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- Asian stocks moved further away on Monday from four-year lows struck last week, as the blizzard on the U.S. East coast pushed oil prices higher, relieving some of the bearish pressure on Wall Street and world markets. Global equities also took heart from the European Central Bank signalling last week additional monetary easing steps to come, raising hopes that other central banks, like the Bank of Japan, would take the same path. Both the Federal Reserve and Bank of Japan hold policy meetings this week, with the Fed meeting on Jan. 26-27 and the BOJ meeting immediately after, on Jan. 28-29. Investors will look for any hints of when the Fed intends to make a second interest rate hike, while there is speculation that the BOJ could opt to take additional easing measures. Risk aversion amid fears of a China-led global slowdown and oil prices sinking to 13-year lows had rocked global markets at the start of the year, and the lull in flight-to-quality seen towards the end of last week weighed on safe havens like U.S. Treasuries and the Japanese yen.
- Crude oil futures extended gains on Monday following a surge at the end of last week on short-covering and fuel demand triggered by freezing weather in parts of the northern hemisphere. Oil prices soared 10 percent on Friday, one of the biggest daily rallies ever, as bearish traders who had taken out record short positions scrambled to close them, betting the market’s long rout may finally be over. A change in investor sentiment was the key factor, with speculative short positions in WTI falling from historically high levels the previous week Low crude oil prices continue to negatively impact high cost U.S. oil producers. Indeed, recent Baker Hughes data suggested U.S. oil explorers idled more oil rigs this week. A massive snowstorm on the U.S. East Coast helped stoke demand for oil for heating, helping push up crude prices. While New York and Philadelphia were getting back to business, Washington was not ready after an historic storm dumped more than 20 inches (51 cm) of snow on the city and nearly three feet (1 metre) in surrounding areas.
- Dollar edged down on Monday but remained well off recent lows as markets started the week on a calmer note and investors turned their attention to upcoming central bank meetings. The U.S. Federal Reserve is widely expected to leave its federal funds rate unchanged at 0.25-0.50 percent at the conclusion of its policy meeting on Wednesday. However, traders will be more focused on whether the possibility of cooling inflation and recent global market turmoil could prompt the Fed to signal concern about the U.S. and world economic outlooks that may raise questions about its pace of interest rate tightening. The recently risk-averse mood and volatile markets have led investors to pare bets on any more Fed interest rate hikes on the near horizon, and reduce their dollar positions. Economists polled by Reuters in mid-January forecast three hikes in 2016 rather than the four initially floated by the Fed. Speculators reduced bullish bets on the U.S. dollar for a fourth straight week through Jan. 19, as net longs fell to their lowest level since late October, according to Reuters calculations and the latest data from the Commodity Futures Trading Commission released on Friday. The Bank of Japan will conclude a two-day policy meeting on Friday, at which sources familiar with its thinking say it is likely to cut its core consumer inflation forecast for the coming fiscal year to possibly below 1 percent. While the BOJ is expected to hold policy steady this week, downbeat economic reports have increased market speculation of more easing by April. Japanese trade data released early on Monday showed exports skidded 8 percent from a year earlier, a deeper drop than forecast and down for the third straight month as the slowdown in China and emerging markets took a toll.
- The euro was up about 0.1 percent at $1.0803 EUR=EBS, but still not far from a two-week low of $1.0776 hit on Thursday after European Central Bank President Mario Draghi’s unexpectedly strong hints that the ECB could have additional stimulus measures up its sleeve. Draghi stressed on Friday the outlook for a gradual economic recovery in the euro zone had not changed, and that the bank had plenty of instruments at its disposal to kindle euro zone inflation and was willing to use them.