Spreadex Market Update
JPY Tanks as BOJ Confounds Yen Bulls & Sticks to Easing
Overnight we saw our first big volatility of 2023 in response to the January BOJ meeting. On the back of the recent unexpected announcement that the BOJ had widened the band on its yield curve control target, traders were anticipating a hawkish shift from the BOJ. There was plenty of chatter regarding a possible shift in policy and implied probability in the options markets ahead of the meeting hit record highs for JPY, suggesting the scope for a major move.
However, bulls were left disappointed as the BOJ held policy unchanged and instead announced that it would press ahead with larger bond purchases and be more flexible with duration, in order to keep supporting the economy. JPY was seen plunging across the board (around -2.5% vs USD and EUR) while the Nikkei soared higher.
Key Factors for Today
- USD muted ahead of Retail Sales & PPI data
- Equities see choppy performance amidst mixed US earnings results
- JPY collapses as BOJ sticks to easing – NZD soars on central bank divergence
- GBP boosted by softer inflation last month
- Metals and oil helped by weaker USD
Coming Up
- EUR – Final EZ CPI
- USD – Retail Sales
- USD – PPI
Mixed Performance in Stocks Linked To Earnings
Equities markets saw some mixed action yesterday with the S&P giving up initial gains and the Dow reversing heavily lower, while the Nasdaq continued to push higher. The performance was linked to the latest set of US earnings. Weaker-than-forecast quarterly from Goldman Sachs leaned on the S&P while the Dow was dragged down by poor results from insurance group Travellers Cos Inc. However, the Nasdaq was propped up by better results from Tesla. It wasn’t a bad day all around for financials, however, with Morgan Stanley shares rallying on the back of strong Q4 results.
NZD Soars on Central Bank Expectations
No prizes for guessing currency has been weakest today; JPY has remained firmly lower across the European open on Wednesday. Interestingly, NZD has been the strongest performer so far today with the currency rallying across the board. The RBNZ is among the few central banks still sticking to a firmly hawkish outlook, creating clear policy divergence between itself and other central banks which appears to be keeping NZD supported.
UK Inflation Cools Again
GBP has been stronger today also, boosted by the latest UK CPI data which shows that inflation fell back to 10.5% last month from 10.7% prior. On the back of recent surprise upside in GDP, this data is helping underpin GBP for now.
Metals & Oil Push Higher
In the metals and commodities space, gold and silver are both seeing better demand on Wednesday following losses over yesterday’s session. A weaker US Dollar is encouraging for metals and so traders will be closely watching today’s US data with any fresh declines in USD set to drive metals higher still. Crude futures are pushing higher again today with the market potentially seeing its fifth consecutive day of gains amidst a better risk backdrop and a weaker US Dollar.
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