Morning briefing 8211 bargain bear bounce

Unfortunately, our best guess is that the bounce in global risk assets this morning won’t last.

• Short covering seems to explain the buying to an extent as well as bargain hunting. Volumes are light, and this was particularly cited to be the case in Japan, where the Nikkei wiped out all its intraday losses and closed 3% higher. Looked at differently, the move was a whipsaw, epitomising volatility.
• There was a similar one in the FTSE 100 which rose 2% within minutes of the stock market open, with fair warning from UK stock futures markets that had surged into the black last night.
• I think the composition of the losers in the FTSE give the game away somewhat. We see that the two gold miners, Randgold and Fresnilo,  which have risen in high double-digit percentages for the last few sessions are at the bottom of the index, whilst banks, financials, retailers and property companies are rising most strongly. This looks like a classic short-term rotation as portfolios are rebalanced, particularly as it is almost the end of the month.
• Whilst there are clearly bargains to be had among many of the names that have been beaten down so badly over the last few days, in all probability it will be possible to buy them at better prices in the near future.
• Ditto for sterling which is having its strongest session since touching $1.34 at the Tokyo close on Monday. In other words, we’ve been here before, and we’ll be here again.
• Caution is advised because current broad gains may not be sustained over a timeframe which most longer-term investors would regard as reasonable
• For the pound, we stick with the view that prices which get anywhere near $1.35 will be sold. More immediately, the rate at last check of $1.3347 could still be good for some 50 pips more before a significant challenge, judging by Monday’s action.
• The euro–which has consistently had better poise than sterling against the dollar of late, and will probably continue to overall—is right now facing overhead at $1.1096, and $1.1105. Even surging euro/sterling is looking stoppable, though that’s after rising the best part of 10% from Friday lows. The rate was at support at last check in the high 82s. If broken, an hourly low at £0.8232 where the euro bounced yesterday would be in play.
• The yen is also reflecting the risk-on tone, albeit marginally, with the dollar struggling to gain 0.1 of a percentage point, 12 sen into the 102 handle. Yen bulls will have an eye on 103.43 resistance for the dollar. Trade around that resistance was followed by the humongous bearish outside day candle on Friday, which will take some time to work through.
• There is an economic world beyond Brexit, so watch out for the final reading of Q1 US GDP, later on Tuesday, though admittedly it has a low chance of being revised. The Richmond Fed manufacturing index, could also be an aid for the dollar. That piece offers an early peek into a ‘PMI Manufacturing Day‘ on Friday. We’ll get an official reading from Japan, official and unofficial data from China, and updates from the Eurozone, the UK, plus two from the US: one from Markit, the other from the ISM. Before that, other macroeconomic data worth watching include US Personal Income on Wednesday, ECB minutes and Eurozone inflation on Thursday, together with the Bank of Japan’s quarterly Tankan survey of manufacturers, Japan Industrial Production, and UK final Q1 GDP. On Friday Japan’s CPI and Europe’s employment update should also be on your calendar.