With European markets closed across the continent on Monday as the Easter holiday continues, overnight Asia was busy with the Shanghai Composite letting off some steam, and closing down 0.7% at session lows on concerns the Shanghai and Shenzhen home bubble have been popped prematurely by the politburo.
Japan was a different story with the Yen sliding following a report by the Sankei newspaper that Abe will announce in May his intention to delay the planned April 2017 sales tax hike from 8% to 10%, coupled with additional reports that Japan will unveil a major fiscal stimulus (and just on Friday Abe said he is “not thinking at all about supplemental budget” at this time).
This turned out to be nothing but the latest Japanese market trial balloon, because hours after the report, Abe reiterated that Japan’s sales tax will indeed be raised as scheduled in April 2017 “barring a crisis like the one caused by the collapse of Lehman Brothers”, while cabinet secretary Suga said there is no truth in the report that the government has decided to delay the sales tax hike. By the time these denials hit, however, the FX momentum algos were engaged, and the USD/JPY jumped, leading to seven straight days of Yen losses, the longest losing streak since October 23 and in the process sending the Nikkei higher by 0.8%.
And thanks to the low volume, illiquid futures market, U.S. equity index futures followed the Japanese rebound, with the E-Mini rising 0.3% to 2034.5 in the thin premarket trade. Dollar falls slightly, reversing earlier gains, while gold also declines. Oil rises for first day in 3. Traders are pricing in a 6% chance of a U.S. rate increase in April, and about 38% probability of a boost in June, according to Fed funds futures. Increasingly many strategists are concerned that the market is underplaying the risk of a June rate cut and as a result odds will have to rise substantially in the coming weeks so the Fed will avoid a “surprise.”
Markets Snapshot
S&P 500 futures up 0.3% to 2035
Stoxx 600 closed
MSCI Asia Pacific up less than 0.1% to 128
Nikkei 225 up 0.8% to 17134
Hang Seng closed
Shanghai Composite down 0.7% to 2958
S&P/ASX 200 closed
US 10-yr yield up less than 1bp to 1.91%
Dollar Index down 0.06% to 96.22
WTI Crude futures up 1.1% to $39.88
Brent Futures up 0.8% to $40.78
Gold spot down less than 0.1% to $1,216
Silver spot up 0.3% to $15.23
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