Tuesday, 15 March 2016

Stock markets seek central bank assurance

15 March 2016
Written by Lukman Otunuga, Research Analyst at FXTM
The elevated expectations over central banks maintaining their current policy measures to stimulate global growth amid the ongoing financial turmoil have offered a false lifeline to stock markets which concluded mostly positive on Monday. Asian equities surged with Chinese stocks appreciating the most in more than a week after the newly appointed head of securities suggested that he will keep equity markets afloat. This optimism trickled into the European arena with most stocks in Europe venturing into gains as investors shrugged away the post-ECB disappointed and focused on the benefits of the new easing package. US stocks were unmoved but closed firmly near the highest levels traded this year as anxious market participant’s awaited further confirmation that central banks may quell the financial turmoil.

With confidence towards the health of the global economy still as concerning levels, these upswings in the stock markets may be short lived. It must be remembered that the markets are highly volatile while fears still linger over central banks running out of ammunition to jumpstart global growth. Global stocks may be poised for further declines when oil prices start to retreat and further dismal data signaling slowing global growth triggers a wave of risk aversion which encourages investors to scatter away from riskier assets.

BoJ press conference in focus

Market participants may direct their focus towards the heavily anticipated Bank of Japan press conference in which it is broadly expected that the central bank to keep its current policy intact. Although this may be the case the souring mood and ongoing global turmoil which has exposed the Japanese economy to downside risks continue to leave the BoJ under immense pressure to act once again. While BoJ governor Haruhiko Kuroda has stated there is no limit to monetary easing the sour taste of the negative interest cut policy implemented on the 29th of January still lingers on which may force the central bank to utilize other methods. Sentiment remains bearish towards the Japanese economy and the eventual risk aversion which will boost the Yen should leave the Nikkei vulnerable in the future.

US Retail sales to provide clarity

Investors may turn their attention towards the US retail sales report this afternoon which may provide some clarity on the health of the US economy as personal consumption is a big portion of US GDP. Data from the States have followed a positive trajectory with wages and job creation showing some improvements and such should translate to higher consumer spending. If retail sales meet expectations today then expectations of further US rate hikes in 2016 may increase consequently installing USD bulls with inspiration across the currency markets.

Iran quells WTI rally

The rapidly diminishing expectations of a possible production cut following Iran’s defiance to join the freeze agreement have offered a foundation for WTI bears to send oil prices back towards $36. This commodity is heavily bearish and the pain over the unrelenting oversupply in the oil markets has periodically diminished investor attraction while fears over a potential decline in demand sabotage any solid recovery in prices. Iran has told OPEC and non-OPEC members to leave them along until their output has been boosted to 4 million barrels per day and such simply intensifies the already heightened concerns over the supply in the highly saturated markets. From a technical standpoint, bears need to break back below $35 to retain control for a further decline towards $30.