Asia market morning update
Markets have found confidence once again following the Fed and shrugging off worries on growth and US-China trade relations earlier. The moves, however, are expected to remain muted in the wider state of inaction within markets.
Dovish Fed support extends
Wall Street ticked higher on Thursday, helped in part by relief within markets and the technology sector boost. An earnings surprise from chipmaker Micron helped to power up the gains just as the broad market rose amid the recognition that the risk of a Fed hike had now been taken off the table.
The broad gains can be seen spreading across all but the financial sector on the S&P 500 index with the said sector sliding 0.3% on Thursday. No surprise this is the case in light of the receding yields. US 10-year yields fell by more than 7 basis points after the Fed meeting, returning to 2.54% when last checked. Both the interest rates outlook and the balance sheet management plan update playing a part here. As for the 2-10 spread, the gap had narrowed to the lowest since December 2018, a new normal to be getting used to amid the mixed data on hand.
The Fed’s apparent concern with regards to data displayed from this week’s meeting would likely indicate that a stronger streak of readings has to be present to warrant any reversion towards the earlier tightening stance. Watch the Markit manufacturing PMI out from the eurozone and US today for indication on the health of the manufacturing sector after the Japanese reading came in stronger, albeit in contraction territory.
Notably, this morning saw the can kicked down the road for certain with regards to Brexit, though the options are looking limited on hand. The European Union upon request had approved an extension of the March 29 Brexit deadline, with the exact date contingent on whether Prime Minister Theresa May’s vote can pass her draft deal in the coming week. A third failure, which is the more probably outcome at present, would see the extension last until April 12.
GBP/USD had ticked up moderately in the morning with the affirmation of the outcome. However, in light of the gridlock between a deal not accepted, the lack of options for revision and a looming deadline, the risk for a hard Brexit amplifies. A realisation of which would severely undermine the British pound, one to watch in the coming week for indication of progress.
The relief supporting Wall Street paints a positive backdrop for Asia markets going into the open on Friday. Early movers in the region including the Australian and Japanese market had all ticked up at the open, the latter returning from a market holiday. Gains are however expected to be shallow given the lack of prominent leads. Amid the persistent lack of volatility, underpinned by the uncertainty across geopolitics and growth, the concern within markets would be the sudden return of any shocks for markets that could cause a sudden spike. This may be carried in various forms including the abovementioned Brexit issue while the noise surrounding US-China trade continue to cloud insights into the issue.
Separately this morning saw Japan’s February core CPI arrive slightly below the consensus at 0.7% year-on-year, still a far stretch from the Bank of Japan’s target and shrugged off by the markets. USD/JPY trading little changed at $110.78. Look to further data updates amid an otherwise quiet session once again.
Yesterday: S&P 500 +1.09%; DJIA +0.84%; DAX -0.46%; FTSE +0.88%
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.
Trading around Brexit
Find out how the UK’s exit from the EU continues to affect traders, and discover:
- The unique opportunities in a ‘hard’ and ‘soft’ Brexit
- The markets you should be watching
- Everything that’s happened so far
Live prices on most popular markets