Yen Down on Silent BoJ; DOW Stares at Key Support in Week's Finale

Samantha Luan

Economic

Central Bank

Forex

Summary:

In a move that left many market observers bemused, Yen declined in Asian trading session after BoJ opted for continuity, leaving its monetary policy untouched.

In a move that left many market observers bemused, Yen declined in Asian trading session after BoJ opted for continuity, leaving its monetary policy untouched. Notably, the bank refrained from dropping any hints about potential alterations in its policy stance in the foreseeable future. With U.S. 10-year yield surging to a remarkable 16-year high, Yen may face further selling pressure in the coming sessions. Meanwhile, attention is shifting to forthcoming PMI releases from major economies, including Eurozone, UK, and U.S., as the week approaches its end.

Reflecting on the week's performance, both Sterling and Swiss Franc have been the laggards, affected by decisions of BoE and SNB to maintain their policies unchanged. The anticipation is growing that these central banks might have reached the apex of their tightening cycles already. Trailing closely behind in terms of weakness is Yen. New Zealand Dollar has emerged as the top performer, followed by Canadian Dollar and U.S. Dollar. Euro and Australian Dollar are exhibiting a mixed performance.

Technically, in light of Fed's hawkish stance this week, market players are keenly watching for signs of escalating risk aversion. If DOW plunges below 34092.22 support level and wraps up the week beneath it, it would not only signify a renewed decline from 15679.13 but also set a bearish tone that extends into Q4, potentially aiming for 31429.82 support. Yen Down on Silent BoJ; DOW Stares at Key Support in Week's Finale_1

Yen Down on Silent BoJ; DOW Stares at Key Support in Week's Finale_1

In Asia, at the time of writing, Nikkei is down -0.43%. Hong Kong HSI is up 0.86%. China Shanghai SSE is up 0.67%. Singapore Strait Times is up 0.05%. Japan 10-year JGB yield is down -0.0037 at 0.750. Overnight, DOW dropped -1.08%. S&P 500 dropped -1.64%. NASDAQ dropped -1.82%. 10-year yield surged 0.131 to 4.480.

BoJ stands pat, drops no hint on future adjustment

BoJ maintains a steady course today and keeps monetary policy unchanged. It also chooses choosing not to make any adjustments in the statement that would suggest a departure from its existing negative interest rate stance or the yield curve control measures. The central bank even retains the pledge that it "will not hesitate to take additional easing measures if necessary."

In unanimous decisions, short-term policy interest rate is held at -0.10%. 10-year JGB yield target is held at 0%, with a band of plus and minus 0.5%. Moreover, the bank's offer to purchase 10-year JGBs at a rate of 1.0% daily through fixed-rate market operations remains unchanged.

BoJ anticipates the Japanese economy to maintain a moderate recovery in the near term. However, it has also flagged concerns, noting that the economy is "under downward pressure stemming from a slowdown in the pace of recovery in overseas economies." Beyond this phase, the central bank is optimistic that the economy will exhibit growth "at a pace above its potential growth rate" due to the strengthening of a "virtuous cycle from income to spending."

Regarding inflation, BoJ foresees the year-on-year core CPI to "decelerate" owing to diminishing import price effects. Nevertheless, in the subsequent period, the CPI is projected to "accelerate again moderately", spurred by an improving output gap, along with rising medium-to-long-term inflation expectations and wage growth.

Released earlier, Japan headline CPI slowed slightly from 3.3% yoy to 3.2% yoy in August. CPI core (ex-food) was unchanged at 3.1% yoy. CPI core-core (ex food and energy) was unchanged at 4.3% yoy.

Japan's PMI manufacturing fell to 48.6, slackening demand and lower employment

Japan's Manufacturing PMI further declined from 49.6 to 48.6 in September, falling short of the anticipated 49.9, marking the most pronounced contraction since February. PMI Services also receded from 54.3 to 53.3. PMI Composite, which gives a holistic view of the broader economy, tapered off from 52.6 to 51.8.

Usamah Bhatti, an Economist at S&P Global Market Intelligence, noted that the future doesn't seem particularly rosy, with forward-looking indicators hinting at a possible slackening of demand and activity. While service firms did experience a rise, manufacturing segment reported a sharp decline in new orders, the most pronounced in seven months.

Another worrisome development is the reduced employment levels in the private sector. Bhatti stated, "As pressure on capacity eased, there was a renewed reduction in employment levels." This trend was "the first since the start of the year and the quickest since August 2020." He attributed this to companies not replacing those who voluntarily exited, often as a strategy "amid elevated cost burdens."

Australia PMI composite back to expansion, risk of "no land" for the economy

In September, Australia's Manufacturing PMI slipped to a 3-month low, declining from 49.6 to 48.2. In contrast, PMI Services showcased resilience, rising from 47.8 to a 4-month high of 50.5. PMI Composite also surged from 48.0 to 50.2, a 4-month peak, signaling a return to expansion in the broader economy.

Warren Hogan, Chief Economic Advisor at Judo Bank,said that "demand in the economy is holding up, and business activity remains on a sound footing." He further remarked that, contrary to some expectations, the present economic scenario isn't about choosing between a "hard or soft landing." Instead, he proposed that the real risk is of "no landing" for the economy.

Hogan further touched upon the inflation concerns that have been a pivotal discussion in financial circles. "The inflation indicators remain elevated at levels pointing to above-target CPI over the next 6-9 months," he stated. He pointed out that input prices remained unchanged in September, hinting at continued cost pressures. However, the final prices index experienced a slight dip in the September flash report. Despite this marginal decline, Hogan suggested that "inflation over the second half of 2023 could be higher than desired."

This latest PMI data follows a trend of stronger-than-predicted figures emerging from Australia in recent weeks. While this demonstrates economic stamina and persisting inflation, all eyes are on RBA's next steps. Hogan postulates that the RBA Board, under leadership of the new Governor Michele Bullock, will likely adopt a patient stance. However, he doesn't rule out further monetary tightening, possibly "in early November on Melbourne Cup day," should the economic indicators not align with RBA's projections of a slowdown.

New Zealand's trade data sees China dominates decline in exports and imports

In August, New Zealand observed a dip in both its goods exports and imports compared to the previous year, leading to a monthly trade deficit of NZD -2.3B.

Compared to figures from August 2022, goods exports saw a reduction of NZD -296m, marking a -5.6% yoy drop, settling at NZD 5.0B. On the other hand, goods imports displayed an even steeper decline, shrinking by NZD -639m or -8.1% yoy, amounting to NZD 7.3B.

A deeper dive into the export figures revealed China as the major contributor to the monthly dip. Exports to China fell sharply by NZD -262m, representing an -18% yoy decline. Other notable declines were witnessed in exports to Australia, which dipped by NZD -71m (-9.0% yoy), and Japan, with a decrease of NZD -34m (-11% yoy). However, there was some silver lining with U.S. and EU. Exports to the USA grew by NZD 62m, marking a 9.6% yoy increase, and those to the EU surged by NZD 28m, a 7.7% yoy rise.

China also took the lead in the contraction in imports. Imports from China plummeted by NZD -363m, a stark -19% yoy decline. Other significant reductions in imports were observed from Australia, down by NZD -92m (-9.7% yoy), South Korea with a drop of NZD -74m (-13% yoy), and U.S. decreasing by NZD -36m (-5.4% yoy). In contrast, imports from EU displayed a robust growth, climbing by NZD 120m or 12% yoy.

ECB's Lane: 4% deposit rate can bring inflation back to target within projection horizon

ECB's Chief Economist, Philip Lane, offered insights into last week's rate hike during a speech overnight. He noted that "the choice between holding at 375 and moving to 400 was finely balanced," referring to the deposit rate. Lane went on to express that opting for an additional hike was a safer decision "at a margin".

He believed that 4% deposit rate should be "consistent with a return of inflation to target within the projection horizon." The condition is that it's to be " maintained for a sufficiently long duration".

Looking to the future, Lane cautioned about the extended phase of uncertainty that looms regarding the disinflation process. Highlighting the intricacies of the present economic climate, Lane pointed to the "initial inflation shock, the lagged nature of wage adjustment in the euro area, [and] the considerable sectoral rebalancing" as contributors to the prolonged period of inflation uncertainty.

Looking ahead

UK retail sales and PMIs will be featured in European session together with Eurozone PMIs. Later in the day, Canada will release retail sales while U.S. will publish PMIs too.

USD/JPY Daily Outlook

USD/JPY dipped to 147.31 but quickly recovered. Intraday bias is turned neutral first. For now, further rally is in favor as long as 147.00 support holds. Above 148.45 will resume larger rally from 127.20. Next target is 151.93 high. However, firm break of 147.00 will should confirm short term topping, and turn bias to the downside for 145.88 support and below. Yen Down on Silent BoJ; DOW Stares at Key Support in Week's Finale_2

Yen Down on Silent BoJ; DOW Stares at Key Support in Week's Finale_2

In the bigger picture, while rise from 127.20 is strong, it could still be seen as the second leg of the corrective pattern from 151.93 (2022 high). Rejection by 151.93, followed by break of 137.22 support will indicate that the third leg of the pattern has started. However, sustained break of 151.93 will confirm resumption of long term up trend. Yen Down on Silent BoJ; DOW Stares at Key Support in Week's Finale_3

Yen Down on Silent BoJ; DOW Stares at Key Support in Week's Finale_3

Source: ActionForex

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SAXO

Economic

Bond

Stocks

Forex

Commodity

Market Data

U.S. Equities

Rising Treasury yields, which reached new highs since 2007, continued to weigh on stocks. The S&P 500 plunged 1.6% to 4,330, marking a decrease of more than 1.5% in a single day for the first time since April. All sectors declined, with the rate-sensitive real estate sector being hit the hardest. Magacap Tech names dragged down the Nasdaq 100, which tumbled 1.8% to 14,694. Amazon plummeted 4.4%, while Nvidia declined by 2.9%.

Fixed income

Yields from the belly (5-year) onward to the long end extended their post-FOMC march higher following the surge in long-end UK Gilts after the Bank of England held rates unchanged across the pond and a surprise drop in the initial jobless claims to 201K, signifying a still-hot U.S. labor market. The USD15 billion 10-year TIPS action registered robust demand. Selling concentrated on the long end, with the 10-year and 30-year yields rising by 9bps to 4.49% and 13bps to 4.57%, respectively, while the 2-year yield ended the session 3bps lower at 5.14%.

China/HK Equities

Following the post-FOMC selloff in the U.S. equity market, the Hang Seng Index slid by 1.3% to 17,655, while the Hang Seng Tech Index plunged by 1.9%. Healthcare, materials, and information technology were the top laggards. Alibaba Health tumbled by 4.9%, and XPeng plummeted for the second day, down by 6.9%, after lowering the selling price of the new version of its G9 model. The CSI300 shed 0.9%.

FX

Dollar strength continued in the post-Fed reaction, although some of the gains were reversed. High event risk from the Bank of Japan meeting ahead and USD/JPY hit fresh near 11-month highs of 148.46 but fell subsequently to ~147-.50 levels. AUD/USD plummeted from highs of 0.6511 to drop back towards 0.64 amid risk-off although NZD/USD did better and stayed above 0.59 on Q2 GDP surprise. GBP/USD broke below key 1.23 support with BOE holding rates but rebounded to the big figure later. EUR/USD stays below 1.07.

Commodities

Crude oil prices remained soft earlier in the session on Fed's higher-for-longer message offsetting concerns of tighter supplies, but Russia's announcement to temporarily ban diesel and gasoline exports brought some gains again. Macro theme continued to be of a risk-off, which is capping the move in oil towards $100 for now. Copper was down over 2% along with declines in other base metals amid risk-off and lack of China stimulus announcements.

Macro

US jobless claims fell to 201k from 221k, the lowest since the end of January, and against expectations for a rise to 225k. The downtrend again suggested that labor market is not cooling too rapid, and raised concerns whether the Fed will have to keep its foot on the pedal.
The Bank of England defied market expectations and kept interest rates unchanged with a 5-4 vote split. Instead, the Bank upscaled the rate of quantitative tightening from £80b to £100b per annum to accommodate a larger bond maturity profile next year. A tightening bias was maintained with the MPC repeating the message that "further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures". Market still expects another rate hike with 70% probability.
Among other central bank meetings yesterday, the Swiss National Bank defied wide expectations for a 25bps hike and left its policy rate unchanged, while Sweden and Norway's central banks both hiked the expected 25bps. Brazil's central bank cut rates by the expected 50bps after starting the easing cycle in August and following recent rate cuts by Poland and Chile.
Japan's headline August CPI came in firmer-than-expected at 3.2% YoY vs. expected 3.0%, slowing only a notch from prior 3.3% YoY. Inflation ex-fresh food remained unchanged at 3.1% YoY, and also above expectations while the core-core measure (ex-fresh food and energy) held up at 4.3% YoY as expected.

In the news

The China Securities Regulatory Commission (CSRC) has checked with several major brokers about short-selling activities and trading strategies of their quant clients (Reuters)
Cisco to Buy Splunk for $28 Billion in Giant AI-Powered Data Bet (Bloomberg)
To reduce AI costs, Google wants to ditch Broadcom as its TPU server chip supplier (The Information)
Microsoft announced a "unified" AI for its Windows 11 platform and four new Surface devices (Reuters)
Senate Republicans are predicting that Speaker Kevin McCarthy (R-Calif.) will need to reach out to House Democrats to get the votes to prevent a government shutdown at the end of next week (The Hill)

Macro events

BoJ Policy Announcement – read full preview here
EZ/UK/U.S. Flash PMIs (Sep), UK Retail Sales (Aug), Canadian Retail Sales (Jul)

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FXCM

Central Bank

Economic

The Bank of Japan maintained its uber-loose stance, which includes interest rates at -0.1%, yield curve control (YCC) and quantitative and qualitative easing (QQE). It also reaffirmed its dovish outlook, saying it will "patiently continue with monetary easing" and will not hesitate to take additional action if necessary, in order to achieve the 2% inflation target "in a sustainable and stable manner".

Earlier today, CPI ex-fresh food steadied at 3.1% y/y in August and although it has moderated from the recent four-decades peak, it has been printing above the central bank's 2% target for seventeen straight months. The BoJ itself over the summer raised the median inflation projection, to +2.5% for FY2023, from +1.8% previously.

Having been troubled by decades of deflation, policymakers struggle to create a virtuous price-wage cycle, which makes them hesitant to call it a day. They believe that "sustainable and stable achievement" of the 2% target "has not yet come in sight", requiring the continuation of monetary easing.

Back in July the central bank took a step towards normalization by loosening its grip on the yield curve control, but that change also allows it to sustain its dovish stance. Earlier this month, Governor Ueda opened the door to an eventual exit from negative rates, saying that officials could have enough data to make that determination by the end of the year. This marked a hawkish shift in rhetoric, but no imminent action was indicated.

The BoJ's loose monetary setting places it on the opposite side of it major counterparts, especially the U.S. Fed, which has been a great source of strength for USD/JPY. The Fed delivered a hawkish hold on Wednesday, keeping another hike on the table and pointing to a tighter 2024 policy path than previously expected. The latest round of decisions sustains the favorable monetary policy differential.

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Samantha Luan

Economic

Stocks

Energy

Contrarian investors were rewarded for betting on the beaten down U.S. energy sector earlier this year with a blazing rally. Some believe a tight oil market and resilient U.S. growth will keep energy stocks rising for the rest of 2023.

The largest U.S. energy exchange traded fund, the Energy Select Sector SPDR Fund, is up nearly 15% over the last three months and stands near its highest level in nine years.

The move follows a rally in oil that has taken the price of U.S. West Texas Intermediate crude (WTI) up more than 30% since June on supply concerns from extended production cuts by Saudi Arabia and Russia, as well as unexpected strength in the U.S. economy.

Bullish investors argue that energy stocks are still cheap by historical standards - and far less richly valued than other areas of the market. The energy sector currently trades at a forward price to earnings ratio of 12.2, well below its historical median forward P/E of 15.3, according to LSEG DataStream. The S&P 500 trades at a forward P/E of 20.

"Valuations can go up even if the oil price stays static because on a cash flow basis these stocks are very reasonably priced," said Charles Lemonades, head of hedge fund Value Works LLC, who is overweight the sector.

Energy stocks surged last year as inflation jumped to 40-year highs but landed with a thud at the start of 2023, when expectations of a U.S. recession and oversupply encouraged investors to take profits.

Both forecasts failed to materialize: economic growth in the U.S. proved far more resilient than many had predicted, despite the Federal Reserve's most aggressive monetary policy tightening in decades.

Meanwhile, drillers have been taking rigs offline, contributing to what is widely seen as a tight market, while Russia and Saudi Arabia have curtailed production.

The U.S. rig count is about 16% below where it was this time last year, according to data from U.S. energy services firm Baker Hughes. Overall, U.S. oil output from top shale-producing regions is on track to fall for a third month in a row in October to the lowest level since May, the U.S. Energy Information Administration said.

Despite recent gains, the S&P 500 energy sector is up only 4.2% year-to-date, compared with a 38% rise in technology stocks and a nearly 45% rise in communication. The broader S&P 500 index is up about 16%.

"Energy companies have newfound supply discipline" that will keep oil supply constrained, wrote Savita Subramanian, equity and quant strategist at BofA Global Investors, who has an overweight on the sector.

Citi on Monday became one the latest banks to predict that global benchmark Brent crude could exceed $100 a barrel this year.

While higher oil prices tend to eventually weigh on demand, that is unlikely to happen until Brent rises to between $110 and $120, said Bjarne Schieldrop, chief commodity analyst at SEB Research.

At the same time, continued production caps by Russia and Saudi Arabia will keep a floor under oil prices for the time being, he said.

Parts of the market appear skeptical energy stocks have much further to run.

Bearish investors point to the sector's earnings, where growth rates are expected to decline by 37% in the third quarter, followed by double-digit declines in both the fourth quarter and the first quarter of 2024, according to LSEG estimates. Sizzling Rally in U.S. Energy Stocks Has Room to Run, Bulls Say_1

Sizzling Rally in U.S. Energy Stocks Has Room to Run, Bulls Say_1

Energy demand could suffer if a rebound in the economy of top commodity consumer China fails to materialize. A 2024 recession in the U.S. - which many strategists still view as a possibility despite growing hopes of a soft landing, could also weigh on oil prices.

Persistently high oil prices could also lead to worries over a rebound in U.S. inflation, bolstering the case for the Fed to cool economic growth by keeping rates higher for longer.

"A supply driven increase in oil prices brings the prospect of both a renewal in inflation … and a slowdown in real consumer expenditures," analysts at Macquarie wrote.

Still, Rodney Clayton, a portfolio manager at Duff & Phelps Investment Management, believes the energy sector's large dividends will attract income-seeking investors - especially if the economy falters and bond yields fall.

"Companies are building up the trust of investors and are very reluctant to cut those dividends," he said. "That should result in a ... smoother ride for energy stocks than we've been accustomed to."

Source: Reuters

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Devin

Economic

Forex

There's no respite for struggling European currencies as a likely pause in central bank interest-rate rises and a weakening economic outlook puts the focus on prospective rate cuts ahead.

Sterling slid to a more than six-month low against the dollar on Thursday, even after the Bank of England held rates at a 15-year high and pledged to raise borrowing costs again if it cannot tame inflation.

The Swiss franc, one of this year's best performing major currencies versus the dollar, fell almost 1% at one point after Switzerland surprised markets by pausing its rate rise cycle.

Meanwhile, Thursday's quarter-point rate rise in Sweden failed to provide much respite for the battered Scandinavian currency, which is down over 6% against the greenback so far this year.

In short, the outlook for currencies in Europe is bearish, analysts and investors say, citing a strengthening dollar and stagnant economic growth in European nations as oil prices rise.

"We are turning to a bigger focus on growth than what central banks do," said Kit Juckes, global head of currency strategy at Societe Generale.

Sounding Hawkish

The BoE offered mixed messages by pledging to stay tough on inflation, still more than triple its 2% target, while noting that economic growth was slowing.

The European Central Bank last week lifted rates to a record 4% and upgraded its inflation forecast for 2024, but the euro fell and has lost almost 2% against the dollar this month.

SocGen's Juckes said the euro was "headed for a look at parity," in a reference to the $1 marker.

The ECB, like the U.S. Federal Reserve, has pushed the idea of rates staying higher for longer. This backdrop should support a currency but in the euro's case, traders are homing in on the region's economic underperformance and betting the ECB will be forced to cut before the Fed.

Overall, Europe's central banks "would like to portray this idea of higher for longer (rates)," said Ed Hutchings, head of rates at Aviva Investors. But markets, he said, were "getting ahead of this." Europe's Currencies Feel Fresh Pain as Central Bank Support Fades_2

Europe's Currencies Feel Fresh Pain as Central Bank Support Fades_2

Sweden's Riksbank raised its key rate by 25 bps to 4% and said it may need to do more to bring inflation lower. The currency, which the central bank labeled "unjustifiably weak," barely caught a break and remains near a record low against the euro.

Sweden's economy, hurt by turmoil in the real estate market, is expected to contract this year.

In fact, the only central bank whose hawkish tones have struck a chord with markets is the Fed, which on Wednesday held rates steady but signaled one more rate rise this year.

The dollar index which measures the U.S. currency against peers, is near its highest in over six months.

This, said Manulife Investment Management chief investment officer Nathan Thooft, is because "the data suggests the U.S. economy right now is much better than much of Western Europe."

He expected one the of big European central banks to be the first to cut rates.

Economists polled by Reuters expect the euro zone economy to grow 0.6% this year, the UK to expand 0.4% and the United States by 2%.

"As we become more data dependent, currencies swing around with every bit of data that's available," said Bjoern Jesch, global chief investment officer at DWS Group.

The push and pull in market expectations ahead of rate decisions, as has been the case in Britain and the euro area this month, highlights rising volatility around central bank meetings.

Nomura expects sterling to weaken to $1.22 by end-October, from $1.23 now; ING economists said the Swedish crown remained "vulnerable."

Volatility

Another driver of dollar strength is oil prices, trading near 10-month highs above $90 a barrel.

"The U.S. is an oil producer so it tends to get hurt very little by higher oil prices whereas Europe and Japan get hit more," said Barclays global head of FX strategy Themos Fiotakis.

European central banks were "in a bind," Fiotakis added, as higher oil prices also threatened to push inflation higher.

This made rate cuts bets in Europe seem vulnerable, said Orla Garvey, senior fixed income portfolio manager at Federated Hermes.

"Growth and inflation data will be more volatile going forward and this in itself will create higher market volatility," she said.

Source: Reuters

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Central Bank

Economic

SNB's Rate Decision

The Swiss National Bank has taken the unexpected step of maintaining its policy rate at 1.75%. This decision has caught markets off guard, as the consensus had been leaning toward a 25 basis point interest rate increase. The SNB's rationale for this move is rooted in its assessment that the "significant tightening of monetary policy over recent quarters is countering remaining inflationary pressure." Swiss National Bank Shocks Markets with Rate Pause: Swiss Franc Tumbles_1

Swiss National Bank Shocks Markets with Rate Pause: Swiss Franc Tumbles_1

Market Reaction

The repercussions of the SNB's unanticipated decision were swift and pronounced. Swiss bond yields experienced a sharp decline, and the Swiss Franc's exchange rate suffered notable setbacks. Notable changes include the Pound to Swiss Franc (GBP/CHF) exchange rate surging by 0.45% to 1.1145, the Euro to Swiss Franc (EUR/CHF) appreciating by 0.73% to 0.9651, and the US Dollar to Swiss Franc (USD/CHF) strengthening by 0.78% to 0.9058.

SNB's Stance

While the SNB has temporarily suspended its interest rate hikes, it has left the door open for future rate increases. The central bank underscored that additional monetary policy tightening may be necessary to ensure price stability over the medium term. However, the market's interpretation suggests that the SNB is unlikely to pursue further rate hikes in the immediate future.

Market Expectations

The unexpected pause in the SNB's rate hikes has prompted a swift adjustment in market expectations. Traders and investors are now reevaluating their assumptions, with a growing belief that the SNB may have concluded its interest rate hiking cycle and may even contemplate future rate cuts.

SNB Intervention

The SNB is renowned for its proactive intervention in the foreign exchange market to manage the Swiss Franc's valuation. While the currency may face downward pressure due to the rate decision, the SNB's demonstrated willingness to intervene in the forex market is expected to cap the Franc's depreciation.

The SNB's surprise rate decision has sent reverberations throughout financial markets, emphasizing the central bank's commitment to balancing its monetary policy against inflationary pressures. The Swiss Franc's trajectory, in particular, will remain a focal point for traders and investors as they assess the SNB's next moves in the ever-evolving global economic landscape.

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FastBull Featured

Daily News

[Quick Facts]

1. Swiss National Bank and Bank of England unexpectedly pause rate hikes.

2. Russia banned gasoline and diesel exports to most countries from Sept. 21.

3. "Bond King" Gross warns U.S. bond investors that pain isn't over yet.

4. Japan's core CPI has been above the BOJ target for the 17th consecutive month.

5. U.S. initial jobless claims hit a new low in nearly 8 months last week.

[News Details]

Swiss National Bank and Bank of England unexpectedly pause rate hikes

The Bank of England (BOE) kept interest rates unchanged on Thursday local time, which was the first time in nearly two years that it had chosen not to raise interest rates in fight against the stubbornly high inflation. In a statement, BOE Governor Andrew Bailey said inflation had fallen sharply in recent months and that would continue. "But there's no room for complacency," he said. According to the minutes of the policy meeting, interest rates would need to remain "sufficiently restrictive for a sufficiently long period" to bring inflation back to the central bank's 2% target, while it also downgraded the economic outlook. Prior to that, the Swiss National Bank (SNB) also unexpectedly announced a pause in interest rate hikes and would expand liquidity supply to banks, but SNB governor Thomas Jordan said if the inflation outlook worsens, interest rates will be raised again.

Russia banned gasoline and diesel exports to most countries from Sept. 21

The Russian government said it would impose a ban on gasoline and diesel exports from Sept. 21 for an unknown length of time, with the scale of exports of the two types of energy at about 1 million barrels per day (bpd). According to people familiar with the matter, Russia exported an average of about 63,000 tons of diesel and 8,000 tons of gasoline per day in the first 13 days of September, 31% lower than the average daily diesel exports compared with the first 30 days of August, as refineries were undergoing seasonal maintenance. Moreover, Russian government's efforts to curb rising domestic fuel prices has prompted producers to divert more fuel to the domestic market. Russia's temporary export ban on the fuel could exacerbate the current shortages in the global oil market as the two OPEC+ leaders, Saudi Arabia and Russia, are restricting crude supplies.

"Bond King" Gross warns U.S. bond investors that pain isn't over yet

Bond investors' pain isn't over yet, even though the Federal Reserve is done raising interest rates, said Bill Gross, former Pacific Investment Management Company (PIMCO) CEO. Gross wrote in his latest investment outlook that the bond market will suffer record losses for a third year due to sticky inflation and widening deficits. He likened the government's fiscal stimulus to "throwing money out of a helicopter." Gross urged investors to reduce holdings of U.S. Treasuries and corporate bonds as 10-year U.S. Treasury bonds are overvalued.

Japan's core CPI has been above the BOJ target for the 17th consecutive month

Japan's core inflation held steady at 3.1% in August and was above the central bank's 2% target for the 17th month in a row, data released on Friday showed. This is a sign of widening price pressures that could strengthen the case for an exit from its ultra-loose monetary policy. While the Bank of Japan (BOJ) is widely expected to leave its ultra-loose monetary policy unchanged, market attention is centered on any hints from BOJ governor Kazuo Ueda on how quickly the central bank may phase out stimulus. There is speculation that the BOJ will soon end negative interest rates as well as its target of keeping the 10-year JGB yield at around 0% in response to widening inflationary pressures.

U.S. initial jobless claims hit a new low in nearly 8 months last week

U.S. initial jobless claims fell unexpectedly last week. The U.S. Department of Labor data show that initial jobless claims for the week ended Sept. 16 recorded 201,000, a new low since the week ended January 28, indicating that the job market is still tight. The weekly initial jobless claims this year ranged between 194,000 and 265,000. But it could rebound in the coming weeks as the United Auto Workers' (UAW) partial strike will lead to a shortage of some production materials, forcing automakers to temporarily lay off workers. Ford last Friday furloughed 600 workers who were not on strike, while GM said it expected to halt operations at its Kansas car plant, affecting 2,000 workers. Chrysler-parent Stellantis said it would temporarily lay off 68 employees in Ohio and expected to furlough another 300 workers in Indiana. The strike is unlikely to have an impact on nonfarm payrolls, though, as it began near the end of the nonfarm payroll survey week.

[Focus of the Day]

UTC+8 07:30 Japan Core CPI YoY (Aug)

UTC+8 11:00 The Bank of Japan announces its interest rate decision

UTC+8 14:00 U.K. Retail Sales MoM (Aug)

UTC+8 14:30 Bank of Japan Governor Kazuo Ueda holds a monetary policy press conference

UTC+8 15:15 France Manufacturing PMI Prelim (Sept)

UTC+8 15:30 Germany Manufacturing PMI Prelim (SA) (Sept)

UTC+8 16:00 Eurozone Manufacturing PMI Prelim (SA) (Sept)

UTC+8 16:30 U.K. Manufacturing & Services PMI Prelim (Sept)

UTC+8 20:30 Canada Retail Sales MoM (SA) (Jul)

UTC+8 20:50 Federal Reserve Governor Lisa Cook speaks

UTC+8 21:45 U.S. IHS Markit Manufacturing & Services PMI Prelim (SA) (Sept)

UTC+8 01:00 Next Day: San Francisco Fed President Mary Daly speaks

UTC+8 01:00 Next Day: Minneapolis Fed President Kashkari delivers a speech

Risk Warnings and Disclaimers

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Yen Down on Silent BoJ; DOW Stares at Key Support in Week's Finale

BoJ stands pat, drops no hint on future adjustment

Japan's PMI manufacturing fell to 48.6, slackening demand and lower employment

Australia PMI composite back to expansion, risk of "no land" for the economy

New Zealand's trade data sees China dominates decline in exports and imports

ECB's Lane: 4% deposit rate can bring inflation back to target within projection horizon

Looking ahead

USD/JPY Daily Outlook

Source: ActionForex

Global Market Quick Take: Asia – September 22, 2023

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Fixed income

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FX

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In the news

Macro events

The Bank of Japan Maintained its Loose Stance & Dovish Outlook

Sizzling Rally in U.S. Energy Stocks Has Room to Run, Bulls Say

Source: Reuters

Europe's Currencies Feel Fresh Pain as Central Bank Support Fades

Sounding Hawkish

Volatility

Source: Reuters

Swiss National Bank Shocks Markets with Rate Pause: Swiss Franc Tumbles

September 22th Financial News

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