Posts belonging to Category Japan



Busy week ahead for the US

Last week, we saw a fairly subdued market with a lack of important data as most releases of note were focussed on the commodity currency countries such as Canada and New Zealand.

 Last week, we saw a fairly subdued market with a lack of important data as most releases of note were focussed on the commodity currency countries such as Canada and New Zealand.

There were also no major developments regarding Brexit and political uncertainty within the US and Europe.

The week ahead is looking a lot busier, macro-schedule wise. Fed Chair Janet Yellen’s semi-annual testimony to Congress (Tuesday & Wednesday) will call for close attention, as sheís likely to be asked about any possible implications for the monetary policy of Trump’s fiscal stimulus. Furthermore, any hints that the Federal Reserve may have to revise its interest rate projections higher could provide a spot of strength/support to the dollar.

Looking back at the macroeconomics this week, a busy schedule for the US includes features January’s retail sales, industrial output and CPI figures. On the other hand, with all eyes on Trump and the Fed, the dollar reaction to the data may be limited.

A potential week of struggle for the euro

There’s also a fairly light Eurozone schedule regarding market data, with the January ECB ‘account’ as the main highlight. Therefore, the euro could struggle this week and the GBPEUR pairing would potentially move upwards, should the expected results follow through. We may also see a dip in confidence as the UK could lose its position as a ‘gateway to Europe’ for the worldís financial services industry, according to last weekís speech by Dr Andreas Dombret, an executive board member at the Bundesbank. However, weíre likely to see these comments dismissed should this week follow suit, as mentioned.

Expected increase in UK retail sales

Lastly, here in the UK, retail sales are expected to record a solid increase for January, while a further mark-up on inflation is also predicted. Overall, the UK’s macro schedule looks like it could be beneficial for the strength of Sterling across the next few days with CPI figures, average earnings index and claimant count change.

Looking at today’s calendar, this morning we will receive Europe December industrial production reports for France, Italy and the UK. As we look at the US this afternoon import price index reading for January is the main piece of data together with the flash University of Michigan consumer sentiment reading for this month. As mentioned earlier, the main event to keep an eye on is the meeting between President Trump and Japan PM Abe.

Trump tax plans excite markets

President Trump yesterday managed to excite financial markets as he announced ‘something phenomenal’ on taxes in the next two or three weeks in a meeting with US airline executives.

President Trump yesterday managed to excite financial markets as he announced ‘something phenomenal’ on taxes in in the next two or three weeks in a meeting with US airline executives.

During a press briefing later on in the day with the White House Press Secretary, Sean Spicer confirmed the package will be ‘comprehensive’ and that it will ‘address both the business side of the tax ledger as well as the individual rates’. Trump also confirmed that he is working on seeking to roll back ‘burdensome regulations’ and change the country’s ‘obsolete’ infrastructure system.

Today President Trump will meet with Japan PM Abe in Washington so the news will likely be dominated again by Trump with markets focused on the specifics that will come out of the meeting. It will be interesting to see this play out as Trump recently commented on Japan manipulating its currency to gain competitive advantage and also accusations of Japan conducting unfair business practices. Today’s meeting will be more about two-way trade and focus on a full range of economic ties with Abe planning to discuss creating jobs and building infrastructure in the US.

Wise Money market news

In Europe, Greece has once again come to the attention of the news as debt problems are again spooking markets in a year that is already proving challenging for Europe. The IMF and EU are in focus at the moment as they seem to disagree on how to tackle Greeceís debt problems. Yesterday the IMF said that in their view Greece should target a primary surplus target of 1.5% accompanied by significant debt relief which is in stark contrasts to what the EU has been pushing for: no debt relief, more austerity and a primary surplus target of 3.5%.

Data to come

On the data front, yesterday in the US there was no change to the final wholesale inventories print of +1.0% mom in December, while initial jobless claims surprisingly fell 12k last week to 234k. In Europe, Germany December trade surplus was narrower than expected Ä18.7bn (vs. Ä20.5bn expected), which reflects a decline in exports while imports remained flat during the month.

Donald Trump’s travel ban leads to investor concerns

Donald Trump’s travel ban has led to investors moving into other safe havens, with JPY and Gold being the short term winners.

Donald Trump's travel ban has led to investors moving into other safe havens, with JPY and Gold being the short term winners.

Business leaders from across the world have voiced their opinions and now Theresa May has come into the firing line for not overly condemning his latest actions. She has since stated she looks forward to welcoming the new President of the US, which has seen a petition to ban him reaching 1.5 million signatures. Seven Muslim majority countries have been banned from entering the US for a short term period, but similar countries who have had dealings with Trumpís own businesses appear to be have been green lighted to travel freely.

Lobby group sees Brexit as golden opportunity to boost trade

City UK Lobby Group has stated it sees Brexit as a golden opportunity to boost trade and investment in the coming years, having previously voted and campaigned to remain in the EU. Such positivity will no doubt back the UK Prime Ministers corner, as she seeks to get clarity from the Supreme Court soon.

German inflation almost touches 2%

Yesterday, German inflation almost touched 2%, the key indicator level which ECB yearns for. This could put more pressure on Mario Draghi to think about tightening the current Monetary Policy. Germanyís economists are keen for the ECB to cut the QE programme soon, but other countries are still undecided.

Big day in terms of key note speakers

Big day in terms of key note speakers and particularly data, with the Bank of Japan stating its Monetary Policy Statement in the early hours of Asian trading. The German unemployment rate is being seen as the main piece of data today with forecasts expected to remain at 6% whilst Eurozone Consumer Price Index and Gross Domestic Product are also out today. The UK has its Mortgage Approvals numbers for viewing alongside Net Consumer Credit. Canadian Gross Domestic Product and US Consumer Confidence finish a busy day for the FX markets.

Volatile trading remains dominant theme in wise money markets

Volatile trading remains on the cards as we move into the weekend, after wild swings overnight in the Japanese equity markets and Yen as traders and investors remain unsure over overall direction.
Volatile trading remains dominant theme in wise money markets
The Yen traded as high as 154.67 against Sterling before the bottom dropped out of the equity market, which after trading up 2.5 per cent fell to a session low of minus 3.5%, dragging the yen along with it towards the low 152’s.

The overall market closed flat on the day bringing to an end once of the strangest days trading in many years. The question is will that volatility carry through to European and American sessions?

Early signs are that it should be calmer, with Sterling roughly unchanged from where we left it yesterday evening. The biggest move overnight has been in the Euro – Dollar pair, positive European data this morning driving the single currency slightly higher against the Dollar in low volumes with German consumer confidence beating expectations slightly.

Today’s data of note is centred on Europe and the US with more German data due – business climate figures and this afternoon US durable goods orders.

Every high profile US figure is suddenly doubly important in light of the Fed announcement this week, the markets main job over the next few months will be trying to discount the Fed withdrawing stimulus, even if that is still several years away.

Central bank announcements spark volatility across wise money markets

After a barren spell over the last week, an avalanche of data and announcements from central banks across the developed world hit the markets.
Central bank announcements spark volatility across wise money markets
The resulting volatility overnight in Asia and into this morning’s European session stand in stark contrast to the goldilocks conditions we’ve been experiencing for the last few months.

Firstly the Bank of Japan suggested Yen depreciation had gone far enough for the moment, sparking JPY appreciation in the major pairs. Whether the BoJ can control the pace of the Yen movements will be tested to the maximum by the market, and lies at the very heart of whether Abenomics can ultimately be successful.

Today marks the first real test of the economic plan.

The Fed minutes, released yesterday evening, showed the central bank considering slowing the pace of asset purchases “in the next few meetings” but only if the employment situation improved significantly.

The wording was broadly expected by the market, with the Dollar slowly gaining against Sterling and the euro, but the timing definitely was not. Along with a soft Chinese PMI data this morning risk is definitely off the table, with the Nikkei down over 7 per cent overnight and European bourses posting large declines in early trading.

UK data also disappointed, with retail sales lower than expected and the IMF also calling for a readjustment to fiscal policy away from immediate austerity towards higher infrastructure investment.

Today look set to be very volatile, so the lack of more big ticket data today is probably a good thing. Of note is Euro zone PMI this morning and intial jobless claims from the US later this afternoon.

Sterling underperforms against euro and US Dollar

Sterling has recently underperformed against the euro and US Dollar however this could be short-lived given the force of negative influences building up for the single European currency.Sterling underperforms against euro and US DollarFurthermore Sterling rallied last week as positive data from the UK Manufacturing sector lured investors back into sterling.

Figures showed that manufacturing rose twice as much as forecast in February as compared to the previous month.

We also saw an improved reading for UK March house prices as shown in the RICS data while the BRC retail sales survey also came in better than expected with like-for-like sales rising by nearly 2% in March.

Think-tanks forecasted yesterday that the UK will narrowly miss a technical triple-dip recession, after a spate of positive data from industrial production and manufacturing.

At the beginning of last week, markets ended in a positive territory despite slimming price movements. US equities rose while the S&P 500 Index also posted gains consecutively in over three weeks as the US corporate earnings had a positive session.

On Friday US retail sales fell in March from February by the most in nine months, indicating higher taxes and weak hiring have made consumers more cautious about spending.

The Commerce Department says retail sales declined a seasonally adjusted 0.4% last month. That followed a 1% gain in February.

Both February and January’s figures were revised lower. Better than expected jobless claims report helped the dollar recover part losses. Economists were relieved that claims did not remain above 380,000 for the second week in a row.

First time jobless claims fell to 346,000 from 388,000, which was lower than the market’s 360,000 forecast.

Japanese monetary policy is also front and centre in the markets outlook at the moment. The Yen has declined significantly across the markets after the original QE decision was announced last week.

To recap, the announcement represents QE on a completely different scale to previous policy by the Bank of Japan.

Almost $1.5 trillion will be pumped into the Japanese economy within two years. In spite of the huge scale of asset purchase, the new BoJ governor Harauhiko Kuroda suggested yesterday that the 2% inflation target will be pursued flexibly.

In central bank tone that means they are willing to embark on more easing if necessary. We move further into the unknown. Risk sentiment remains buoyant following the aggressive easing by the Bank of Japan (BOJ) which the market is now pricing in as a move into risk.

Central Bank policies remain the driving force across wise money markets

When the highlight of the week is someone with a fat finger at the Fed accidentally releasing the latest minutes ahead of schedule, you know it’s been quiet.Central Bank policies remain the driving force across wise money marketsThe main details of the minutes concerned the Fed’s continuing asset purchases, and in particular that the Fed is trying to get across to the market that it should expect asset purchase to vary depending how the outlook for the US economy develops.

This “taping off” guidance is a slightly tweak to existing policy guidance, the line before Wednesday’s minutes was that QE would come to an end when labour markets improved substantially.

By suggesting varying the $40 billion per month in agency MBS and $45 billion per month in Treasuries, policy is better defined than some vague notion of “substantial” improvement.

Japanese monetary policy is also front and centre in the markets outlook at the moment.

The Yen has declined significantly across the markets after the original QE decision was announced last week. To recap, the announcement represents QE on a completely different scale to previous policy by the Bank of Japan.

Almost $1.5 trillion Dollars will be pumped into the Japanese economy within two years. In spite of the huge scale of asset purchase, the new BoJ governor Harauhiko Kuroda suggested yesterday that the two per cent inflation target will be pursued flexibly.

In central bank parlance that means they are willing to embark on more easing if necessary. We move further into the unknown.

Japan dominates wise money markets

Japan is at the forefront of the wise money’s minds as the currency’s weakness continues to extend, leading to pressure in closely linked currencies and markets particularly in Asia, especially in Korea.Japan dominates wise money marketsThe market is evidently giving BoJ governor Kuroda the benefit of the doubt and it seems that there are ample JPY sellers on any rally in the currency.

One should be careful about the ability of USD/JPY in the short term to move much higher.

It is obvious that the trend seems set for additional JPY weakness and it is worth noting that speculative JPY trading is not yet at significant levels.

Within Europe concerns have not relieved to any noteworthy degree with some praise for Portugal’s efforts to survive a legal court ruling on strategic budget cuts but little development elsewhere including in Italy where there is no sign of any agreement on the construction of a new government.

Stock markets in the US finished higher but the market will now look to a host of Q1 earnings statements over coming weeks as the US earnings seasons kicks in.

Commodity prices remain fragile, with the Commodity Research Bureau (CRB) commodities index at its lowest level in several months pointing to a more negative outlook on the growth front.

Back to the UK and Sterling has recently underperformed against the euro and US Dollar however this could be short-lived given the force of negative influences building up for the single European currency.

A possible jump in February UK industrial production today will build on the improved reading for UK March house prices as shown in the RICS data this morning while the BRC retail sales survey also came in better than expected with like-for-like sales rising by nearly 2% in March.

The stronger data readings could start a rally on the pound over the short term and could possibly help to fuel short covering in a speculative market that is still heavily short Sterling.

Bank Of England and ECB hold fire as the BOJ starts printing presses

There were no changes in policies from either the Bank of England or the ECB at their most recent rate meeting yesterday.Bank Of England and ECB hold fire as the BOJ starts printing pressesThe Bank of England was widely expected to expand the asset purchase scheme in the face on a continued bleak outlook for the UK economy and another tough budget from the UK government.

Sterling certainly traded as though further QE was expected in the build up to the announcement, rising sharply against the Dollar and Euro after the decision of no change was announced.

Mario Draghi did his usual verbal gymnastics, saying a lot without really saying anything meaningful, pushing the euro around significantly when speaking but leaving it relatively unchanged on the day.

The main event yesterday was in Japan where BOJ head Haruhiko Kuroda announced unprecedented monetary policy stimulus sending the Yen and Japanese government bond yield sharply lower, a trend that has been repeated in Asian trading this morning.

We will have to wait and see whether the new stimulus plan is successful is raising domestic inflation towards the 2% target.

Japan election result weakens the Yen

In Japan the Liberal Democratic Party (LDP) has won a landslide victory in the lower house election. Japan election result weakens the YenThis opens the door for a significant change of policy by the Bank Of Japan in an effort to try to assist the economy and weaken the Yen to encourage exports.

The LDP is in a strong position to push through its agenda as it will have a two third super majority in the lower house and this raises the pressure on the Bank Of Japan at this week’s meeting to step up to the plate.

The overall long term sentiment will now favour a weaker Yen as the new government will aggressively support a weaker Yen through monetary and fiscal policy.

In other news the US’s Fiscal cliff negotiations are still dominating the markets as we get closer to the deadline.

According to press reports there are some signs of concessions and this seems to have led to optimism for the week ahead for an agreement to be formed.

However there is a risk that if negotiations stall then we may see the markets flip back into risk off mode later in the week.

We have later in the week the info survey from Germany and Mario Draghi addressing the European parliament committee on economic and monetary affairs.

The markets will be looking for signals from Draghi on whether the ECB intends to cut rates or whether it will introduce negative deposit rates.

In the US we have inflation, durable goods and PMI data which will be closely eyed especially if we are not seeing progress on the cliff.