Central Bank Tightening & BOJ Intervention Set The Tone Into End of September

It was a day of plenty of action across the board in markets yesterday. We saw rate hikes from the three central banks with the SNB, Norges Bank and the BOE each following the Fed to lift rates again this month. Alongside this scheduled action, we also saw huge currency intervention from the BOJ which drove USDJPY lower by over 500 pips on the day. The amount of USD sold by the bank will not be disclosed until September 30th but is expected to be in the billions.

Today sees a ban holiday in Japan so flows are expected to be much quieter in the Yen. However, there is plenty to focus on for traders with a raft of key data (US, UK & EU PMIs) as well as comments from Fed chairman Powell, SNB’s Jordan and two ECB members.

Key Factors for Today

- USD softens following huge BOJ FX intervention
- Equities fall as global recession fears grow on back of further central bank tightening
- SNB, Norges Bank & BOE each hike rates further
- BOE warns UK already in recession
- Metals and oil stabilise near lows

Coming Up

- EUR Eurozone PMIs
- GBP UK PMIs
- USD US PMIs

Equities Markets in the Red on Friday

Equities markets are ending the week with a heavy tone. The latest wave of central bank tightening this week has put fresh focus on global recession fears, underscored by the BOE’s warning that the UK might already be in recession. We’ve seen losses across key indices with most markets starting in the red in Europe today. PMI readings are likely to add to bearish sentiment if further weakness is seen on the back of poor July readings last month.

JPY Leads in FX Following BOJ Intervention

In FX, JPY has been the strongest performer over the European open on Friday. Along with strong safe-haven demand amidst falling global risk assets, JPY has been bolstered by yesterday’s FX intervention from the BOJ. The US Treasury confirmed that it “understood” why the bank had taken the measure, marking the first such intervention from the BOJ since 1989. For now, however, the downside correction in USDJPY has stalled, suggesting perhaps the market isn’t convinced that the BOJ will be able to keep JPY up while holding onto negative rates in Japan.

BOE Hikes Rates, Warns UK Likely in Recession

The BOE was among three central banks hiking rates further yesterday. The central bank hiked rates by the expected 50bps yesterday to 14 year highs of 2.25% while warning that the UK was likely already in recession and projecting further rate hikes as necessary. Traders now turn to the new UK government which sets out its first mini-budget today with markets keen to see what measures the administration will take to tackle the cost of living crisis in the UK alongside the BOE’s aggressive monetary tightening.

Metals & Oil Stabilise

In the metals and commodities space, gold and metals prices were seen broadly unchanged yesterday despite the latest round of central bank tightening and the BOJ’s intervention. Bond yields have been rising on the back of the latest Fed increase this week. However, with equities prices plunging, metals seem to be deriving some support. Oil prices have seen similar action with little movement into the end of the week despite the EIA reporting a smaller than forecast inventories build last week.