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 / 07 February 2018 at 8:00 GMT

Morning Markets: Equities in fragile recovery from the storm

Senior Editor / Saxo Bank




  • Germany: Industrial production index (07:00 GMT)
  • US: EIA weekly petroleum report (13:30 GMT)
  • New Zealand: RBNZ Monetary Policy statement (20:00 GMT)
  • Japan: Balance of payments (23:50 GMT)

The positive finish on Wall St on Tuesday gave sentiment a lift across much of Asia and helped drive a rebound on battered bourses. But the recovery was fragile; Japan's Nikkei 225, Hong Kong's Hang Seng and Australia's S&P/ASX200 surged higher at the open before giving back much of their early gains. 

Despite the apparent return of calm to equity markets, there remain plenty of pessimists who believe that more corrections lie ahead, and traders looking to sell into rallies. So equity markets may be facing a rollercoaster ride, with markets fluctuating between bargain hunters driving shares higher, and panicked selling dragging them into oversold territory. Meanwhile, the pessimists were dominant in China today, with the Shanghai Composite taking a disturbingly deep tumble.

In terms of external stimuli, it looks to be a quiet day with only the US weekly petroleum status report likely to garner much attention this European session. The EIA report is expected to show an additional 3.2 million barrels of crude in storage, strong, but well below the unexpectedly high 6.8m gain recorded last week. 

Elsewhere, German industrial output numbers, released earlier this morning, undershot expectations with a 0.6% contraction month-on-month, against an expected 0.5% tightening.

Market signals

Asian session

  • The Dow closed in positive territory on Tuesday, after wild fluctuations through the day
  • The positive finish on Wall St helped drive a partial recovery on battered Asian bourses
  • Japan's Nikkei 225 lost most of its early rebound, and closed up by 0.16% at 21,645.37
  • The Shanghai Composite was down by a hefty 1.65% to 3,315.06 at 0636 GMT
  • There are fears that assets are overvalued, and more corrections lie ahead
  • Brent crude slipped 0.9% lower overnight, to $67.03/b
  • Washington may soon announce punitive tariffs on China
  • The US has just recorded its deepest trade deficit since 2008
  • A deadly 6.4 magnitude earthquake struck Taiwan
  • Australia's AiG construction index increased by 1.5 points to 54.3 points in January
  • NZ's unemployment rate fell to 4.5% in the December quarter, from 4.6%
  • The S&P/ASX20 closed up 0.75% at 5,876.80, after giving up some of an early surge

Forex ahead

  • Further corrections on Wall St are likely to strengthen the USD as investors shun risk
  • Falls on Wall St will weaken the yuan: China Academy of Social Sciences researcher
  • AUD is well below its recent peak above 0.80; it was worth just 0.7873 at 0610 GMT

From the Floor

Is this is? "Today is crucial in determining whether the US bounce will hold," says Hardy.

Commodity trends. "Crude oil is finding support ahead of EIA data and gold is stuck in a down channel," says Hansen.

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

In opinion

Uneasy calm
Equity markets could be in the eye of a storm, as bulls will see the Wall St rebound as proof that the correction is over, while pessimistic bears will try to sell into rallies, says Michael O'Neill.

Iron ore gains
Iron ore futures inched higher, but activity is muted as traders in China prepare for the impending Lunar New Year shutdown, says the team at Saxo Capital Markets Australia.

Currency effects
Safety currencies such as the JPY and CHF are lower as the equity market recovers and global volatility recedes, explains the team at Saxo APAC Sales Trading.


Naval might ...  China has just agreed to hold a joint naval exercise in the territorial waters of a member of the Southeast Asian trade bloc ASEAN later this year. Photo: Shutterstock

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Anatoly Vyacheslav Anatoly Vyacheslav
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