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JPY lost ground as BoJ adopts negative rates

Arnaud Masset

Market Brief

G10 Advancers and Decliners vs USD
NZD 0.62
AUD 0.47
CAD 0.29
GBP 0.19
NOK 0.01
SEK -0.13
CHF -0.32
DKK -0.38
EUR -0.38
JPY -1.50
Global Indexes Current Level % Change
Nikkei 225 Index 17518.3 2.8
Hang Seng Index 19632.53 2.27
Shanghai Index 2737.6 3.09
FTSE futures 5942.5 1.09
DAX futures 9735.5 1.16
SMI Futures 8142 0.95
S&P future 1896.4 0.83
Global Indexes Current Level % Change
Gold 1114.7 -0.06
Silver 14.27 0.22
VIX 22.42 -2.99
Crude wti 34.02 2.41
USD Index 98.95 0.44

A few hours after the Japanese Ministry of Internal Affairs released depressing inflation figures, Governor Kuroda took the market by surprise as he announced that the BoJ will adopt negative interest rates, arguing it will stimulate investment and consumption. The market’s reaction did not take long. The Nikkei jumped instantaneously by more than 4% to 17,638 points before collapsing to 16,767 points, to return finally above the 17,500 level. The sharp moves betray the market’s mixed feeling regarding the BoJ decision. Indeed, rumour are spreading that the central bank cut rates because either they realized that the marginal effect of an increase of the QE are very small - and they don’t want to expand their balance sheet further - or they couldn’t find any assets to buy. However, one thing is sure, inflation is still well below the BoJ’s target and showed no sign of picking up. On the FX side it was also rollercoaster session for JPY crosses. USD/JPY jumped from 118.50 to 121.41, then fell to 119.13 before bouncing back again to 120.70. In the end, the Japanese yen fell 1.50% against the greenback, 1.70% against the pound sterling, 1.10% against the euro and 1.15% against the Swiss franc. USD/JPY is currently testing the resistance implied by its 50dma (at 120.33). We expect the JPY to weaken further in the coming days as the negative interest rates will drive investors - the ones who were taking shelter amid the recent risk-off environment - out of yen positions.

Elsewhere, Asian regional markets were almost all trading higher amid the BoJ’s decision. In mainland China, the Shanghai and Shenzhen Composite were up 3.09% and 3.71% respectively, while in Hong Kong the Hang Seng was up 2.27%. In Singapore the STI rose 1.90%, while in Taiwan the TWSE was up 2.22%. European futures are also trading higher with the Footsie up 1.09%, DAX +1.16%, CAC +1.17% and SMI +0.95%. US futures are also wearing green this morning: S&P500 up 0.83%, Nasdaq 0.71% and Dow Jones +1.03%.

Yesterday, another fresh batch of weak economic data were released by the US. Durable goods orders collapsed by an astonishing -5.1%y/y in December, while previous month figures were revised lower from 0.0% to -0.5%. As a result the US dollar moved lower with EUR/USD hitting 1.0968. The dollar index fell to 98.43. However, the greenback recovered overnight amid the BoJ’s decision to bring rates into negative territory.

Today traders will be watching Turkish trade balance; CPI and GDP from Spain; unemployment rate from Norway; CPI from the euro zone; trade balance from South Africa; GDP and industrial price index from Canada; GDP, core PCE, Chicago purchasing manager and personal consumption from the US and Michigan Index.

 

Today's Calendar Estimates Previous Country / GMT
TU Dec Trade Balance -6.00b -4.24b TRY / 08:00
RU janv..22 Money Supply Narrow Def - 8.37t RUB / 08:00
SZ Jan KOF Leading Indicator 96 96,6 CHF / 08:00
SP Jan P CPI EU Harmonised MoM -2,00% -0,40% EUR / 08:00
SP Jan P CPI EU Harmonised YoY -0,10% -0,10% EUR / 08:00
SP Jan P CPI MoM -1,50% -0,30% EUR / 08:00
SP Jan P CPI YoY 0,10% 0,00% EUR / 08:00
SP 4Q P GDP QoQ 0,80% 0,80% EUR / 08:00
SP 4Q P GDP YoY 3,40% 3,40% EUR / 08:00
SW Dec Household Lending YoY 7,30% 7,30% SEK / 08:30
SW Nov Wages Non-Manual Workers YoY - 2,50% SEK / 08:30
EC Dec M3 Money Supply YoY 5,20% 5,10% EUR / 09:00
NO Dec Credit Indicator Growth YoY 5,30% 5,40% NOK / 09:00
NO Dec Retail Sales W/Auto Fuel MoM -0,30% 0,60% NOK / 09:00
NO Jan Unemployment Rate 3,40% 3,00% NOK / 09:00
SP Nov Current Account Balance - 2.4b EUR / 09:00
IT Dec PPI MoM - -0,60% EUR / 09:00
IT Dec PPI YoY - -4,20% EUR / 09:00
NO Feb Norges Bank Daily FX Purchases - -500m NOK / 09:00
EC Jan CPI Estimate YoY 0,40% 0,20% EUR / 10:00
EC Jan A CPI Core YoY 0,90% 0,90% EUR / 10:00
RU janv..29 Key Rate 11,00% 11,00% RUB / 10:30
BZ Dec PPI Manufacturing MoM - 0,05% BRL / 11:00
BZ Dec PPI Manufacturing YoY - 10,44% BRL / 11:00
SA Dec Trade Balance Rand 4.9b 1.8b ZAR / 12:00
SA Dec South Africa Budget 29.70b -21.79b ZAR / 12:00
BZ Dec Net Debt % GDP 35,60% 34,30% BRL / 12:30
BZ Dec Nominal Budget Balance -104.7b -43.1b BRL / 12:30
BZ Dec Primary Budget Balance -65.2b -19.6b BRL / 12:30
US 4Q Employment Cost Index 0,60% 0,60% USD / 13:30
US Dec Advance Goods Trade Balance -$60.000b -$60.500b USD / 13:30
CA Nov GDP MoM 0,30% 0,00% CAD / 13:30
CA Nov GDP YoY 0,20% -0,20% CAD / 13:30
US 4Q A GDP Annualized QoQ 0,80% 2,00% USD / 13:30
CA Dec Industrial Product Price MoM -0,40% -0,20% CAD / 13:30
US 4Q A Personal Consumption 1,80% 3,00% USD / 13:30
CA Dec Raw Materials Price Index MoM -4,00% -4,00% CAD / 13:30
US 4Q A GDP Price Index 0,80% 1,30% USD / 13:30
US 4Q A Core PCE QoQ 1,20% 1,40% USD / 13:30
US Jan ISM Milwaukee 50 48,53 USD / 14:00
US Jan Chicago Purchasing Manager 45,3 42,9 USD / 14:45
US Jan F U. of Mich. Sentiment 93 93,3 USD / 15:00
US Jan F U. of Mich. Current Conditions - 105,1 USD / 15:00
US Jan F U. of Mich. Expectations - 85,7 USD / 15:00
US Jan F U. of Mich. 1 Yr Inflation - 2,40% USD / 15:00
US Jan F U. of Mich. 5-10 Yr Inflation - 2,70% USD / 15:00
PO Bank of Portugal's Costa, Finance Minister Speak on Banif - - EUR / 17:00
US Fed's Williams Gives Forecast Speech in San Francisco - - USD / 20:30
IN Dec Eight Infrastructure Industries - -1,30% INR / 23:00
Currency Tech
EURUSD
R 2: 1.1387
R 1: 1.1095
CURRENT: 1.0894
S 1: 1.0458
S 2: 1.0000

GBPUSD
R 2: 1.5242
R 1: 1.4969
CURRENT: 1.4371
S 1: 1.3657
S 2: 1.3503

USDJPY
R 2: 125.86
R 1: 123.76
CURRENT: 120.75
S 1: 115.57
S 2: 105.23

USDCHF
R 2: 1.0676
R 1: 1.0328
CURRENT: 1.0178
S 1: 0.9786
S 2: 0.9476
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