GBP Soars Before May-Juncker Brexit Meeting, Nikkei 225 May Fall

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Asia Pacific Market Open Talking Points

  • The British Pound soared on optimism leading into Juncker-May Brexit meeting
  • Walmart earnings and dovish Fed commentary bolstered S&P 500, US Dollar fell
  • Japanese equities may fall after poor trade data, AUD/USD could sink to support

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The British Pound outperformed against its major peers on Tuesday, surging on the latest Brexit update as the March 29 deadline nears. Ahead of her meeting later today with European Commission President Jean-Claude Juncker, UK Prime Minister Theresa May said that it would be “significant”. However, later in the day Mr. Juncker noted that he doesn’t “expect this to be a discussion with a concrete outcome”.

Meanwhile, commodity currencies such as the pro-risk Australian Dollar outperformed despite more caution from the Reserve Bank of Australia in its most recent meeting minutes. AUD/USD initially plunged as the central bank reiterated its shift away from favoring a hike. Furthermore, equities seemed to be heading lower after the first half of Tuesday’s session with the Euro Stoxx 50 closing -0.17%.

There was a revival in sentiment during the Wall Street trading session however. At this time, Walmart Inc. – a major US retailer – released a rosy Q4 earnings report that sharply beat estimates. The S&P 500 ended the day 0.15% higher after gapping down about 0.25% at market open. In a typical ‘risk on’ trading environment, you would expect bond prices to fall as yields rise indicating traders forgoing safer assets.

This was not the case. US front-end government bond yields fell alongside the US Dollar, reflecting increasingly dovish Fed monetary policy bets. Cleveland Fed President Loretta Mester spoke today and mentioned that she is comfortable with slowing or even stopping the unwinding of the balance sheet. The Greenback weakened and gold prices – the anti-fiat commodity – soared despite fading upside momentum.

Wednesday’s Asia Pacific Trading Session

Ahead, we may see APAC equities follow Wall Street higher but the Nikkei 225 might struggle. Before market open, Japanese exports unexpectedly contracted 8.4% y/y in January which was by the most since October 2016. The anti-risk Japanese Yen was little changed on the news given the data’s minimal impact on BoJ monetary policy. Having said that, exports are a key component for Japan’s economy.

The trade deficit widened, signaling it may trim more off overall GDP that markets had accounted for. As such, we may see Japanese equities aim lower, which might bolster JPY. Meanwhile the pro-risk Australian Dollar looks to domestic wage data. Australian economic statistics tended to underperform relative to expectations, opening the door to a downside surprise. Such an outcome may weaken AUD/USD to near-term support.

US Trading Session Economic Events

GBP Soars Before May-Juncker Brexit Meeting, Nikkei 225 May Fall

Asia Pacific Trading Session Economic Events

GBP Soars Before May-Juncker Brexit Meeting, Nikkei 225 May Fall

** All times listed in GMT. See the full economic calendar here

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