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From the Floor: Softer USD and JPY boost equity markets sentiment

 Softer USD and JPY boost sentiment across global equities
• S&P 500 futures looking at 'magical' 2,500 level; Nikkei approaching 20,000
• Apple shares little changed despite big products rollout
• WTI crude oil rangebound between $46 and $50/barrel
• Gold found support yesterday and is trading back above $1,330/oz

Saxo Strats banner
 By John Acher

A softer US dollar and Japanese yen have helped lift sentiment in stock markets, with S&P 500 futures flirting with the 2,500 “magical level,” and Tokyo's Nikkei approaching 20,000 points.

“We extended in equity markets again yesterday to new record highs, and today Nikkei futures moved even higher,” says Saxo Bank’s Peter Garnry, adding that the Nikkei is flirting with the 150-day moving average.

“I think it is likely that the market will begin testing the 20,000 level [in the Nikkei] in the coming sessions. Obviously, the big driver is the weaker yen as we move into stronger risk-on sentiment and with the North Korea threat fading, as you can also see in the volatility markets,” Garnry says.

Nikkei futures set eyes on 20,000 points:
Nikkei fugtures
Source: Bloomberg

The S&P 500 futures are into new territory, close to the 2,500 “magical level,” says Garnry

“It is the weaker dollar that is pushing up sentiment, but also increasing forward expectations for earnings per share for US companies in the index,” he says.

On Monday, Saxo Bank circulated an upgrade to its US equities outlook.

“We are definitely more positive because of the dollar movements,” Garnry says. “When you are in new territory, it is basically very difficult to set levels for how far we can go, but in our view, just go with the momentum here.”

Apple delights

US technology darling rolled out new products, above all its iPhone X, on Tuesday.

“Apple had its big event yesterday – basically they delivered against expectations across all product categories. The stock was more or less unchanged, maybe a little to the upside, but very small bias there.”

“Bulls will like it, and test the stock higher,” Garnry says. “There is a lot of speculation about how big the upgrade cycle will be.” 

“If you want to put out one critique on the event yesterday it’s probably that the price points are getting stretched too much against some of the more low-cost manufacturers,” Garnry says.

Apple is trading at discount of about 10-15% to the overall market. “Apple is by no means an expensive stock […] so it’s not going to be valuation that punctures this, it’s going to be if they don’t deliver on the upgrade cycle.”

Shares in struggling US retailer Nordstrom jumped 10% in aftermarket trading on Tuesday on rumours that the company is close to a deal with a private equity firm to take the company private. “There will be a lot of activity in the whole retail space in the US today on the backdrop of this news,” Garnry says.

In the FX markets, the US dollar traded a bit sideways, with a slight offered tone to it today during the Asian session, says Saxo Bank's Andrew Bresler.

"There is potential that we may see a lid on USDJPY topside near term," Bresler says. "There has been talk in the market of exporters [being] sort of fairly aggressive sellers around the 110.30 level, so maybe that points to some near-time downside until they go home today."

The kiwi dollar has been volatile ahead of a New Zealand election next week, with the incumbent national party now leading labour in the polls, Bresler says.

“The option market is currently pricing 125 basis points of move on the Monday [after next], we think that is a little bit too rich really. The divergence between the policies the national party and the labour party are fairly limited, so we think it is a little too rich," Bresler says.

Strong sterling

The FX market is looking forward to a Bank of England meeting on Thursday.

“Cable is coming up on a very big resistance level at 1.35 – that was the post-Brexit highs, although they are a bit below that,” says Saxo Bank's FX strategy chief John J Hardy says. (Read also Hardy's latest FX Update here on TradingFloor.)

GBPUSD approaching "very big resistance" at 1.35
GBPUSDSource: Saxo Bank 

The Bank of England’s monetary policy committee has said it expects very high inflation and that it could peak around 3% in October, as the past depreciation of sterling passes through into consumer prices, Hardy says, adding that depreciation has paused.

“It takes a while to absorb these readjustments in the currency, and they are pointing to the currency being the main worry here,” Hardy says. “I am a bit cautious about joining the parade of sterling strength here into the Bank of England on Thursday.”

“We do have sterling strength, but also yen and Swiss franc weakness,” says Hardy, noting that EURCHF is trading up towards the highs for the cycle. “If bond yields continue to extend higher, we could see some more interest there, as well as yen cross being bid on that.”

EURUSD bears are focusing on 1.925 as a potential downside trigger. “I don’t see anything driving it higher, so I would be happy to see an interest in downside below that level if that’s what eventuates,” Hardy says.

Oil range-bound

The oil markets are settling down ahead of this afternoon’s inventory figures, with the American Petroleum Institute looking for a 6 million barrel jump in crude oil stocks, while the Bloomberg survey points to 5 million, says Saxo Bank’s commodities strategy chief Ole Hansen.

Refineries continue to refine at full speed, and that is helping to drain some of the excess oil that has come into the market in the past weeks, he says.

WTI crude remains rangebound between $46 and $50/barrel, Hansen says.

Gold found support at "the first possible opportunity yesterday," and is now back above $1,330/oz, he says.

Apple Campus, Cupertino CA
 Apple Campus, at Cupertino, California. Photo: Shutterstock

John Acher is a consulting editor at TradingFloor


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