Asian Markets Open Weak

Daily Analysis - 21/09/2015

US Interest Rate Uncertainty Puts Equity Markets Under Pressure


The US Federal Reserve decision to keep the Fed Funds Rate unchanged at 0.25% has seen markets reopen today on a cautious note with the Asian equities trading weaker as the Nikkei and the Hang Seng Index trend down -1.96% and -1.30% respectively.

Canada CPI Meets Estimates

The Canadian dollar was extremely volatile the last few days of the prior week before giving up all gains seen post-FOMC. Although well supported last Friday, the release of inflation data saw the Canadian dollar rapidly sink against the US dollar. The monthly core CPI number came in-line with estimates, although on an annualized basis core consumer price inflation in Canada declined. The BoC's Core CPI slipped from 2.40% to 2.10%, printing just below the BoC's target range. Expectations of another rate cut from the Bank of Canada is diminishing although there is a possibility that further accommodation could be announced during the October meeting should the situation deteriorate. While the USDCAD has been pretty volatility, the GBPCAD and the EURCAD was seen to be coming under pressure. GBPCAD closed Friday's session with a hanging man doji candlestick pattern indicating weakness to the upside.


Tsipras Back at the Helm

The snap elections held over the weekend in Greece saw the incumbent, Alexis Tsipras' Syriza party gaining more than 35% of the vote. Although falling short of majority, Syriza is expect to strike a deal with the Independent Greeks and the New Democracy party. The hardline Golden Dawn party proved exceedingly popular, coming in behind Syriza with the party proving the most appealing amongst unemployed voters despite current members being under indictment for incitement. The snap elections were called in August as Tsipras faced dissent within his own party ranks after a failed bid to negotiate a debt write-off with the Troika. EU officials have repeatedly cautioned that the focus will be on implentation of the reforms that were signed by Greece which saw the country gain access to much needed bridge financing. The Euro opened the week on a positive note trading at 1.1310.


BoE Economist Warns of Negative Rates

In a speech late Friday, the Bank of England's Chief Economist Andrew Haldane made rather surprising remarks stating that the Bank of England might have to cut interest rates rather than hike in 2016. The dovish comments from Haldane come on the heels of the risk of inflation remaining low and the crisis from the emerging markets likely hindering growth in the UK. Soft employment figures and weak PMI data were cited as suggesting that growth was slowing during the second half of the year in the UK and unlikely to witness a major upside rebound. The dovish views comes in the backdrop of the Monetary Policy Committee vote which saw one sole dissenter voting for rate hikes. The dovish comments from Haldane contradict BoE Governor Mark Carney, who’s more hawkish tone reflects the idea that rate hikes will be the next major move from the Central Bank.


Slow Day Ahead

Limited macroeconomic data is due today, reflected in part by the limited volatility and market momentum since the reopening. German PPI data will be released during the European session in the only major data point for the Euro Area. The US trading session will see Canadian wholesale sales figures and US existing home sales data released. Post-FOMC, a lot of Federal Reserve voting members are set to speak this week with a speech from FOMC Member Dennis Lockhart expected later today followed by a speech from Bank of Canada Governor Stephen Poloz. More details on the most recent interest rate decisions are likely to see dollar volatility rise as markets glean hints from the comments. US Equity markets could be looking to a weaker open today as the technical charts for the S&P500 suggest a downside bias after a break of the minor trend line.


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