, the US dollar and Japanese yen, while stocks fell and bonds rallied. Comments from a Fed official warning rates may need to go higher if data calls for it also rattled investors who had been expecting rate cuts later this year. Tech shares fell sharply after chipmaker TSMC lowered its outlook for the sector, disappointing investors. UK retail sales were flat in March. 

[KoketsoIG]

Asian markets are rallying on reduced tensions between Iran and Israel, with the rally expected to spread to Europe, especially lifting the FTSE 100 around 1%. Investors are moving back into riskier assets like stocks and selling safe-havens. However, geopolitical risks remain with a rocket attack on a US base in Syria. Beyond the Middle East, lingering concerns over potential Fed rate cuts later this year and caution over chip earnings are weighing on stocks after last week's selloff. In Japan, the tech-heavy Nikkei lagged the broader Topix's gains. All eyes are on the Bank of Japan meeting on Friday for new inflation forecasts, though no imminent rate hike is expected. For the US, Friday's PCE inflation data is key ahead of next week's Fed meeting, with policymakers signalling no rush to cut rates. Meanwhile, ECB officials are increasingly backing a June rate cut, though disagreeing on the subsequent pace of easing. The French central bank chief said policy easing should happen soon "barring surprises", but then proceed at a "pragmatic pace", highlighting the emerging split at the ECB.

[MongiIG]

Asian stocks, led by tech shares, rallied sharply on Wednesday as investors shifted focus to upcoming earnings from major US tech companies like Meta, Alphabet and Microsoft. Tesla's shares surged 12.5% after-hours as it promised new electric vehicle models, despite missing Q1 expectations. This boosted sentiment in Asia's tech sector. The Japanese yen remained depressed near 34-year lows against the US dollar around 154.85, keeping traders wary of potential intervention by Japanese authorities. Broad gains were seen across Asian markets like Taiwan, South Korea, Japan's Nikkei and the MSCI Asia-Pacific ex-Japan index. China and Hong Kong stocks were mixed. The risk-on rally is expected to extend to Europe with futures pointing to a higher open. Apart from tech earnings, markets are also eyeing US GDP and core PCE inflation data this week for clues on Fed rate path. US Treasury yields and the dollar index eased after data showed a cooling in US business activity and inflation pressures in April. The Australian dollar jumped on hotter-than-expected inflation data, prompting removal of rate cut bets for this year. Oil prices were largely flat as geopolitical tensions offset economic concerns.

 

[MongiIG]

The yen trades at 34-year lows versus the US dollar as the Bank of Japan kicks off its two-day monetary policy meeting. USD/JPY reached the June 1990 peak at ¥155.56 while EUR/JPY is fast approaching the October 2007 high at ¥167.74. Asian stocks were mixed and a lower open is expected for European stock markets following disappointing after-hours Q1 US earnings by the likes of Meta Platforms which dropped by 15%. In the US preliminary Q1 GDP, initial jobless claims and pending home sales are on the agenda while in Europe German Bundesbank President Nagel will speak at 4:15pm ahead of Friday's US PCE inflation data release.

 

[MongiIG]

The Japanese yen slid to new multi-decade lows before stabilizing amid high volatility, fueling speculation that the Bank of Japan may have intervened to support the yen while Japanese markets were closed for a holiday. European stock indices are expected to open in positive territory, following in Asia's footsteps and as the S&P 500 recorded its best week since November 2023. Germany's Consumer Price Index will be closely monitored on Monday ahead of this week's US FOMC meeting and Friday's Non-Farm Payrolls.

 

[MongiIG]

Asian shares rose on Tuesday while the yen wobbled amid a suspicion that Japanese authorities had intervened in currency markets to support the yen. However, the government did not confirm whether it had actually taken action to prop up the currency. Top currency diplomat Masato Kanda said the government will disclose the results of any market operations at the end of next month and will continue taking appropriate action in the foreign exchange market as deemed necessary.
Caixan China manufacturing growth hit a 14-month peak while investors look to German, French and Eurozone preliminary Q1 GDP growth, inflation and retail sales data ahead of Wednesday's US FOMC meeting.

 

[AshishIG]

Key stock indices ended the day in the red on Tuesday and in after-hours trading Amazon, AMD and McDonald's had mixed results while US yields and the US dollar rose ahead of today's Federal Open Market Committee (FOMC) meeting. The main focus is on Jerome Powell's press conference and what signals he gives about future interest rate policy. The expectation is he will strike a cautious but hawkish tone on inflation, given recent economic data has challenged the Fed's soft landing scenario. On the data front are UK and US manufacturing PMIs, the US ADP's non-farm estimate, job openings, mortgage applications, EIA's inventory estimates and, of course, the FOMC monetary policy meeting at which no rate cut is expected to be announced.