Read full technical analysis report here
- Asian stocks started a new month on a cautious note on Monday, with the Bank of Japan’s surprise policy easing sparking some buying but further signs of economic weakness in China and a fall in oil prices keeping investors on guard. The greenback continued to benefit from the growing monetary policy divergence between the U.S. and its counterparts in Europe and Asia while bonds, especially investment grade debt, received a boost after Japan’s surprise decision to introduce negative interest rates last week. Monday’s batch of economic data from China added to worries about the health of the world’s second-largest economy and only increased calls for more policy easing from China. Activity in China’s manufacturing sector contracted at its fastest pace in almost three-and-a-half years in January, missing market expectations, while growth in the services sector slowed, official surveys showed on Monday.
- BoJ said it would charge for a portion of bank reserves parked with the institution, an aggressive policy pioneered by the ECB. Earlier in January, the ECB indicated it could cut rates further in March. The fact that both the BOJ and the ECB suddenly showed additional easing stance after the markets’ rout suggests policymakers in Japan and Europe share concerns and take actions. In contrast, the U.S. Federal Reserve has so far stuck to the script that it will gradually raise interest rates this year even though bets have been pared back with Federal Fund rate futures pricing in barely one hike this year. Elsewhere, fixed income markets cheered a fresh round of policy easing from a major global central bank with investment grade debt in Asia ending a torrid January on a high note.
- Chinese shares got off to a halting start on Monday after an official measure of activity in the giant factory sector fell to its lowest since mid-2012, offering no respite from the economic drift that has dogged markets for months. The official version of the PMI survey for manufacturing slipped to 49.4 in January, from 49.7 the month before and short of forecasts of 49.6. While the miss was minor, the PMI for services also disappointed by easing to 53.5 and challenged hopes consumption would take over from industry as the driving force for the world’s second-largest economy. A private survey – the Caixin/Markit China Manufacturing PMI – underscored the trend by showing the factory sector shrank in December for the 11th consecutive month. Equity and bond markets globally had rallied on Friday after the Bank of Japan surprised by cutting interest rates into negative territory for the first time. That did not stop January from being the worst month since October 2008 for China’s stock markets, with 12 trillion yuan ($1.8 trillion) sliced off the value of its benchmark indexes.
- Oil prices dropped early on Monday after China and South Korea posted surprisingly weak economic data and on worries the prospect of a coordinated production cut by leading crude exporters seemed remote. Activity in China’s manufacturing sector contracted at its fastest pace in almost three-and-a-half years in January, missing market expectations. The official Purchasing Managers’ Index (PMI) stood at 49.4 in January, compared with the previous month’s reading of 49.7 and below the 50-point mark that separates growth from contraction on a monthly basis. It is the weakest index reading since August 2012, and analysts polled by Reuters had predicted a reading of 49.6. In South Korea, exports posted an 18.5 percent year-on-year drop to $36.7 billion, down to levels last seen at the height of the global financial crisis in 2009. The data from China and South Korea are the latest indicators of an accelerating slowdown in Asia’s biggest economies. At the same time, the prospects of a coordinated cut in production by leading exporters like the Organization of the Petroleum Exporting Countries (OPEC) and Russia seem difficult to realise due to differences between these producers. Also, OPEC-member Iran, which last month was allowed to fully return to markets after years of sanctions, is not willing to participate in any cuts. In part because of Iran’s return, OPEC oil production has jumped to 32.60 million barrels per day, its highest in years, adding to a global glut that is seeing over 1 million barrels of crude produced every day in excess of demand, pulling down prices around 70 percent since mid-2014.