A sombre start

November 16, 2015

The events of Friday evening in Paris have cast a sombre tone to European markets, evident in the weaker tone to stocks carried over from the Asia session, with stocks opening around once percent lower. Also causing a more cautious tone in Asia was the weaker GDP data seen in Japan confirming a return to recession in the third quarter. The economy has contracted 0.2% in the previous two quarters, although some modest comfort can be taken from the fact that private consumption recovered in the third quarter after the Q2 weakness. Much of the weakness came from the fall in business investment. The yen initially weakened (USDJPY above the 122.50 level), with the follow through seen during the European session coming on the back of the stronger dollar emerging on the majors. Further quantitative easing from the Bank of Japan looks possible at some point, but some further fiscal stimulus looks more likely in the coming months.

For today, we just have final CPI data for the Eurozone at 10:00 GMT with US Empire Manufacturing later in the day. Note that ECB President Draghi is due to speak at 10:15 GMT in Madrid, with ECB Board member Coeure due to speak in Paris this afternoon. It’s likely that we are going to see the more cautious tone continue for the early part of the week which will favour the dollar and more so against the yen. On the crosses, EURJPY is most likely where the strongest fight will play out, with more dovish rhetoric from the ECB having scope to push it back towards the 130 level, last seen late April.

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