In­dices look more up­beat, though Greece re­mains a con­stant threat

Financial Mirror (Cyprus) - - FRONT PAGE -

Af­ter be­ing vul­ner­a­ble to losses through­out last week as in­vestors ap­peared to toy with the idea of closing po­si­tions, global in­dices have com­menced the week look­ing more pos­i­tive.

A va­ri­ety of dif­fer­ent fac­tors have com­bined to­gether to raise in­vestor sen­ti­ment, with this in­clud­ing an un­ex­pect­edly smooth UK elec­tion be­ing ab­sent of any con­tro­versy, and the US non-farm pay­rolls (NFP) pro­vid­ing a re­minder to the mar­kets that the Fed­eral Re­serve will con­tinue to re­main both cau­tious and hes­i­tant when it comes to rais­ing in­ter­est rates. The Peo­ple’s Bank of China (PBoC) has also pro­vided a help­ing hand to in­dices, fol­low­ing the cen­tral bank eas­ing mon­e­tary pol­icy once again with an­other in­ter­est rate cut over the week­end.

The in­ter­est rate cut from China wasn’t com­pletely un­ex­pected, and to be hon­est some could even sug­gest that the main sur­prise was that in­ter­est rates were not low­ered even fur­ther. The PBoC has been in­creas­ing ac­tive when it comes to eas­ing mon­e­tary pol­icy over the past months, and an­other in­ter­est rate cut is just the lat­est in a long line of in­creased stim­u­lus mea­sures be­ing used to rein­vig­o­rate eco­nomic mo­men­tum. Con­cerns re­main be­cause the lat­est GDP read­ing was an­nounced at the lower range of the gov­ern­ment’s 7% tar­get, and although the PBoC was ex­pected to pro­vide more time for the stim­u­lus mea­sures to work be­fore act­ing again, last week’s trade data re-high­lighted weak­nesses and prob­a­bly forced ac­tion.

The PBoC will prob­a­bly and ag­gres­sively de­fend the 7% GDP tar­get and if any doubts oc­cur over whether Bei­jing’s ob­jec­tive can be achieved, the PBoC will con­tinue eas­ing pol­icy.

The re­cent trade data was in­ter­est­ing be­cause although im­port data has been de­clin­ing con­sis­tently for some time, there was also a no­tice­able decline in ex­ports. The ex­port fig­ures pro­vided a re­minder that it is not only de­clin­ing do­mes­tic mo­men­tum that is a con­cern, but that the econ­omy is also vul­ner­a­ble to risks out­side China. Pre­vi­ously, it was do­mes­tic data that was seen as the ma­jor cat­a­lyst be­hind de­clin­ing mo­men­tum. Keep a very close eye on the up­com­ing Industrial Pro­duc­tion and Re­tail Sales re­lease. If th­ese are an­nounced be­low ex­pec­ta­tions, we are likely to see the mar­kets pres­sure the PBoC for even fur­ther pol­icy moves.

Mov­ing onto the cur­rency mar­kets, the prospects for the Euro are look­ing bleak with the EURUSD at risk of drop­ping back to­wards 1.10. Greece is once again weigh­ing on in­vestor sen­ti­ment, with the on­go­ing talks caus­ing con­cern to spec­ta­tors largely be­cause the talks them­selves are fail­ing to present any­thing tan­gi­ble. While Eu­rogroup Chair Jeroen Di­js­sel­bloem has been re­ported to have stated that some progress has been made, this isn’t the first time we have read some­thing en­cour­ag­ing to later find that we are still far from reach­ing an agree­ment. It is still highly un­likely that an agree­ment will be reached dur­ing the Eu­rogroup meet­ing on Mon­day and for as long as this on­go­ing Greece sit­u­a­tion drags on, the Euro will re­main vul­ner­a­ble to losses.

Af­ter the con­clu­sion of the UK elec­tion, Ster­ling volatil­ity is calm­ing down with the GBPUSD con­sol­i­dat­ing around 1.54. Now that the UK elec­tion is fi­nally out of the way, in­vestors may begin redi­rect­ing their at­ten­tion back to­wards the UK eco­nomic out­look and in­ter­est rate pol­icy from the BoE. When you look at the tech­ni­cals, the GBPUSD is clearly find­ing it tough to sur­pass 1.55 and it’s pos­si­ble we have set a new up­per range for the pair. The US NFP has limited the chances of an­other USD sell-off, mean­ing that whether the GBPUSD can sur­pass 1.55 is go­ing to be more de­pen­dent on the BoE en­cour­ag­ing Ster­ling bulls by talk­ing hawk­ish later this week and re­in­forc­ing that its next pol­icy move will be an in­ter­est rate in­crease.

Else­where, the USD is trad­ing higher against the bulk of its ma­jor trad­ing part­ners fol­low­ing the NFP pro­vid­ing the re­quired as­sur­ances that the Fed re­mains on course to begin rais­ing in­ter­est rates later this year. Although the United States adding 223,000 jobs to the econ­omy might not be eye-catch­ing enough to get the USD bulls ral­ly­ing again, the job re­port was in line with ex­pec­ta­tions and will re­duce un­der­ly­ing con­cerns that the Fed might swerve away from its re­peated com­mit­ment to begin rais­ing in­ter­est rates in 2015. What has prob­a­bly de­nied the USD bulls mo­men­tum to charge for­ward is the sharp down­ward re­vi­sion to just 80,000 for March’s NFP elim­i­nat­ing any re­main­ing op­ti­mism that the Fed might have still raised rates in June.

Af­ter ben­e­fit­ting from the NFP re­it­er­at­ing that the Fed­eral Re­serve will adopt a slow ap­proach to nor­mal­is­ing mon­e­tary pol­icy, Gold is look­ing slightly more bear­ish. The lat­est US Re­tail Sales is re­leased on Wed­nes­day and if we con­tinue to en­counter no cor­re­la­tion be­tween sub­stan­tially im­proved job cre­ation and con­sumer con­fi­dence tran­si­tion­ing into ex­pen­di­ture, Gold will likely ben­e­fit be­cause this would just pro­vide an­other rea­son for the Fed­eral Re­serve to re­main cau­tious on in­ter­est rate pol­icy.

WTI Oil has con­tin­ued to slip be­low $60 af­ter a sur­pris­ing ad­vance to a 2015 high at $62.56 a few days ago. Although we are now en­coun­ter­ing a cor­re­la­tion be­tween de­clin­ing oil rigs and lower in­ven­to­ries be­ing an­nounced, there re­mains an ag­gres­sive over­sup­ply in the mar­kets and traders may have de­cided to close po­si­tions.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.