Stocks soar despite poor Japanese GDP figures

Stock markets got off to a strong start this week after disappointing growth numbers from Japan spurred speculation over additional easing from the Bank of Japan.

Japanese flag
Source: Bloomberg

The larger-than-anticipated contraction in Japanese fourth-quarter GDP has prompted traders to pick up cheap stocks as they feel the Bank of Japan will need to do more easing. The overnight session was also helped by a relatively calm Chinese market, which had its first day back after the week-long holiday, due to the Lunar New Year celebration. We can expect low volatility in Europe today as the US stock market is shut for Presidents Day. The London market is firmly in positive territory but it hasn’t been able to hold a rally recently and the downward trend since early December still holds. The FTSE 100 is on the rise today but 5850 could prove to be a stumbling block.

The euro has been dragged lower by the strength in the dollar. EUR/USD gained a lot of ground in February and while it holds above $1.1145, a retesting of $1.1376 could be on the cards. The currency pair has been pushing higher lately and pullbacks may entice more buying. The relative strength of the single currency is a hindrance to the eurozone, and Mario Draghi has a track record of talking the currency lower.

Gold has been in retreat since hitting a one-year high on 11 February. The metal has started the week on a negative note as a mixture of profit taking and a more risk-on attitude has been adopted by traders. In the near-term a descent to $1200 is possible but the upward trend that has been in place since January still holds and bulls will be looking towards €1232 and $1263.

Oil is weaker as Iran is preparing to send its first shipment to Europe. The energy market is already suffering from oversupply and now Iran is back exporting as the sanctions against it have been lifted, pressure will remain on the oil market. WTI and Brent crude have been trending lower since January 28 and selling into strength has been a popular strategy recently. While WTI remains below $31.77 and Bent is sub-$34, their outlooks will be bearish. 

FTSE 100 risers and fallers (as of 9.30am) 

Company % change Index points
Reckitt Benckiser Group +5.41 +8
GlaxoSmithKline +2.75 +7.1
Prudential +5.66 +6.51
British American Tobacco +1.94 +5.23
HSBC Holdings +1.37 +4.6

 

Company % change Index points
Rio Tinto -1.95 -1.72
Royal Dutch Shell - B -0.49 -1.15
Randgold Resources Ltd -3.33 -0.74
BHP Billiton -0.78 -0.44
Rolls-Royce Holdings -0.99 -0.43

The Day Ahead

Economic reports:
10am – eurozone trade balance (December): expected €21.4 billion, prior €23.6 billion.

Central bank speeches:
2pm: ECB President Mario Draghi will testify before the European parliament’s economic and monetary affairs committee.

Company reporting:
No major US names reporting today.

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