In the markets: What to watch this week | Fin24
 
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In the markets: What to watch this week

Mar 21 2016 08:00
Giacomo Bonavera

US

Global equities maintained an upward march last week as the US Federal Open Market Committee (FOMC) urged caution and decided not to hike rates.

JSE shares were boosted by the outcome of the FOMC as investors turned to riskier assets. The dollar’s strength subsided against the rand and the price yo-yoed between R15/$ and R16/$ presenting impressive opportunities for speculators to take advantage of local investor uncertainty.

The VIX index, a well-known indicator of volatility, and dubbed the fear gauge, dropped to lows not seen since November.

On the face of things, this is a positive sign – but the gap between major central bank relative monetary policy stances – big enough to fill a jumbo-jet – leaves Capilis wondering whether global equity indexes gains can be maintained, and for how long.

The FOMC stood pat on their monetary policy and struck a dovish tone as the committee was not convinced that underlying inflation had accelerated.

The Fed’s Dot Plot implied that two rate hikes were on the horizon for 2016, a reduction from the December meeting’s forecast of four.

With a pickup in manufacturing still to unveil, Durable Goods Orders on Thursday will be closely watched as mixed manufacturing data was an important factor for investors heading into the rate decision.

Labour data, also on Thursday, is expected to show an improving US labour market. On Friday, US GDP could surprise investors if it’s not in line with expectations.

EU

Mario Draghi, President of the European Central Bank (ECB), told reporters at a press conference that inflation and interest rates would remain low for a long time to come.

The next ZEW Economic Sentiment data is released on Tuesday and will provide an indication of 350 economists’ amalgamated sentiment towards the German economic future for the next six months.

England

The Bank of England (BoE) was concerned with the Brexit fears and unanimously voted to keep monetary policy steady as the uncertainty builds.

BoE governor Mark Carney expects some spending to be delayed until the vote takes place on 23 June. The sterling has been dealt a blow by skittish investors as politicians squabble over the vote.

CPI data is released on Tuesday and it will be interesting to see if the market reacts to it or whether it focuses on the Brexit.

SA

The rand strengthened last week as the South African Reserve Bank (SARB) Monetary Policy Committee (MPC) increased the repo rate for the third straight interest rate hike this year.

This escalates the interest rate at which the SARB lends money to commercial banks from 6% to 7% in order to contain inflation pressure from higher food prices.

With inflation data for February releasing on Wednesday, the MPC explained “the longer-term inflation outlook has improved somewhat, inflation is still expected to remain outside the target range for an extended period”.

Commodities

Oil has surged more than 50% from the 12-year lows it hit in February – a remarkable recovery on the back of hopes for a deal to freeze output by major exporters.

But some are arguing caution after the strong gains as key producing countries have not addressed how to rebalance an over-supplied market.

A weak dollar has helped support commodities after the FOMC decision. Gold remains at levels last seen a year ago, up from December’s price low. Crude oil inventories data from US is due on Wednesday.

*Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.

south africa  |  mpc  |  fed  |  eu  |  repo rate  |  rand  |  commodities  |  markets
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