Equities rally as risk appetite improves

Monday, March 30, 2015

Stronger than expected US economic data buoyed equity indices on both sides of the Atlantic today, marking a positive start to the week as bullish investor sentiment spilled over from the Asian session. Hopes for further stimulus from Beijing saw major benchmark indices across Asia rally strongly, settling the tone for the coming European and US trading sessions. Policymaker in Beijing unveiled a substantial plan to construct a modern silk road which would connect it with Europe and Africa while comments from PBOC governor Xiaochun hinted at the possibility of additional easing of monetary policy.

European stock indices got off to a solid start to the week, encouraged by the prospects of a looser monetary environment with support for the session’s earlier gains shored up with the release of optimistic US data. Personal income growth in February surpassed expectations, increasing 0.4% against the 0.3% growth rate expected by market participants while pending home sales increased 3.1% m/m in February against expectations of a modest 0.3% m/m increase. The stronger than expected data prompted a rally on Wall Street which has seen the S&P 500 gain 1% and the DJIA add 1.4% at the time of writing.

The Brazilian real extended its slide against the US dollar today, building on Friday’s losses which pushed the currency towards 3.2497 against the greenback. The ongoing tumultuous political climate in Brazil has seen the real depreciate over 22% against the dollar since the start of the year and while investors were offered some respite early last week when the currency traded back towards 3.0926, real weakness has resumed pushing it back towards an eleven year low.

The weaker currency has however been a big boost for Brazilian exporters and further improving margins as the local cost base falls with sugar and coffee farmers particularly benefiting. However, with prices of sugar and coffee trading in New York in dollar terms down over 19% and 18% respectively since the start of the year as exporters take advantage of a weak real we could see further supply pressure in international markets.

BRL resumes slide against dollar

BRL Curncy Brazilian Real Spot 2015 03 30 15 31 42

Sugar futures remain under pressure

SB2 Comdty Generic 2Nd SB Fut 2015 03 30 15 42 59

Coffee futures head lower after brief rally

KC2 Comdty Generic 2Nd KC Fut 2015 03 30 15 42 51

Topics: USD, Coffee, Sugar, PBOC, BRL
More from: Kash Kamal