Monday, February 12, 2018

Daily Market Lookup 13 February 2018

Asian stocks pulled further away from two-month lows on Tuesday, lifted by Wall Street’s extended rebound from last week’s steep fall, but investors remained cautious ahead of U.S. inflation data later in the week. An affiliate of China’s securities regulator on Monday encouraged major shareholders of domestically-listed firms to increase their holdings after last week’s global selloff mauled Chinese stocks. Still, caution lingered in the broader markets following the U.S.-led tumble in riskier assets last week and ahead of U.S. inflation data on Wednesday. A stronger-than-expected reading on price pressures could trigger a fresh wave of selling. The index edged back from a two-week high of 90.567 scaled late last week, when it had benefited as a safe haven in the wake of the global market selloff. 

The South African rand dipped 0.5% on the day to 11.97 per dollar after news that the country’s ruling party African National Congress had opted to remove President Jacob Zuma as head of state. The rand had risen 2 percent over the past two days, helped by hopes that Zuma would step down, but it gave back some of those gains as the latest news was seen prolonging the political standoff.
The dollar u on Tuesday as global equity markets showed some signs of stability after their recent rout, reviving risk appetite that has fueled bets against the U.S. currency on prospects of its narrowing interest rate advantage. Still, many market players are not convinced the worst is over, with U.S. bond yields stuck at elevated levels ahead of Wednesday's U.S. consumer price data that could rekindle worries about inflation. Buying the euro was one of the popular trades earlier this year on the view that the European Central Bank will scale back its stimulus later this year on the back of a strong recovery in the euro zone economy. Although many market players remain bullish on the euro in the long term, the currency lacks fresh catalysts for further gains amid headwinds from uncertainties ahead of Italy's election in early March. In Germany, Chancellor Angela Merkel and the leader of the Social Democrats (SPD) face criticism from within their own parties over a new coalition deal that must still be approved by disgruntled SPD rank-and-file members. The risk reversal spreads for euro/dollar options have widened in favor of euro puts, suggesting investors have grown more cautious about the chances the single currency will fall. Despite uncertainties around Brexit, the pound has been propped up by rising expectations the Bank of England will raise interest rates to curb inflation. Global stock markets staged a strong rebound since a brutal sell-off that began late January on worries about rising inflationary pressure. Higher inflation could prompt the Federal Reserve to tighten its policy faster than expected. Alternatively, if the Fed doesn't act fast enough and falls behind the curve on policy, it could end up pushing up long-term bond.
Gold dipped in Asia on Tuesday with a slightly stronger dollar noted, but support seen from physical demand in China ahead of the Lunar New Year holidays. In Japan, producer prices showed a 0.3% gain on month, beating the 0.2% rise seen and a 2.7% rise on year as expected. The US dollar index rose 0.03% to 90.04. Overnight, gold prices rose sharply on dollar weakness. Dollar-denominated assets such as gold are sensitive to moves in the dollar – A fall in the dollar makes gold cheaper for holders of foreign currency and thus, increases demand for the precious metal. The biggest demand for gold is for use in gold jewellery which accounts for roughly 50% of total demand, according to the World Gold Council. The rebound in gold prices comes in the wake of a second straight week of losses, however, market participants expect upward momentum to be short lived somewhat as strong US consumer inflation data due Wednesday could stoke expectations for a faster pace of Federal Reserve rate increases.
Oil prices continued to recover in morning trade in Asia, supported by expectations of higher global demand and higher imports from China. The mild increases followed comments from the OPEC. The group said on Monday that it expects oil demand to grow faster than originally anticipated this year due to a health global economy. OPEC now expects demand to rise by 1.59 million bpd, an increase of 60K bpd. Balancing out OPEC's optimistic outlook was an increase in the output now expected from non-OPEC countries. This non-OPEC production is now expected to rise by 320K bpd more than expected to 59.26 mn bpd this year. Analysts expect data from the American Petroleum Institute and the US EIA on Wednesday will show that crude stockpiles in the US increased by 2.6 million barrels but distillates are expected to fall by 1.625 million barrels and gasoline stocks are forecast to increase by 1.367 mn barrels. After a bad beginning of February, oil prices got a boost last week from China export data. Chinese export growth beat expectations in January growing 11.1% year on year, according to the General Administration of Customs. The final data easily beat median forecasts. Imports jumped an even more impressive 36.9%, far above the expected 9.8% increase. A big portion of the increase may have been due to increase imports of oil. China imported some 40 mn tons of oil in January, up 7 mn tons from December. Sharply higher demand from China, if continued, is likely to support global oil prices


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