Japan outperforms ahead of elections

While US markets bounced after recent weakness, Europe remained quite choppy with investors focusing on Greek concerns and the latest round of the TLTRO.

Source: Bloomberg

With such a disappointing uptake (€129.8 billion), it’ll only get harder for the ECB to reach its goal of expanding the balance sheet by around a trillion euros. With that in mind, investors were reluctant to bid European equities higher and this saw some mixed moves across the board. Although the majority of the TLTRO was taken up by Italian banks, it was the DAX that continued to outperform.

Perhaps the fact the uptake has been subdued with a total of €212 billion from a couple of issues means the ECB will have to step up efforts to reach its balance sheet goals with asset purchases. This could mean QE is on the way in which case it would work out to be a positive for markets. However, ECB members have recently indicated they will assess data in Q1 before making a call and therefore it doesn’t seem there is immediate urgency for QE.

Yen weakness resumes

In another clear sign of the divergence between the US and the rest of the world, US data steamed ahead yesterday with retail sales and unemployment claims both coming in ahead of estimates. Jobless claims fell to 294,000 (versus expectations of 297,000) and retail sales advanced 0.7% (versus 0.4% expected). 

The greenback and equities rallied in response with traders having clearly been waiting for order to be restored on that front. Heading into next week’s Fed meeting, not many will be brave enough to short the greenback. USD/JPY has sprung back to life heading into election weekend. The pair had been under pressure all week and traders have started to position themselves for the elections.

USD/JPY managed to pop back above 119 and the Nikkei has put on well over 1%. Prime Minister Shinzo Abe is expected to win a majority and press on with his economic policies. As a result investors are using recent weakness as an opportunity to buy into the elections. Monday’s trade will be all about reacting to the election results and comments by officials.

China data on the radar

Markets in China are mixed, while the ASX 200 is cautious ahead of a raft of releases from China. On the docket today we have Chinese fixed assets, retail sales and industrial production. Analysts feel after the benign inflation reading earlier in the week, manufacturing activity retreating and with imports dropping sharply, there is a good chance the data will fall short. Whether this means stimulus calls grow or not will then be key for how risk trades heading into the weekend. Remember we also have new yuan loans, aggregate financing and money supply data due out between today and Monday.

Weaker open for Europe

Ahead of the European open we are calling the major bourses weaker, with pessimism continuing after the disappointing TLTRO uptake. On the calendar we’ll have industrial production and UK construction output to look out for.

In the US we have PPI, consumer sentiment and inflation expectations to look out for. Of course we also can’t ignore the price action in oil and this is likely to remain a dominant theme in the near term. EUR/USD weakness seems to be back in play and traders will be eyeing a retest of lows in the 1.225 region.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.