The elevated expectations over central banks maintaining their current policy measures to stimulate global growth amid the ongoing financial turmoil have offered a false lifeline to stock markets which concluded mostly positive on Monday. European equities surged with the majority of stocks in Europe venturing into gains as investors shrugged away the post-ECB disappointment and focused on the benefits of the new easing package. This optimism trickled into the American arena with US stocks closing firmly near yearly highs as market participants awaited further confirmation that central banks may quell the financial turmoil. Asian equities quivered during trading on Tuesday following the Bank of Japan’s decision to keep its monetary policy steady in March despite inflation weakening and this sent the Nikkei -0.68% lower.
The declines in Asia may trigger a bearish contagion which punishes Europe and America later today as investors question the current health of the global economy. It must be understood that these upswings in the stock markets may be short lived as fears still linger over central banks running out of ammunition to jumpstart global growth while China woes periodically sour risk appetite. Stocks may be poised for further losses if oil prices start to retreat and further data signaling slowing global growth triggers a wave of risk aversion which encourages investors to scatter away from riskier assets.
BoJ keeps monetary policy steady
The Bank of Japan decided to keep its monetary policy steady in March despite the economy battling painfully low levels of inflation which has shown no signs of improvement at all . Although it was broadly expected that the central bank remains on standby following the souring mood from the negative interest rate cut on the 29th, the ongoing global woes which have exposed Japan to downside risk have left the central bank under immense pressure to take action. While BoJ Governor Haruhiko Kuroda has stated that there is no limit to monetary easing, the negative and inverse reaction from the actions taken in the previous policy meeting should force the central bank to utilize other methods to boost economic growth in its ailing economy. Sentiment remains bearish towards Japan and the eventual risk aversion which may boost the Yen should leave the Nikkei vulnerable in the future.
US Retail sales to provide clarity
Investors may turn their attention towards the US retail sales report this afternoon which may provide some clarity on the health of the US economy as personal consumption is a big portion of US GDP. Data from the States have followed a positive trajectory with wages and job creation showing some improvement and such should translate to higher consumer spending. If retail sales meet expectations today then the mounting speculations of further US rate hikes in 2016 should install inspiration on USD bulls across the currency markets.
Iran quells WTI rally
The rapidly diminishing expectations of a possible production cut following Iran’s defiance to join the freeze agreement have offered a foundation for WTI bears to send oil prices back towards $36. This commodity is heavily bearish and the pain over the unrelenting oversupply in the oil markets has periodically diminished investor attraction while fears over a potential decline in demand continue to sabotage any solid recovery in prices. Iran has told OPEC and non-OPEC members to leave them alone until their output has been boosted to 4 million barrels per day and such will intensify the already heightened concerns over the excessive supply in the highly saturated markets. From a technical standpoint, bears need to break back below $35 to retain control for a further decline towards $30.
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