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Tuesday 3rd March: European Open Briefing
Global Markets:
- Asian stock markets: Nikkei down 0.05 %, Shanghai Composite lost 0.90 %, Hang Seng gained 0.05 %, ASX declined 0.25 %
- Commodities: Gold at $1208 (+0.05 %), Silver at $16.50 (+0.30 %), WTI Oil at $49.98 (+0.80 %), Brent Oil at $60.45 (+0.95 %)
- Rates: US 10 year yield at 2.084, UK 10 year yield at 1.784, German 10 year yield at 0.359
News & Data:
- Reserve Bank of Australia leaves cash rate at 2.25 % vs 2.00 % expected and 2.25 % previous
- RBA sees growth continuing at below trend pace
- RBA sees domestic demand growth quite weak
- RBA: Further easing might be appropriate in future
- RBA: Will assess case for easing at forthcoming meetings
- RBA: Subdued labor cost growth to keep overall inflation in target
- RBA: Further fall in Australian Dollar needed to balance growth
- Australia Building Approvals 7.9 %, Expected: -1.8 %, Previous: -2.8 %
- Australia Current Account -A$9.6bln, Expected: -A$11bln, Previous: -A$12.1bln
- New Zealand Commodity Price Index 1.8 %, Previous: 1.0 %
- Abe Adviser Warns BoJ Against Overheating Economy – WSJ
Markets Update:
Asian stock markets are mixed this morning, with the Nikkei and Shanghai Composite in the red, but Hang Seng up on the day. Commodities have benefited from the slight USD weakness overnight, with Gold rising back to $1210 after reaching a low of $1195 overnight. Similar price action in Silver, which hit a low of $16.10 in Asia, but is now back above $16.50. WTI had a rather quiet session, but Brent Oil recovered to levels back above $60 after falling sharply in yesterday’s NY session.
The main news overnight was the RBA keeping the cash rate unchanged at 2.25 %. The market saw the chance of a rate cut as 50/50, so short covering from leveraged names followed. AUD/USD rose from 0.7770 to a high of 0.7843, while AUD/NZD rallied from 1.0330 up to 1.0410. While the position covering could continue in Europe, the RBA did nevertheless retain a strong easing bias saying that “further easing of policy may be appropriate over the period ahead”. The market sees the chance of a rate cut in April now at above 60 %. The bank expressed concerns about growth outside of the mining sector and sees unemployment rising in the near-term. It included the standard phrase about the AUD – saying that the currency remains above its fundamental value and that a lower $A is required for the economy to achieve balanced growth.
NZD/USD received a modest boost by the AUD, rising to a high of 0.7545 after trading around 0.7500 in the early Asian session. The pair continues to trade with a mild bullish bias as long as above 0.7420, but fundamentally, the outlook remains bearish as the RBNZ is likely to follow the RBA with the increasingly dovish language. Meanwhile, USD/CAD gave up its gains from yesterday as Oil prices recovered. The pair reached a low of 1.2510 in the APAC session, after it failed to break above 1.2565 resistance in the previous NY session.
Price action in EUR/USD remains quiet after last week’s breakout below 1.1260 and it could very well stay that way until the ECB meeting on Thursday. GBP/USD was under pressure yesterday amid strong EUR/GBP buying, and remains weak overall. The pair has solid support in the 1.5320/30 area, but a break lower would suggest a move back to 1.5250. USD/JPY fell back sub-120.00 after Government advisers expressed concerns about the rapid Yen weakening. Large bids expected in the 119.30/40 area, while key resistance still at 120.45/50.
Upcoming Events:
- 06:45 GMT – Swiss GDP (0.3 % q/q, 1.7 % y/y)
- 07:00 GMT – German Retail Sales (0.4 % m/m, 2.6 % y/y)
- 09:30 GMT – UK Construction PMI (59.0)
- 10:00 GMT – Bank of England Governor Carney speaks
- 13:30 GMT – Canadian GDP (0.1 % m/m, 2.2 % y/y)
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