There have been a number of factors moving markets overnight.
The Bank of Japan maintained its current stimulus programs but did not add to them. Although this was widely expected given that it cut to negative interest rates at its last meeting and is waiting to see how that is working for them. Still, JPY soared on the news relative to other major currencies sending Japanese stocks lower although the decline in the Nikkei really wasn't any worse than other major indices.
Crude oil prices continue to fall. WTI and Brent are both down about 3% in response to reports that Iran remains opposed to a production freeze, which appears to be delaying the upcoming big producers meeting to April from March. Iran has long said it intends to return to its pre-sanctions production of 4 mmbbl/d from 3 mmbbl/d currently and that it expects others to make room. This seems to be the excuse for what is really a moderate correction with oil dropping back from recent trend highs back into the range that prevailed for most of last week. While this pullback appears normal it has impacted oil sensitive currencies sending CAD and NOK into corrections. Interestingly, on a day like this one would expect RUB to get pounded but instead the Ruble is steady against USD as traders respond favourably to Russia’s decision yesterday to start pulling troops out of Syria.
The top performing resource currency overnight has been SEK following comments from Riksbank Governor Ingves. While he apparently indicated the bank’s negative interest rate program has had a positive impact on the Swedish economy, press reports suggesting the potential for a rate hike in 2017 suggest that the Riksbank may have reached the limit of stimulus. Trading suggests the street appears to be taking the reports as implying no additional rate cuts are planned for now. This continues a trend of currency rallies on speculation of no further stimulus also seen in EUR and JPY in the last few days.
A new Brexit poll published in the Telegraph shows the Leave camp leading 49%-47%. After factoring in the Leave camp’s higher interest in coming out to the pools, among likely voters, Leave has opened up a 52%-45% lead over Stay. This news hasn’t had any impact on the FTSE, but GBP has taken a hit relative to USD and EUR, posting a near 1.0% decline similar to that of CAD and NOK and moderate relative to recent gains. Overall, it appears that the prospects for a close campaign remain priced in to UK markets.
US markets could be active through the day today as the FOMC meeting gets underway and speculation on what could come out of tomorrow’s decision increases. There are a number of significant economic reports due this morning which could impact sentiment including retail sales (read on the consumer), producer prices (read on inflation) and Empire Manufacturing (read on manufacturing, the economy in the northeast, and the impact of higher USD on the economy).
Stocks in Canada may also be active today with the main focus on Valeant Pharmaceuticals which came in well below expectations on both earnings and guidance. The reaction of oil stocks to the oil correction may indicate whether the commodity pullback is a tempest in a teapot or the start of a bigger retreat.
Valeant Pharmaceuticals $2.50 below street $2.62 and guidance of $2.55-$2.65, sales $2.80B in line, guides 2016 EPS to $9.50-$10.50 below street $13.25, guides 2016 sales to $11.0-$11.2B below street $12.4B
Significant announcements released overnight include:
Bank of Japan interest rate and QQE no changes as expected
QE vote 8-1 hawkish dissenter
Interest rate vote 7-2 dissenters hawkish
Japan industrial production (3.8%) unchanged
Singapore retail sales 7.5% vs street 2.7%
France consumer prices (0.2%) as expected
Sweden consumer prices 0.4% as expected
Upcoming significant announcements include:
8:30 am EDT US retail sales street (0.2%)
8:30 am EDT US retail ex auto street (0.2%)
8:30 am EDT US producer prices street 0.1%
8:30 am EDT US core PPI street 1.2%
8:30 am EDT US Empire manufacturing street (10.5) vs previous (16.64)
9:00 am EDT Canada existing home sales previous 0.5%
10:00 am EDT US NAHB housing market street 59