Market Analysis - 10-JAN-2018

Market Analysis - 10-JAN-2018

1) Most Asian Stocks Backtrack, Hang Seng Stays Out In Front
2) Yen Extends Rally But Follow-Through Prospects Seem Limited
3) Oil takes the spotlight

1) Most Asian Stocks Backtrack, Hang Seng Stays Out In Front

A stronger lead from Wall Street failed to work its usual magic on Asian shares Wednesday in a session which saw most indexes retreat.

The Nikkei 225 slipped by 0.3% as gains for autos and financials weren’t enough to buoy the index overall. The ASX 200 lost 0.6%, miners gave ground as investors cashed out recent gains. Hong Kong’s Hang Seng managed to rise, however, extending its winning streak to a 12th straight session- its longest since 1991. The trade hub’s shares are clearly benefitting from rising bets on global growth and 2007’s all-time high of 31,958.41 may now beckon. Shanghai stocks were flat into the close.

The US Dollar put in a mixed performance. Rising Treasury yields offered it some support as they hit nine-month highs, but the currency continued to flag against the Japanese Yen. USD/JPY has been pressured since Tuesday when reduced bond buying from the Bank of Japan put markets on alert for stimulus reduction, even though no such policy has been announced. The Australian Dollar didn’t get much of a boost from as-expected Chinese inflation numbers which showed factory gate inflation rising at a nine year high.

2) Yen Extends Rally But Follow-Through Prospects Seem Limited

The Japanese Yen led the way higher for a second day in Asia Pacific trade. The currency has been pushing higher since an unusually timid round of bond-buying from the Bank of Japan sparked speculation about stimulus withdrawal by stealth. A sour mood on local stock exchanges probably helped as well, amplifying the appeal of the perennially anti-risk currency.

Prospects for follow-through seem limited however. The BOJ’s “Yield Curve Control” (YCC) framework implies that the size of purchases will fluctuate depending on what it takes to bring bond rates to target. Sometimes that may translate into smaller uptake, but that doesn’t mean the broader policy stance is changing. Meanwhile, flat trade in FTSE 100 and S&P 500 futures argues against entrenched risk aversion ahead.

The day’s offering of European and US economic data is relatively timid, with no obviously potent catalysts on offer. On one hand, that might translate into a day of consolidation for the major currencies. On the other, it might make for elevated sensitivity to headline risk, hinting that a stray bit of news may spook otherwise sleepy markets and produce an out sized burst of knee-jerk volatility.

3) Oil takes the spotlight

Oil has swung back into centre stage with it leaping higher, even with a strengthening USD today. This is a slight surprise given that US crude oil inventories won’t be released until tomorrow, and in all likely hood they’re expected to show a minor drawdown. The market though seems to be a firm believer that the days of the oil glut are long over and that constant drawdown’s on US inventories are likely to continue to firm up oil prices in the coming year. It’s hard to argue with the position given that there genuinely seems to be success from OPECs strategy to limit production in an effort to bolster oil prices, and this will have a positive flow on effect to the various members who suffered heavily when prices dropped sharply. For now though given its success it’s very much likely to stay and unlikely to change until we see OPEC agree on a target price to relax production cuts.

For oil bulls they’ve not been this high since 2015 and it’s seeming like we may continue to see further highs in the long run. So far oil has pushed through resistance at 62.12 and is now looking to target key levels at 65.94 and 69.94 on the chart. Support levels are also looking quite strong as well with an added twist in that there is a trend line the market is looking to bounce off as well for dynamic support. But for now, the key focus seems to be on support at 59.08 and 56.17, both of which are looking very strong in the event of bearish pressure. The 20 day moving average is also worth watching as it has been able to beat off a lot of bearish pressure as of late, showing that technical’s are very strong in the oil market still for commodity traders.

A Desired Technical Levels