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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 05 February 2018 at 8:00 GMT

Morning Markets: Equities bleed in a risk-filled climate

Senior Editor / Saxo Bank
Denmark

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Watchlist

  • France: Services PMI (08:50 GMT)
  • Germany: Services PMI (08:55 GMT)
  • EU: Eurozone Services PMI (09:00 GMT)
  • UK: CIPS / Markit Services PMI (09:30 GMT)
  • EU: Retail trade (10:00 GMT)
  • US: ISM Non-Manufacturing Report on Business (15:00 GMT)


European equities are poised to start the week in much weaker territory after Asian markets fell sharply overnight in the wake of Friday’s Wall Street rout that saw the Dow suffer its steepest daily loss since 2016. This followed some very bullish US employment data, including an upswing in average hourly earnings, which stoked inflation fears and triggered a selloff in both equities and bonds, while oil and gold also weakened.


Although equities tumbled across most of Asia on Monday, China shrugged off the bearish correction  with a contrarian rise in the benchmark Shanghai Composite, thanks to gains for the banks.


The FTSE, the DAX and the CAC are all expected to open sharply lower.

The sense of nervousness will be compounded this week by a busy calendar of economic data and other event risks, starting with a raft of PMI indices across the Eurozone today, a Russian GDP print and later, from the US, an update to the ISM non-manufacturing index.

The week also promises a steady stream of central bank policy-setting meetings including those of the UK, Australia, New Zealand, India, Russia and Brazil.

And there’ll also be much to occupy us on the political front: coalition talks between German chancellor Angela Merkel’s conservative bloc and the social democratic SPD will resume today after failing to reach a self-imposed Sunday deadline.

In the UK, prime minister Theresa May faces another round of cabinet battling over Brexit, having seemingly caved in to hardline pressure to firmly rule out her country’s participation in the EU customs union, post divorce. Finally, in the US, the showdown between the White House and the FBI continues to produce headlines as opposition Democrats crank up their pressure on the ruling Republicans to derail President Trump’s assault on the agency.

Market signals

Asian session

  • The Dow Jones fell to its lowest level since June 2016 on Friday
  • Most Asian markets retreated, taking their lead from the sharp selloff on Wall St on Friday
  • Japan's Nikkei 225 was down by a hefty 2.55% to 22,682.08 at 0600 GMT
  • The Hang Seng was down 1.18% to 32,218.23 at 0621 GMT, adding to its recent slide
  • The S&P/ASX200 closed down 1.56% at 6,026.20, with heavy falls for banks and miners
  • China defied the gloom; the Shanghai Composite was up 0.36% to 3,474.61 at 0611 GMT
  • China's Caixin Services PMI came at 54.7 for January, which was better than expected
  • Beijing has blocked all websites linked to trading in crptocurrencies
  • China's natural gas output rose 8.5% last year, amid a push to cleaner gas-fired power
  • Australian job ads recorded their largest surge in years - up 6.2% in January
  • Australia's AiG Services Index rose to 54.9 indicating a solid start to 2018 for the sector
  • Australia's inflation rate reached just 0.3% in January; it was 0.1% in December

Forex ahead

  • The US dollar lost ground against the yen; it was worth just ¥109.96 at 0623 GMT
  • AUD retreated before regaining some lost ground; it was worth 0.7932 at 0623 GMT
  • The NZD has fallen below 0.73 for the first time in almost a week

From the Floor


Risk off. "Currency markets seem like they're unsure what to do in this environment. The days of ever-decreasing volatility are over," says Hardy.


Sell off. "It finally happened, last week was the worst weekly selloff  for equities in over two years," says Garnry.


Holding power. "Gold is on the defensive after Friday's bond slump but inflation fears will likely prevent a major correction," says Hansen.


Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion


Ore futures rally
Iron ore futures have rallied strongly across Asia after rumours of further curbs on steel mills in China pushed up steel prices in China writes the team at Saxo Capital Markets (Australia).


Wall St contagion
Asian markets have lost ground in the wake of sharp falls on Wall Street and rising bond yields, writes the team at Saxo APAC Sales Trading.


Trump trade gain 
Donald Trump highlighted the $8 trillion gain in wealth on Wall Street under his watch in his State of the Union address, says Kay Van-Petersen in his weekly Macro Monday column.

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Bears about ... there are high hopes that the Winter Olympics that begin in Pyeongchang, South Korea, this week will help thaw icy relations between Seoul and Pyongyang. Photo: Shutterstock

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