Wednesday 14th January: European Open Briefing

Global Markets:

• Asian stock markets: Nikkei down 1.75 %, Shanghai Composite gained 0.25 %, Hang Seng lost 0.20 %, ASX declined 1 %
• Commodities: Gold at $1229.40 (-0.40 %), Silver at $16.88 (-1.60 %), WTI Oil at $45.46 (-0.95 %), Brent Oil at $46.13 (-1.50 %)
• Rates: US 10 year yield at 1.883, UK 10 year yield at 1.582, German 10 year yield at 0.474

News & Data:

• Fed’s Kocherlakota: Inflation target credibility may be falling
• Kocherlakota: Not sufficient accommodation over the past 3 years
• Kocherlakota: FFR hike would cause FOMC to short of objectives
• Kocherlakota: Will take few years to return to 2% inflation
• Kocherlakota: Stronger Usd could slow US growth a bit
• Japanese PM Abe: Believes 2015/2016 budget will contribute to both economic revival and fiscal consolidation
• Abe: Want to pass budget as soon as possible
• Copper drops by over 3%, falling to the lowest level since September 2009
• Most Asian Stocks Drop as Commodities Slump, Yen Extends Advance (BBG)
• Nerves Rattled in U.S. Equities as S&P 500 Volatility Turns Ugly (BBG)
• Plunging Oil Prices, Rising Debt Leaves Asia Staring at Deflation: Morgan Stanley (BBG)
• Oil Collapse of 1986 Shows Rebound Could Be Years Away (BBG)
• Yen Rises Fourth Day on Haven Demand as Aussie Drops With Copper (BBG)

Markets Update:

It was a risk-off session with most of the Asian equity indices lower on the day, except the Shanghai Composite. In commodities, Copper was the big mover and the large drop dragged Gold & Silver lower as well. Oil prices have recovered slightly yesterday, but was sold again in Asia, with WTI declining $1 overnight. The S&P had a strong open in New York, but momentum faded away above 2050 and the index is now approaching again the 2000 level. Overall, commodities have again weighed on risk sentiment and the JPY & USD have been the main beneficiaries.

In FX, the Australian Dollar declined 100 pips overnight as the Copper decline weighed on the currency. According to a 2013 report, Australia is the fifth largest copper producer in the world. Tech support eyed at 0.8030-40 and decent bids reported ahead of the 0.80 level. Stops resting beneath and not much chart support seen until 0.77 (summer 2009 low) should price break sub-0.80. The Kiwi Dollar declined along with the Aussie, but it was only a 50 pips drop in NZD/USD. Meanwhile, USD/CAD is nearing the 1.20 level again and a breakout seems imminent.

EUR/USD revisited the 1.1752 low yesterday, but bounced from there and rose slowly towards 1.1795 during the Asian session. Dealers expect decent selling interest between 1.1870 and 1.19, but think we will need a clear break sub-1.1750 for downside momentum to accelerate. GBP/USD had a quiet session after the high intraday volatility yesterday. The pair bounced off 1.5080 despite the much weaker than expected inflation figures and rallied 100 pips in a few hours. However, it failed a fourth time this week to reach the 1.52 level. Overall sentiment remains GBP-negative, so if we don’t take that resistance level out soon, pressure on the Pound will resume.

Looking ahead, the only Tier-1 econ data releases is the US retail sales data at 13:30 GMT. Also, keep an eye on the European Court of Justice regarding the ECB’s Outright Monetary Transactions (OMT) at 08:30 GMT. The German Constitutional Court has opposed the OMT, saying that the ECB was acting outside its remit. The decision could have an impact on the Euro.

Upcoming Events:

• 07:45 GMT – French CPI (0.0 % m/m)
• 09:00 GMT – Italian CPI (0.0 % m/m, 0.0 % y/y)
• 10:00 GMT – Euro Zone Industrial Production (0.2 % m/m, -0.8 y/y)
• 13:00 GMT – FOMC Member Plosser speaks
• 13:30 GMT – US Core Retail Sales (0.1 % m/m)
• 13:30 GMT – US Retail Sales (-0.1 % m/m)
• 19:00 GMT – US Beige Book

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