Oil Plunges after No Agreement in Doha
Risky assets have reacted with considerable negative opening gaps following the failure to reach an agreement on a cap on the oil production in Doha. Crude Oil gapped to $38.5-area on the opening from a close above $40 on Friday, whereas equity markets also pointed lower on back of this. Fixed Income fell as investors moved to safer assets. FX markets were also hit, especially the Canadian Dollar on back of the Doha outcome, but also the Yen following the risk-off mode (where an earthquake near Japan made weighed down on risk taking). CADJPY is down 1.24% in time of writing, whereas the Nikkei225 is down 1.2%, testing cloud base in the Ichimoku formation. From Australia, the RBA minutes had minor impact and revealed nothing new to the market while New Zealand CPI for Q1 came out a tad higher than market consensus.
Nikkei 225 Daily
On Friday, US figures were mixed and did not provide us any new guidance with regards to the monetary policy. NY Empire State beat expectations, but the positive mood was offset by a disappointing Industrial Production. Today, we do not have any macro figures of interest, but markets will be positioning themselves for key events later in the week.
Tomorrow, during the EU session, ZEW figures Euro Zone will reveal the sentiment in the Euro bloc and expectations point towards a slight deterioration to 8.8. US Housing will dominate in the afternoon, where the Building Permits are expected to come out on a bullish note, while Housing Starts are expected to be flat.
Wednesday, we should see activity in the UK markets, as Chancellor Osbourne will testify on the economic costs of a potential BREXIT. Polls in the UK have been more or less 50/50 and risk taking in the UK should be on the bid, should Osbourne be in favour of the UK staying in the European Union.
Thursday, ECB will announce interest rates, and we don’t expect any change in the benchmark rate of 0.0%. However focus will be on how the ECB will handle the balance sheet exercises in order to stimulate the economy. These will be centered around the Corporate Sector Purchase Programme and the Targeted Longer-Term Refinancing Operations (TLTRO II). We expect the ECB to be on the dovish side, which should send the Euro on the offer.
An interesting play, since we have the release of interest rates in Sweden as well, could be to shorten EURSEK on back of a soft ECB and hawkish Riksbank. The pair was on the offer last week, but we could see the market taking out the December 2015 lows at 9.12, for a test of 2015 Q1 lows at 9.05 initially and then 2014 Q2 lows at 8.92.
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