Risky assets in bullish mode – oil closing above $40/barrel, printing new 2016 highs
Global equities were boosted yesterday as investors reallocated from safe haven instruments on back of a solid increase in Chinese exports. The US dollar was well bid against most peers and this has continued overnight with JPY losing ground as PPI came out lower than expected, sending USDJPY back above 109 this morning after touching 107.63 on Monday. Oil markets also helped risk taking as the black gold closed above the $40/barrel for the first time since March and printed new 2016 highs. IMF cut Global Growth outlook on signs of stagnation, but the market reaction was muted.
In the UK, March inflation figures came out to the upside with Core CPI rising 1.5% vs. 1.3% expected and sent GBP-pairs higher – GBPUSD briefly touched the 61.8% fibo in the 2016 wave at 1.4349 and closed the day in positive, but polls showing a slight majority in favour of a BREXIT has kept gains limited. The pair is down 0.4% in time of writing.
Today, the EU session showed weak data from the Euro zone. February Industrial Production came out in negative MoM at -0.8% vs. -0.7% expected and. 2.1% in January. The YoY figures also disappointed with an increase of 0.8% vs. 1.2% expected and 2.8% prior. The slowdown was in the cards as seen in recent sentiment indicators, where market participants have been scaling back on the positive outlook expectations. EURUSD has since beginning of April been in indecisive territory with doji formations on a daily chart and although new 2016 highs were printed yesterday, there was no follow-through and offers kicked in, sending the pair back below 1.14 with support at 1.1325, where a break below would open up for a test of 1.1280-area.
Today, we have US Retail Sales and US PPI, both for March, which will be the main releases of interest. Headline Retail Sales are expected to show an increase MoM of 0.1% while the core figure is expected to come out at 0.4%, which is based on the recent increase in energy prices as well as the positive inputs from the building markets as well as restaurants. In the PPI figures, markets are also expecting a slight boost, but nothing which can add pressure on the Federal Reserve to alter their rate outlook.
On the monetary side, the Bank of Canada will announce interest rates, where an unchanged rate of 0.5% is expected. The Canadian Dollar has recently been appreciating significantly on back of the increase in oil prices as well as a stable Canadian economy, but we could see BoC Governor Poloz try to emphasize on global risks which could pose a threat to the economy and attempt to weaken the CAD. Implied probabilities of a BOC rate cut in 2016 has dropped to 10 percent from more than 50 percent since the beginning of March, so the market is pricing in additional CAD-appreciation. This could be boosted, should todays energy inventories show additional draws in crude inventories. We maintain our sell-on-rallies stance in USDCAD.
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