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Crude Oil Ends Sharply Higher As Dollar Weakens; Gains 4% For Week
U.S. crude oil ended sharply higher on Friday, as the dollar tumbled against a basket of major currencies, under pressure from the Fed's statement regarding rate hikes. Investors largely ignored the supply glut situation, despite indications that global stockpiles will continue to rise. Oil futures recorded a weekly gain of about 4 percent, for the first time in five weeks. With the Federal Reserve providing a somewhat muddled outlook on interest rate hikes two days ago, most commodities and currencies took off on a roller-coaster ride. The Fed withdrew its promise to be patient on interest rate hikes, but then downgraded its assessment of the U.S. economy and signaled tightening would not occur until the second half of the year. Fed Chief Janet Yellen took a dovish stand with some lower outlook for inflation and GDP growth, signaling that interest rate is likely to rise at a slower pace than expected earlier. Crude oil initially rallied on the Fed's statement indicating rate hikes will be pushed out until at least July, but prices then moved back toward recent 6-year lows. However, traders continued to take stock of rising global inventories and the reluctance of OPEC and non-OPEC nations alike to cut supplies. Light Sweet Crude Oil futures for April delivery surged $1.76 or 4 percent to settle at $45.72 a barrel on the New York Mercantile Exchange Friday. Crude prices for April delivery scaled a high of $46.53 a barrel intraday and a low of $43.31. Light Sweet Crude Oil futures for May delivery, the most actively traded contract, jumped $1.04 or 2.3 percent to settle at $46.57 a barrel on the New York Mercantile Exchange Friday. Crude prices for May delivery scaled a high of $47.43 a barrel intraday and a low of $44.82. On Thursday, U.S. crude futures for April delivery surged $1.20 or 2.8 percent to settle at $44.66 a barrel, as the dollar strengthened even as the post-Federal Reserve rally quickly ran out of steam amid concerns of a supply glut. The dollar index, which tracks the U.S. unit against six major currencies, traded at 97.86 on Friday, down from its previous close of 99.07 on Thursday in late North American trade. The dollar scaled a high of 99.12 intraday and a low of 97.45. The euro trended higher against the dollar at $1.0826 on Friday, as compared to its previous close of $1.0661 in North American trade late Thursday. The euro scaled a high of $1.0882 intraday and a low of $1.0650. In economic news, eurozone current account surplus in January grew from a year ago, as trade surplus and primary income rose sharply, figures from the European Central Bank revealed Friday. The current account surplus rose to EUR 29.4 billion from EUR 18.1 billion a year ago. In December, the surplus was EUR 22.5 billion. A measure of turning points in the German economy in coming months grew at a slower rate in January, data from the Conference Board showed Friday. The leading economic index for Germany rose 0.4 percent monthly after a 0.8 percent climb in the previous month. In the six months to January, the index added 0.3 points, moving back into positive territory for the first time since June 2014. Germany's producer prices dropped more-than-expected in February, figures from Destatis showed Friday. The producer price index fell 2.1 percent year-over-year in February, exceeding economists' expectations for a 2.0 percent drop. The U.K. budget deficit showed its smallest budget deficit for February since 2008 on robust income tax receipts suggesting that the government is on the course to achieve its budget targets. Public sector net borrowing excluding public sector banks declined by GBP 3.5 billion to GBP 6.9 billion in February, the Office for National Statistics said Friday. It was forecast to fall to GBP 8.4 billion. The majority of the households in the UK perceived that the value of their houses increased in March, after moderating in the previous month, results of a survey conducted by Knight Frank and Markit Economics showed Friday. The house price sentiment index, or HPSI, rose to 57.5 in March from 56.5 in February. This marked the twenty-fourth consecutive month of the index remaining above 50.
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Usd pressured by Commodities Gains, Lower Yields
Gold soars Friday, other commodities up. US yields also steady at lower levels seen post-Fed, US Tsy 10s at 1.931%.
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Australian Dollar Falls After China Manufacturing PMI
The Australian dollar weakened against the other major currencies in the Asian session on Tuesday, after data showed that the manufacturing sector in China dipped into contraction territory in March. Data from HSBC Bank showed that the manufacturing sector in China dipped into contraction territory in March, with a PMI score of 49.2. That was well shy of forecasts for 50.5, and it was down sharply from 50.7 in February. Now at an 11-month low, the index also dipped below the boom-or-bust line of 50 that separates expansion from contraction. The Australian dollar fell to 93.83 against the yen, 1.3930 against the euro and 1.0260 against the NZ dollar, from yesterday's closing quotes of 94.32, 1.3889 and 1.0293, respectively. Against the Canada and U.S. dollars, the aussie dropped to 0.9814 and 0.7836 from an early near 2-month high of 0.9880 and nearly a 4-week high of 0.7901, respectively. At yesterday's close, the aussie was trading at 0.9863 against the loonie and 0.7878 against the greenback. If the aussie extends its downtrend, it is likely to find support around 91.50 against the yen, 1.36 against the euro, 1.01 against the kiwi, 0.96 against the loonie and 0.75 against the greenback.
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Saudi Arabia Starts Bombing Targets in Yemen, Bullish for Oil Price
Saudi envoy to US says has launched a military operation in Yemen to defend government of president Saudi envoy says military operation in Yemen involves 10 countries including gulf Arab countries Saudi envoy says Yemen Houthi militia forces are in control ballistic weapons Saudi envoy says Hadi and other members of his cabinet are continuing to run the government from Aden Saudi envoy says trying to save Yemen from radical group, have decided to assist Yemen government as requested Saudi envoy says objective of operation is protecting and defending legitimate government of Yemen Saudi envoy says consulted about the military operation with the United States Ssaudi envoy says military operation in Yemen involves air strikes Saudi envoy says declines to give current location of hadi, refers questions to Yemeni officials Saudi envoy says military operation is based on UN and Arab league charters that justify support for Hadi's government Saudi envoy says Houthi militia has control of Yemeni air force Saudi envoy says has air assets from various countries in Saudi Arabia and other military assets on the way to the kingdom Saudi envoy says military operation is not limited to one particular city or region of Yemen Saudi envoy says "having yemen fail is not an option for us" Saudi envoy says military operation Yemen started at 7 p.m. EST and the US is not participating in the operation
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Japanese Investors are Bullish on Japan
Ever since Prime Minister Abe's plans for economic and financial reform - 'Abenomics'- were put in place, there has been increased optimism towards financial assets. Monetary and fiscal stimulus have supported rallies in the Nikkei and USD-JPY since November 2012 of 125% and 50%, respectively. The sense of optimism is different this time. This is more than financial assets being supported by quantitative easing. Standard Chartered (SC) research notes that there is a strong belief among local investors that things are changing in corporate Japan. Corporates are drawing down cash from their balance sheets and using it to fund overseas M&A. There is also an increased focus by corporate leaders on improving return on equity (ROE). If the objective of Abenomics is to change the mindset of consumers and corporates, it seems that the corporates are listening and ready to act. If local investor optimism was focused on USD-JPY in December, investors are currently focusing all of their domestic interests on local equities. The shift in investor positioning is reflected in the change in correlation between USD-JPY and the Nikkei. As recently as February, the 30-day rolling correlation between the two markets was as high as 0.60, but has fallen to marginally negative levels. In addition to increased optimism about corporate behaviour, there is increased confidence in corporate profitability. SC adds that investors highlighted improvements in earnings as well as profit margins.
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Usd/myr Uptrend Intact Above 3.70, Could Test at 3.7280 Ytd High
Higher DXY, fiscal woes, foreign outflows underpin 1 month traded 3.7255-3.7300 range overnight, closed 3.7245-85 in NY
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Gbp Focus Remains on the Election
In a similar vein to last week where the final reading of UK Q4 GDP was unexpectedly revised higher, UK activity data this week should be consistent with robust economic activity. However, continued political uncertainty is likely to keep downward pressure on GBP. Barclays says they and consensus forecast the services PMI (Tuesday) to increase slightly to 57.0 in March from 56.7 in February while industrial and manufacturing output (Friday) should both increase 0.4% m/m in February (consensus: 0.3% and 0.4%, respectively). The Bank of England rate decision (Thursday) is widely expected to result in no change of policy and therefore no statement will be issued. Indeed, central bank guidance is likely to be lacking over the next five weeks. With the dissolution of parliament on 30 March, the BoE is now bound by "purdah" rules which prevent central bank communication until the final election results are known. The 7 May general election remains the least predictable in a generation and growing political risk premium ahead of the event is likely to support high levels of GBP volatility and weigh on GBP. "we forecast further GBP/USD depreciation to 1.42 in Q2 2015 and modest EURGBP appreciation towards 0.74 over the next one to two months as political risk premium increases", Said Barclays in a report on Monday
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Europe Manufacturing Activity on a Slow Pace
Markets will focus their attention this week on Greece. A late payment of the IMF loan repayment of €460m on 9 April cannot be ruled out. Greece sent a list of reforms last week in the hope that it will allow the (partial) disbursement of the €7.2bn instalment under the remaining troika tranche. However, it is not sure that there is sufficient agreement for the Eurogroup to meet and decide before the next scheduled meeting (24 April). On the data front, the final estimate of the PMI should slightly disappoint from the flash, yet remaining at levels consistent with solid GDP growth in H1 15. German industrial output and export figures should point to a slow pace of recovery in the manufacturing sector in February although factory orders might suggest some improvement. French Industrial output for February and BoF business sentiment for March should also support the slightly firmer picture of the French economy. "we expect the Swiss headline inflation rate to rise slightly to -0.7% yoy in March, driven by higher oil prices over the past two months", Says Societe Generale.
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Rbi Maintains Status Quo on Policy Rates, Further Rate Cuts are Still Likely
It did not come as a surprise that the Reserve Bank of India (RBI) maintained status quo on rates in its policy meeting today. The repo rate was kept on hold at 7.50%. This does not indicate an end to monetary policy easing, however; the RBI emphasised in its policy statement that its stance remains accommodative. Also, while the RBI has made the amount and timing of further rate cuts contingent upon four pre-conditions the governor said that "some progress" on these could trigger rate action. The RBI will watch for developments on (1) The transmission of a 50bps reduction YTD in the repo rate, (2) CPI inflation prints, especially after the recent unseasonal rainfall, (3) policy efforts to unclog supply bottlenecks and reduce the pipeline of stalled projects, and (4) the impact of the US Fed's expected interest rate normalisation on financial markets. Standard Chartered says they expect another 50bps reduction in the repo rate to 7.0% in FY16, equally split between the June and August policy meetings. The RBI will, by then, have fresh information on most of its pre-conditions, especially on transmission channels and the impact of weather on the CPI inflation trajectory. Remaining fairly confident that the first 25bps of policy rate reduction will occur by June, the subsequent 25bps reduction may be delayed if the RBI becomes concerned about the impact of the first Fed rate hike. "We see a risk that the last 25bps reduction may not occur if the RBI decides to keep real policy rates at the mid-point of its desired 150-200bps range, instead of at the lower end as we currently assume. We expect CPI inflation to average 5.4% y/y in FY16", Said Standard Chartered in a report on Wednesday
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Japan's February Mor Likely Shrank
Japan will release February machinery orders (MoR) and March PPI inflation on 13 April. The MoR is expected to have declined by 2.0% m/m in February after dropping 1.7% m/m in January. "Exports and industrial production contracted m/m in February partly due to sluggish external demand; we think the MoR will follow a similar trend as it is an indicator of business capex. PPI inflation likely continued slowing in March, to 0.4% y/y from 0.5% y/y in February", says Standard Chartered Excluding the sales tax effect, PPI inflation likely dropped by 2.5ppt y/y in March. Prices in the energy sector contracted significantly in the first two months of 2015. The trend is likely to continue in March and put downward pressure on domestic PPI inflation.
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