Tuesday’s Two Developments

There are two important developments today.  First, the recovery
in the global equity markets is being challenged.  Second, the yen has
strengthened across the board, and is now at its best levels against the dollar
since last September’s low.  

The MSCI Asia Pacific Index extended Monday’s recovery with another
0.5% gain. 
However, looking closer, the momentum faltered.  The
benchmark finished in the middle of the range, Japan’s Topix, which had been up
a little more than 1% finished down nearly as much.  

European markets are nursing modest losses.  Italian and Spanish
bourses are underperforming, but the Dow Jones Stoxx 600 is off about 0.2% in
late morning turnover.  The S&P 500 is trading lower.  It has
rallied 5.6% off the pre-weekend low.  The Dow Jones Industrials have
rallied 1400 points during the same time.   Opinion seems divided
about the near-term outlook.  The initial recovery has stalled, and the
shape and extent of the pullback today may go a long way toward shaping the
debate.  

Japan’s markets were closed on Monday, and although it initially played
catch-up with the world, as the gains were reversed the yen strengthened.
 
Stops appeared to have been triggered on a break of JPY108.40 and then
JPY108.00.  The dollar fell to nearly JPY107.50 in early Europe before
tentative stabilizing.  The dollar reached a low near JPY107.30 last
September, and carved out a low in the second half of 2016 around JPY100. 
Intermittent support is seen near JPY105.

The euro spiked down to JPY132 at the end of last week.  It
traded inside the pre-weekend range yesterday and has an outside day in the
works today.   A break targets the JPY131 area, but suggests potential
toward JPY128-JPY130.   Sterling held last week’s low a little below
JPY149.00.  A convincing break may target JPY147. 00.  The Australian
dollar is reversing lower against the yen after making a three-day high
earlier. It peaked near JPY85.60 and is now near JPY84.60.  Last week’s
low (~JPY84.00) had not been seen since last June.  The Canadian dollar
did not find such support at it is now at eight-month lows.  

The main economic news today is limited to the UK inflation
readings. 
Headline CPI eased by 0.5%, the same as January 2017. 
This kept the year-over-year rate steady at 3.0%.  Economists had seen a
chance for a 2.9% pace.  CPIH was also unchanged at 2.7%.  The core
rate provides fodder to those who now think that inflation will decline more
gradually than previously thought and that the BOE is likely to raise rates at
the May meeting (March 22 meeting to lay more groundwork).  There is a
little more than half the hike already discounted.  Producers prices
moderated, though the government’s house price index finished the year on a
firm note, rising 5.2% year-over-year, the same as 2016.  

Sterling was firm before the data and extended its gains afterward
Recall that sterling hit a high near $1.4065 after the BOE’s somewhat hawkish
assessment last week. It fell to $1.3765 ahead of the weekend.  Today’s
high completes a 50% retracement of the decline.  The next retracement
objective is seen near $1.3950, but the $1.40 area may be more
formidable. 

For its part, the euro is posting gains for a third consecutive session. 
It is above $1.23 for the first time in four sessions.  It has retraced
38.2% of the losses seen since the high a little above $1.2520 was seen at the
start of the month.  That retracement was near $1.2325.  The next
area of resistance is likely to be encountered near $1.2365.  

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