Markets still weighed down by uncertainty
Market OutlookOnce again the market is largely being driven by the degree of global risk rather than anything specific on interest rates. Despite the slightly softer interest rate background developing in the US, the US equity market remains a nervous place, with concern about earnings the latest source of uncertainty. This in turn is weighing on global risk appetites and helping to check both the recent recovery in some emerging currencies as well as existing positioning on the majors. Part of this yesterday, at least initially, was a JPY story, with position cutting on the JPY weighing on the EUR in general. As far as the JPY is concerned, there may be more of this to come ahead of Friday’s policy decision, but it is unlikely to be sustained. There is a risk the BoJ does not hike rates at all or opts for a smaller than expected rise and even if they hike by 25bp, this is likely to be accompanied by a dovish message to head off any negative fallout for markets and/or criticism from the government.
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