Tuesday, April 26, 2016

Forex Traders Look Past Fed to Bank of Japan

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Global stocks were steady Tuesday[2] as investors focused on company earnings reports and central bank meetings later in the week.

The Stoxx Europe 600 edged up 0.2% halfway through the session, rebounding from a fall on Monday.

Banks and energy companies led gains in Europe, spurred by better-than-expected earnings releases. Shares in Standard Chartered[3] were up over 11% after the Asia-focused lender reported first-quarter earnings and said a jump in bad loans had eased.

Shares of BP also gained roughly 4% after the energy giant's earnings beat expectations, but still amounted to a second consecutive quarter of losses after a steep drop in the oil price at the start of the year.


The Federal Reserve kicks off its latest policy meeting Tuesday, but most foreign-exchange investors are focusing on another meeting of central bankers: the Bank of Japan.

The Fed is widely expected to keep its short-term interest rate unchanged when it concludes its meeting Wednesday. June's meeting is another story, and investors will dissect the Fed's statement this week for clues on whether the central bank believes the economy is strong enough to raise rates then.

Meanwhile, expectations that the Bank of Japan will expand monetary easing at its meeting have risen.

Any sign that the central banks' paths are set to diverge, with the U.S. tightening and Japan easing policy, could help reverse the recent moves in the dollar and yen. The dollar has weakened this year as the Fed signaled it would be slow to raise interest rates, which helped fuel the yen's rally.

But since the Fed last met in March, the U.S. stock markets have continued to rise, the labor market has continued to improve and inflation has inched toward the government's target. Another recent hindrance to the Fed's plans to raise rates–a strong U.S. dollar that has pressured global growth–has also abated.

Daragh Maher, HSBC Bank[4]'s head of U.S. currency strategy, said he expects the Fed's statement to indicate a June rate hike remains on the table. But Mr. Maher said the dollar's reaction could be muted because many investors adjusted their dollar positions last week, when the buck posted its best weekly gain against the yen since October 2014.

The Bank of Japan's two-day meeting, meanwhile, has "room for greater drama," said Mr. Maher.

The market is divided on whether the BoJ will introduce new monetary stimulus at the close of its policy meeting on Thursday. The yen's more than 8% rally against the dollar this year has ratcheted up pressure on the BoJ to further ease financial conditions, which should constrain the currency's gains by making it less attractive to investors. The yen's strength poses a problem to the BoJ's inflation goals and has fueled fears that central banks have run out of ammunition for boosting their economies.

Goldman Sachs[5]' currency group thinks the BoJ will surprise the market with an aggressive easing package that includes expanding its balance sheet and buying more exchange-traded funds. If the BoJ doesn't show the market that its monetary-policy plans are on course, "this could be extremely disruptive for the Japanese economy" Goldman writes.

But the market's expectations for the BoJ vary widely, with some expecting the central bank to delve further into negative interest rates and others forecasting BoJ will stand pat on easing for the time being.

This lack of consensus about the BoJ's plans could lead to big moves in the yen, strategists say. For its part, Goldman sees the dollar rising against the yen in the near-term and reaching Y130 in the next year–a level of yen weakness not seen since the late '90s.


On this day in 1986, the worst nuclear power plant accident in history occurs at the Chernobyl nuclear plant.


While hedge funds continue to lose investors, the commodities market has seen a turning point. Paul Vigna and Stephen Grocer welcome Timothy Martin and Tim Puko to sort out what's going on in the world of hedge funds. Then, John Carny breaks down the details of a new public bank for Goldman Sachs.


8:30 a.m.: March Durable Goods Orders [New Orders (M/M change) -- Prior: -2.8% Consensus: 1.6%; Ex-transportation(M/M) Prior: -1.0% Consensus: 0.5%]

Figures for new orders can be volatile month to month. It spiked in January, offering a glimmer of hope for the battered manufacturing industry, but declined broadly in February. The longer term trend suggests the sector is growing but only slowly held back by weak overseas growth, low oil prices and a strong dollar.

9:00 a.m.: The S&P/Case-Shiller home price index for February [Prior: 5.7% Consensus: 5.5%]

After years of volatility, home price growth appears to have stabilized at an annual rate of close to 5%. But while price growth has remained fairly steady, the pace of sales has fluctuated, in part because a lack of homes for sale and because high prices have started to scare some buyers. In January, the S&P/Case-Shiller Home Price Index, covering the entire nation, rose 5.4% in the 12 months ended in January, slightly greater than a 5.3% increase in December.

10:00 a.m.: Richmond Fed's manufacturing index [Prior: 22 Consensus: 12]

Manufacturing activity across the central Atlantic climbed to a six-year high in March as demand resurfaced. It reflected the strongest conditions since April 2010 and served as the latest indication that U.S. production may be stabilizing in some parts of the country.

10:00 a.m.: Conference Board's index of consumer confidence [Prior: 96.2 Consensus: 96.0]

Consumer sentiment has been broadly positive for more than a year. In March, the Conference Board's index of consumer confidence rose to 96.2 from an upwardly revised 94.0 in February as Americans regained optimism about the short-term outlook for the economy.


Sarepta shares tumbled as much as 50% premarket after a FDA advisory committee voted against recommending approval for the company's Duchenne muscular dystrophy drug.

DuPont[6] boosted its 2016 profit target as the agriculture and chemical giant reported first-quarter earnings that topped analysts' expectations. Share are up 1.3% ahead of the bell.

Shares of 3M are down 0.75% after it reported results that beat Wall Street expectations.

Procter & Gamble[7] is up 0.42% after it reported better-than-expected earnings for its March quarter.

Whirlpool[8] is off 5.14% premarket after it reported revenue and profit declines for its latest quarter as weakness abroad offset gains in the U.S.

Office Depot[9], in the midst of regulatory pushback over its tie-up with rival Staples, reported weaker-than-expected first-quarter profit and revenue amid uncertainty surrounding the proposed marriage.

Shares of JetBlue[10] rose 4.7% Tuesday in premarket trade after the company beat first-quarter earnings expectations.

Hershey beat first-quarter EPS expectations but missed revenue projections, providing a downbeat 2016 earnings outlook.

Apple, Chipotle, Panera Bread, AT&T[11], Twitter[12] and eBay[13] are due to report quarterly results after the closing bell.


Saudi Aramco to Become Holding Company With Listed Subsidiaries:[14] The Saudi Arabian Oil Co., the world's largest energy firm, is planning to list less than 5% of its value on stock exchanges in Riyadh and possibly the U.S., the kingdom's deputy crown prince said Monday, setting up one of the largest IPOs ever.

Goldman Sachs Drops the Velvet Rope for Savers:[15] The financial firm most synonymous with Wall Street is offering savings accounts and certificates of deposit from the website of its banking arm, GS Bank.

I Hate This Market, I Love This Market:[16] The plunge and then sharp rebound in commodity and stock prices this year illustrates one of the great truths of investing: Those in the market spend a lot more time watching each other than they do watching the fundamentals.

Fed Statement Could Offer Clues Toward June Rate Decision:[17] Federal Reserve officials are unlikely to raise short-term interest rates at their meeting this week, but could drop hints about whether they might move at their next gathering in June.

Tribune-Gannett Deal — Cash Is the Best Paper:[18] Tribune Publishing shareholders should welcome a Gannett takeover.

Perrigo's Pain Isn't Just About Valeant:[19] Perrigo[20]'s guidance cut should be a concern for investors throughout the generic drug industry.

Novartis/Roche — When a Separation Makes Sense for Everyone:[21] Novartis[22] is reportedly considering selling its long-held stake in Roche. That would be a welcome break from its empire-building past


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