Daily Market Outlook 30 March
Asian shares rallied on Wednesday as markets pared back expectations for how fast and how far U.S. interest rates might rise this year, bruising the dollar and boosting sovereign bonds. The shift came after Federal Reserve Chair Janet Yellen emphasised global dangers to growth and inflation, and thus the need to proceed "cautiously" on tightening policy. Fed fund futures jumped as investors priced out any a chance of a hike in April and only a slim probability of a move in June. The December contract implies a rate of just 57 basis points compared to the current 37 basis points.
Japan's factory output in February fell the most since 2011 when a devastating earthquake ruptured the supply chain, stoking fears of another recession and renewing pressure on policymakers to take evasive action. The data followed passage of the fiscal 2016 budget on Tuesday, paving the way for Prime Minister Shinzo Abe to announce a new fiscal stimulus or drop the planned 2017 hike in sales tax after first quarter economic growth data due on May 18 is published. The announcement may also be made around when Abe hosts a summit of the Group of Seven richest nations from May 26 to May 27. Analysts expect GDP to resume moderate growth in January to March although some fear a second straight quarter of contraction - the definition of a technical recession - because of weak exports and tepid consumption. With inflation stalling, consumer spending weakening and China's slowdown threatening to undermine the export-reliant economy, the Bank of Japan is also under pressure to act again after it unexpectedly adopted negative rates less than two months ago. Trade ministry data showed industrial output fell 6.2 percent month-on-month in February, largely in line with economists' median estimate. It followed a 3.7 percent rise in the prior month, which was the first gain in three months. It was the biggest drop since March 2011, when the devastating earthquake and tsunami struck Japan's northeastern coastal areas.
Federal Reserve Chair Janet Yellen said on Tuesday the U.S. central bank should proceed only cautiously as it looks to raise interest rates, pushing back on a handful of her colleagues who have suggested another move may be just around the corner. In her first comments since the Fed decided to hold rates steady two weeks ago, Yellen said inflation has not yet proven durable against the backdrop of looming global risks to the U.S economy, including still-low oil prices and concerns over China. At its March policy meeting, the Fed had nodded to an overseas slowdown and early-year market turmoil in justifying a pause to its policy tightening. At the time, Fed officials also downgraded economic expectations and predicted only about two more rate hikes this year, down from a December prediction of four. Yellen said she still expected that headwinds from weak growth abroad, low oil prices and uncertainty over China would abate and allow the U.S. recovery to continue alongside a "gradual" series of rate hikes. U.S. inflation measures have shown some recent strength, with the Fed's preferred annual measure flat at 1.7 percent in February, though still below its target of 2 percent. Another closely watched 12-month measure was up 2.3 percent from a year ago. San Francisco Fed President John Williams, a close ally of Yellen who is usually among the core of decision-makers, said earlier on Tuesday in Singapore that the U.S. central bank should stay on track with its tightening plan. That echoed public comments last week by Atlanta Fed President Dennis Lockhart, another centrist, and James Bullard of the St. Louis Fed, who has a vote on policy this year. Those so-called hawkish views had convinced some investors that the Fed was poised to raise rates at policy meetings in April or June. Oil futures rebounded in Asian trade on Wednesday, buoyed by a less than expected build in crude oil stockpiles last week. Oil prices fell about 3 percent in the previous session after Kuwait and Saudi Arabia said they would resume production at the jointly operated 300,000-barrel-per-day Khafji field even as major oil producers are considering agreeing on an output freeze. The EIA is due to release official crude inventory data later on Wednesday. That is expected to show a 3.3 million barrel build, an increase to a record high for a seventh straight week. A separate report from industry group the American Petroleum Institute late Tuesday showed U.S. crude stocks rose last week by 2.6 million barrels to 534.4 million barrels.
Asian shares rallied on Wednesday as markets pared back expectations for how fast and how far U.S. interest rates might rise this year, bruising the dollar and boosting sovereign bonds. The shift came after Federal Reserve Chair Janet Yellen emphasised global dangers to growth and inflation, and thus the need to proceed "cautiously" on tightening policy. Fed fund futures jumped as investors priced out any a chance of a hike in April and only a slim probability of a move in June. The December contract implies a rate of just 57 basis points compared to the current 37 basis points.
Japan's factory output in February fell the most since 2011 when a devastating earthquake ruptured the supply chain, stoking fears of another recession and renewing pressure on policymakers to take evasive action. The data followed passage of the fiscal 2016 budget on Tuesday, paving the way for Prime Minister Shinzo Abe to announce a new fiscal stimulus or drop the planned 2017 hike in sales tax after first quarter economic growth data due on May 18 is published. The announcement may also be made around when Abe hosts a summit of the Group of Seven richest nations from May 26 to May 27. Analysts expect GDP to resume moderate growth in January to March although some fear a second straight quarter of contraction - the definition of a technical recession - because of weak exports and tepid consumption. With inflation stalling, consumer spending weakening and China's slowdown threatening to undermine the export-reliant economy, the Bank of Japan is also under pressure to act again after it unexpectedly adopted negative rates less than two months ago. Trade ministry data showed industrial output fell 6.2 percent month-on-month in February, largely in line with economists' median estimate. It followed a 3.7 percent rise in the prior month, which was the first gain in three months. It was the biggest drop since March 2011, when the devastating earthquake and tsunami struck Japan's northeastern coastal areas.
Federal Reserve Chair Janet Yellen said on Tuesday the U.S. central bank should proceed only cautiously as it looks to raise interest rates, pushing back on a handful of her colleagues who have suggested another move may be just around the corner. In her first comments since the Fed decided to hold rates steady two weeks ago, Yellen said inflation has not yet proven durable against the backdrop of looming global risks to the U.S economy, including still-low oil prices and concerns over China. At its March policy meeting, the Fed had nodded to an overseas slowdown and early-year market turmoil in justifying a pause to its policy tightening. At the time, Fed officials also downgraded economic expectations and predicted only about two more rate hikes this year, down from a December prediction of four. Yellen said she still expected that headwinds from weak growth abroad, low oil prices and uncertainty over China would abate and allow the U.S. recovery to continue alongside a "gradual" series of rate hikes. U.S. inflation measures have shown some recent strength, with the Fed's preferred annual measure flat at 1.7 percent in February, though still below its target of 2 percent. Another closely watched 12-month measure was up 2.3 percent from a year ago. San Francisco Fed President John Williams, a close ally of Yellen who is usually among the core of decision-makers, said earlier on Tuesday in Singapore that the U.S. central bank should stay on track with its tightening plan. That echoed public comments last week by Atlanta Fed President Dennis Lockhart, another centrist, and James Bullard of the St. Louis Fed, who has a vote on policy this year. Those so-called hawkish views had convinced some investors that the Fed was poised to raise rates at policy meetings in April or June. Oil futures rebounded in Asian trade on Wednesday, buoyed by a less than expected build in crude oil stockpiles last week. Oil prices fell about 3 percent in the previous session after Kuwait and Saudi Arabia said they would resume production at the jointly operated 300,000-barrel-per-day Khafji field even as major oil producers are considering agreeing on an output freeze. The EIA is due to release official crude inventory data later on Wednesday. That is expected to show a 3.3 million barrel build, an increase to a record high for a seventh straight week. A separate report from industry group the American Petroleum Institute late Tuesday showed U.S. crude stocks rose last week by 2.6 million barrels to 534.4 million barrels.
