The Morning Hark - 28 Apr 2022
Today’s focus ……..BoJ firms up its commitment to YCC, 130 USDJPY target met, GBP and EUR weaken further, all hail the mighty USD……until BOJ’s Kuroda speaks?
Daily roundup - all prices are at 7.30 BST with changes reflecting movement from midnight BST
Oil - Both Brent and WTI futures down just under percent on the session at 104.00 and 101.20 respectively in tighter ranges than what we’ve seen of late. The sell off again was credited to the demand concerns with regard to the lockdown situation in China with Beijing in the process of a mass testing program to try to prevent a lockdown similar to the one currently in Shanghai.
EQ - Asian indices followed the US session higher with the Nikkei leading the way up 1.8% at 26,850 and the Kospi and Hang Seng following albeit in smaller magnitudes at 349 and 19,960 respectively. There were more policy measures promised by Chinese officials this time around employment which helped to take the strain off the Chinese markets from the Covid news. The US futures indices are up over a percent on the session consolidating their gains seen off the lows earlier in the week but still remaining close to key supports at 4,200 for the S&P and 13,000 for the Nasdaq. After Meta’s mixed earnings report which saw better than expected q1 earnings but its slowest quarterly growth in a decade, we will get the earnings from Apple, Amazon and Twitter later today.
Gold - Gold smalls down on the day at 1875 continuing its offered theme and nothing further of note to offer.
FI - US yields are up smalls overnight in a subdued session after yesterday’s rally back up in yields. The 10y trades at 2.83 with the 2y gaining the most up to 2.60.
FX - Yes you guessed it the USD continues its march higher with the USD Index pushing onto ever new highs currently at 103.45. As we spoke about yesterday the EUR and GBP are taking the brunt of the move with the EUR seeing a low at 1.0483 a level last seen 5 years ago and GBP to 1.2493 last seen at the outset of the pandemic. The EUR market has seen a lot of interest in digitals and puts for the 1.00 strike helping the move lower. The AUD has lost a lot of yesterday’s shine with it seeing a low of 0.7075 a near 3 month low after traders took the CPI spike as an opportunity to sell into the AUD strength. The real moves, however, have been in CNH and JPY with both suffering over a percent losses versus the USD sitting at 6.64 and 130.15 respectively. More on that below.
Others - Bitcoin and Ethereum remain in their recent ranges albeit in a rather whipsaw manner with them trading at 39,400 and 2,900 respectively. 38/43,000 and 2,800/3,200 has pretty much contained the pairs with key levels on the downside remaining at 36,000 and 2,750 respectively with the above range tops opening the top side back up.
The main talking point is obviously the BoJ which as we previewed yesterday left rates unchanged but committed to their yield curve control policy by stating that they “will offer to purchase 10y JGBs at 0.25% every business day through fixed rate purchase operations, unless it is highly likely that no bids will be submitted”. Unsurprisingly the Outlook Report also revised inflation up and growth down. But back to the real story - the increased commitment to the yield curve controls - unsurprisingly, this was the news that the market was waiting for to take USDJPY higher not only is the risk event of the meeting out of the way but the Japanese have committed on their side to let the yield differential versus the USD continue to widen. After some, what appeared to be, barrier protection at 130 we have finally captured that target touching a high of 130.27. For context, we haven’t seen such levels in 20 years. The focus now will be on BoJ Governor Kuroda’s press conference (07.30 BST) and in particular any comments he may have on the JPY which may see the pair pullback from the highs temporarily.
Tomorrow and into next week sees the Golden Week holidays in Japan which will take some of the local players out of the market and contribute to more illiquid liquidity conditions which in turn could lead to more extended moves. Also bear in mind tomorrow is month-end which should see substantial USD buying. Without any actual physical intervention, any jawboning will only offer temporary relief to the JPY. The yield differential between the US and Japan will see the JPY continuing to struggle. I have reposted a couple of Twitter feeds from Jim Bianco that question the BoJ policy and touch on how important this pressure point is to wider markets.
USDCNH saw some spillover action form the JPY weakness taking out the 6.60 and stop losses extending the move further to 6.6570.
📅⠀The main highlights for the day in terms of data and speakers:
US GDP q1 QoQ is released later today (13.30 BST) where expectations are for 1.1% growth versus 6.9% previously. Some analysts are even looking for a negative print. The miss from last the reading is attributed to a large reversal in inventory accumulation although personal consumption is expected to counterbalance this somewhat. The market will obviously be looking at the extent of the slowdown and the potential that this may be a precursor to a recession.
We also have German inflation readings for April (13.00 BST) with YoY expectations at 7.2% versus 7.3% previously.
📚⠀Articles discovered on Harkster exploring some of the current key macro themes in more depth:
Pepperstone - Can the BoJ alter the one-way selling in the JPY?
Cheap Convexity - There is no BoJ Pivot Coming 🔒
Twitter - Jim Bianco - The biggest story that no one is talking about ... the incredible pressure building in the Japanese Government Bond (JGB) and currency markets.
Twitter - Jim Bianco - JGB YCC = stablecoin
🔥⠀Top 5 trending links on Harkster yesterday:
LPL Financial Research - A Closer Look At The Stock Market Sell Off
Alhambra Partners - One More For Euro$ #5: The Mainstream Downgrade Parade
MOI Global - SPECIAL: PayPal’s Next Chapter (Recording of Twitter Space on April 21, 2022)
SpotGamma - Elon Musk’s Margin Call? The TWTR Loan.
Stay-At-Home Macro - Inflation and U.S. Monetary Policy
The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.