Asia Morning Update: Monetary policy in vogue

Shifting attention from the Fed had been the European Central Bank (ECB) and Bank of Japan (BoJ) this week and the key focal point will be on the respective meetings today.

Earning new highs

Fresh all-time highs had once again been printed on various US indices including the S&P 500 and the NASDAQ, inspired by earnings. Key releases overnight including Morgan Stanley and American Express topped EPS estimates, contributing to gains for the financial sector to see it buck the recent downtrend.

While concerns over overheated markets remain, as shown in Bank of America’s recent survey, this will not stop regional markets from taking after the glow in the celebrated US markets in the day.

Sectoral breakdown finds gains being led by the energy sector on the comprehensive S&P 500 index. In a positive turn of events for the crude oil market, the drop in US crude inventories captured the attention of the rather speculative market, triggering some alignment of price movements with fundamentals.

WTI futures topped the $47.00 per barrel (bbl) level following the report of a massive 4.73 million barrel drawdown, trending in the third consecutive decline. Gasoline stockpiles had also exhibited a similar move, reinforcing gains for the crude market.

Early movers in the Asian regions have found gains thus far, with other key markets expected to join in the up move. This is despite the lack of progress in the meeting between US and China overnight. Gains in the US and the higher crude prices are expected to help energize regional markets while earning reports in the Asian region will also be watched.

The next step in monetary policy

The key focus is arguably on monetary policy and its first order impact upon currencies in the day. The BoJ is expected to find the conclusion to their 2-day monetary policy meeting this morning, ahead of BoJ Governor Kuroda’s press conference at 2:30pm Singapore time.

Although Japan is not expected to join their advanced economy in turning hawkish any time soon, the market may look to their outlook report to draw inspiration on the central bank’s plans. The materialisation of improved growth forecast and moderated inflation outlook may however keep prices in a gridlock.

Separately, post Asian hours, the European Central Bank’s meeting will be in the spotlight. It has been interesting to note the selling of the EUR ahead of the event, a clear indication that the market has been paring back some expectation of hawkishness from the ECB.

Indeed, besides the need to carefully communicate the bank’s stance, the mandate to ensure price stability may have come to the foreground after the rally for EUR. Look ahead to ECB President’s press conference at 8.30pm Singapore time today.

Yesterday: S&P 500 +0.54%; DJIA +0.31%; DAX +0.17%; FTSE +0.55%