If yesterday’s selloff had a specific catalyst, namely some of the worst consumer retail earnings seen in years, it merely undid the Tuesday rally which levitated global risk with no fundamental driver, aside for a 200 pip spike in the USD/JPY.Some central bankers may even say it was a “magical” levitation. (Recall: was a “magical” levitation).Fast forward to the overnight session when following a muted Asian session, it was once again up to the “magical” USD/JPY to send stocks well into the green without any actual catalyst whatsoever, but what merely appears to have been another “magical” intervention session by the BOJ.

In addition to rising European stocks and S&P500 futures which were 0.6% higher at last check, oil prices also rose after the International Energy Agency softened its forecast for a global supply surplus. Curiously, while the IEA said that it expects OPEC April crude output to rise 33k bpd to 32.76mln bpd, the highest since August 2008, and noted that Iran output rose to pre-sanctions levels in April while Iraq output rebounded on near-record southern exports, it offset this surge in output with hopes that non-OPEC supply would decline by 100k bpd citing outages. Which is ironic because with every $1 higher in WTI more shale companies restart production. It also expects a smaller global surplus on stronger global demand.  

A good summary of recent oil price action comes from Angus Nicholson, analyst at IG, who said that “we have had a lot of reasons that have supported the price over the past week, the Canadian wildfires, Nigerian supply disruptions and then a surprisingly bigger inventory pullback. At the moment, oil has been trading very tightly within a range of around $43 to $47. We need a key breakout of that trading range to decisively say which direction the price is going.”

With oil trading 1% higher at $6.60, it seems we are about to break out of this band any moment.

Meanwhile, the above mentioned USD/JPY levitation helped the Stoxx Europe 600 Index reverse a drop of as much as 1%, overcoming a drag from companies including LafargeHolcim Ltd. that posted lower earnings.Because when all else fails there is always central-bank driven “magical” multiple expansion.

Market Snapshot

Global Top Headlines

Looking at regional markets, Asia stocks traded mixed after initially following the losses on Wall St. amid disappointing retailer earnings and the worst day for consumer discretionary stocks in 3 months . Asia bourses were dampened from the open, although ASX 200 (-0.2%) found some mild reprieve following gains in commodities after WTI crude futures rose to 6-month highs and iron-ore snapped a 6-day losing streak. JPY, earnings and auto names initially drove price-action in Nikkei 225 (+0.4%), with Toyota shares slumping on weaker results and outlook, although downside was limited by gains in Takata and Mitsubishi Motors before the index recovered in late trade. Chinese markets (Shanghai Comp. flat) shrugged off opening losses stemming from debt concerns stoked after Yingli Green Energy Holding expected to default on CNY 1.7bIn of debt maturing today. 10yr JGBs traded marginally lower despite the risk-averse tone in Japan, with demand dampened following a weaker 30yr JGB auction in which b/c decline from prior and lowest accepted price fell below expectations.

BoJ Summary of Opinions stated that Japan’s economy is likely to be on moderate expanding trend and that QQE with NIRP has already produced its effects which will steadily spread to economic activity and prices. The summary also noted a member said they would add stimulus if necessary, while a member also stated that price stability target should be seen as flexible. BoJ Gov. Kuroda said they will not hesitate to ease if necessary and could utilise any of the three methods. Kuroda added that BoJ now sees 2% inflation goal to be achieved in his tenure and it is not appropriate to say the exit could start within his term.

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