Market Drivers March 18, 2019
Risk holds steady and Aussie pops
JPY imports at 2 year low
Nikkei 0.55% Dax n/a
Europe and Asia:
JPY Trade Balance 339Byen vs 310Byen
It’s been a calm open at the start of week’s trade in FX with majors continuing to extend the risk on flows that drove trade at the close of Friday’s session.
The Aussie was the main beneficiary of positive sentiment with the pair popping stops at the .7100 figure as it raced to a high of .7115 but afternoon Asian dealing. There were several reasons for the move including a strong rebound in Singapore export data, a rise in iron ore prices and the contraction in AU/US 10 yields by about 5 basis points from last week.
As we’ve noted on Friday, although the data from Asia is far from torrid, the numbers across the region have shown stabilization after a horrid start of the year that had many analysts predicting a recession in many of the key economies. The February numbers from Korea and Singapore, along with the announced stimulus from Beijing have given investors hope that authorities could engineer a soft landing avoiding a possible contraction in global growth.
It’s too early to tell if this thesis will prove to be accurate, but for now the risk on flows dominate trade aided also by the assumption that the Fed will remain in an accommodative mode for the foreseeable future. That may be a risk for the market as so much of Fed’s dovishness is baked into current prices especially across the interest rate curve. If Chairman Powell decides to assert Fed’s “independence” on Wednesday by hinting that tightening may resume as early as Q3 of this year, the market sentiment could flip violently. However, given the lack of pricing pressures and tepid consumer demand, the Fed would be foolish to jerk market sentiment once again and the FOMC message is likely to reiterate that policy remains on pause for now.