A tentative start to the week

March 14, 2016

We start the week with the broad recovery in risk assets continuing. This has been in place for nearly two months now, with this most evident in emerging market currencies, together with oil prices. The latter have been helped in part by the prospect of OPEC and key non-OPEC members potentially freezing production at January levels as a means to putting a floor under prices. Iran has stated that it intends to partake, but only once its output reaches 4mln barrels per day, from the current level of just over 3mln. Inventory levels remain high, so there are risks that the price has run ahead of events and inventories, but for now the price is flirting with the USD 40pb level. Elsewhere over the weekend, we’ve seen more bomb attacks in Turkey and a poor showing from German Chancellor Merkel’s ruling CDU party in regional elections over the weekend. This does not have immediate risk for markets, but if her waning power continues, then there will be implications for Germany’s place and power in Europe.

For the early part of the week, we’re seeing a positive start to equities once again, after Friday’s strong rally which more than erased the post-ECB disappointment into the close of the Thursday session. For this week, we have the FOMC meeting on Wednesday, with the BoJ also meeting tomorrow. Japan will be interesting to see if we see any further adjustments to the negative rate policy announced at the end of January. As for the US, it’s going to be a case of looking for any notable change in tone in the accompanying statement. Wednesday also sees the UK budget statement, where the Chancellor has been warning in recent days of the risks to the global economy and their impact on the UK. We’re seeing the US dollar gain against the euro and Aussie dollar at the start of this week, with activity today likely to be subdued ahead of the key events Tuesday/Wednesday.

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