After wiping 2015 gains and dropping by more than 2.4% yesterday, Japanese equities decided to join the party in a special way, with its benchmark index Nikkei 225 gaining 7.71%. Today’s performance was the best since the height of the global financial crisis and the only time the Nikkei gained by more than 8% was in 1987.
Some believe today’s rally was supported by a statement from Prime Minister Shinzo Abe saying that the government aims to lower the corporate tax rate by 3.3% over two 2016 & 2017. Others take the cue from China’s session; meanwhile fundamental traders are seeing opportunities as valuations hit 11-month low.
The mentioned above are reasonable reasons for a market to rally, but not an extreme one, which clearly indicate there’s another power behind todays best performance, and this is “traders mood”. The past couple of days, mood was the markets main driver. Global markets moving from risk aversion to risk appetite status without any obvious trigger making trading decisions tougher for day traders.
In Europe, it’s not so different, all traders seems have woke up with a smiley face. Major indices rallying by more than 2% in first hour of trading.
Currencies were not invited to the Equities Party
Currencies don’t look excited as stocks with major currency pairs trading in narrow ranges with only eight days for the Fed decision. However, the biggest loser in today’s trade by no doubt is the risk haven Japanese Yen.
The Pound is finding it difficult to extend the rally for a third day after GBPUSD fell for 9 consecutive days since Aug 25. Risk appetite and M&A activities were the main drivers for yesterday’s move. Meanwhile todays UK industrial and Manufacturing Output could be the new catalysts. Based on the drop in the PMI manufacturing index the odds favour a downside surprise, but with latest surprise in German data could make it a hard guess. Traders might be also be cautious ahead of BOE meeting on Thursday as the central bank was shifting towards a more careful stance.
Loonie & Kiwi on the Radar
Bank of Canada is meeting today and widely expected to keep interest rates unchanged at 0.5 percent in light of recently positive data after already cutting rates twice in 2015, although market participants are readying for possibly dovish undertones from the central bank. Governor Poloz said they have a fair bit of room to manoeuvre, indicating that further easing is still on the table, but when looking at the development in data since the last meeting it looks a bit mixed. Employment, Inflation, Building Permits, and Retail Sales shown a slight improvement, meanwhile Home Sales, Housing Starts, GDP, and lower oil prices all providing a different picture.
On the other hand, RBNZ is expected to cut interest rates to 2.75 percent on Thursday. The focus is now on the language accompanying the policy decision, with the NZDUSD trying to recover from its lowest levels since July 2009, the faith of the pair will be statement accompanying the decision tomorrow.