BoE Votes 6-3 to Keep Interest Rates Steady; Aftershocks in Japan Increase Market Tensions

By 24 Mar 2011 0 comments

European equities are currently pointed lower as the small relief rally during the Asian session ended when the city of Fukushima experienced several earthquake aftershocks, creating obstacles for production rebuilding operations.  The FTSE 100 futures have dropped 0.6 percent on the news release.

Today, traders will be paying attention to the Bank of England Minutes from its last policy meeting, which will give some insight into the Bank’s opinion for future interest rate decisions.  These have taken on a higher level of importance after yesterday’s consumer price index rose higher than anticipated on a yearly basis.  Inflation at these levels makes the situation difficult for the BoE and they may have no choice at this point but to increase interest rates.  Other headlines out of the U.K. will focus on the Chancellor of the Exchequer’s budget statement to parliament.

The Japanese government released a statement this morning, attempting to assess the extent of the damage costs from the earthquake.  These figures came in much higher than other recent forecasts, at the equivalent of 310 billion U.S. Dollars, which is equal to nearly 5% of real gross domestic product.

In North American earnings data, Walgreen’s stock dropped 6.6 percent after the company’s second quarter earnings report came in lower than analysts were expecting and showed a weak gross margin.  But even with major surprises like this in real earnings data, earnings season in general is not keeping the attention of the market at the moment.  We coming into a new earnings season shortly but global news events will need to see some sort of resolution before the bias can be directed away from the headlines.  But this, of course, must happen at some stage and all of this fundamental data will need to be looked at again when this is the case.

Corporate earnings are slowing starting to trickle in now.  Today, Inditex, the Spanish clothing retailer, produced its yearly net income of 1.73 billion Euros against expectations of 1.70 billion Euros.  Inditex has plans to open 500 new stores this year, and this is another factor pushing up its share prices.  Out of Italy, UniCredit released its net income for the fourth quarter, showing 321 million Euros in revenue against expectations of 209 million Euros, which was a massive upside surprise.  This is a small preview of the raft of earnings data that is scheduled for the coming weeks.

Technicals:

The AUD/JPY has seen significant volatility recently, dropping to support far below at 74.50 before bouncing to highs of 82 before stalling.  It is no surprise that prices are having a hard time gaining any traction here, as this was the major support level for the majority of this year.  Looking at the longer term charts, we need to see a weekly close below the 73 area before we can turn bearish.  Daily indicators are looking like they are trying to roll over from mid levels.

Oil is breaking its hourly resistance levels above 103.60 on its way back to the yearly highs.  There is little in the way of significant resistance at this point but getting into new buy positions at this stage is risky without tight stops.  Support has moved up to 101.40 and resistance is just ahead at 107.  A break to the upside strengthens the bullish bias and calls for much higher levels for the longer term.

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