The EUR is the strongest and the JPY is the weakest as the North American session begins. The USDJPY is the strongest after the BOJ did not extend the cap to 1.5% on the 10-year JGB yield. They formalized the 1% cap. The move sent the USDJPY back above the 150.00 level on that decision and that run has continued with the pair reaching toward the high from last week at 150.772 (see chart below). The low price yesterday reached down to 148.797 - just short of the 148.738 low from October 17 (see chart below).
Some highlights from the statement from the BOJ:
- Keeps short-term interest rate target at -0.1%
- Keeps 10-year JGB yield target around 0%
- Widens reference range to 1.0% point up and down each around its 10-year JGB yield target vs previous 0.5% point
- Flexibly increase JGB buying, fixed-rate operations and collateral fund-supply operations
- Changes language around 1.0% 10-year JGB yield cap
- Decides to keep yield target but make 1% a reference cap
- Will guide market operations nimbly
- Will regard upper bound of 1% for 10-year JGB yield as reference in its market ops
- Will determine offer rate for fixed-rate JGB buying ops each time, taking account market rates and other factors
- Decides to make YCC more flexible
- Japan's inflation outlook overshooting but due largely to prolonged rises in import costs
- Wages, prices must strengthen in virtuous cycle
- BOJ will patiently continue monetary easing under YCC to support economic activity, create environment where wages rise more
- Appropriate to make YCC more flexible given very high uncertainty over economy, markets
- Strictly capping long-term rate with fixed-rate purchase operation at 1% will have strong positive effects but could also entail large side effects
- As such, boj decided to conduct YCC mainly through large-scale JGB buying and nimble market operations
- BOJ makes no change to its forward guidance
The CPI was raised over the next 3 years. The new expectations show:
- Board's core CPI fiscal 2023 median forecast at +2.8% vs +2.5% in July
- Board's core CPI fiscal 2024 median forecast at +2.8% vs +1.9% in July
- Board's core CPI fiscal 2025 median forecast at +1.7% vs +1.6% in July
The GDP forecasts were mixed:
- Board's real GDP fiscal 2023 median forecast at +2.0% vs +1.3% in July
- Board's real GDP fiscal 2024 median forecast at +1.0% vs +1.2% in July
- Board's real GDP fiscal 2025 median forecast at +1.0% vs +1.0% in July
Meanwhile, the Federal Open Market Committee is starting a two-day meeting, with the Fed expected tomaintain the current Fed funds target rate of 5.25% to 5.5%. Investors will closely watch the accompanying policy statement and comments from Fed Chair Jerome Powell for insights into future interest rate decisions. Powell has highlighted uncertainties related to inflation and the potential economic impact of policy changes. Other factors such as rising U.S. Treasury yields, strong economic data, and geopolitical tensions in the Middle East add complexity to the central bank's decisions.
In China overnight, manufacturing activity unexpectedly shrank in October, with the manufacturing purchasing managers' index (PMI) reading 49.5, indicating contraction and disappointing expectations of steady growth. This development raises concerns about the world's second-largest economy's recovery. China's manufacturing PMI has contracted in six of the ten months in 2023, posing challenges for Chinese officials trying to boost the post-COVID recovery.
- A snapshot of the markets as the NA session gets underway shows:
- Crude oil is trading up $0.59 or 0.72% at $82.90
- Spot gold is trading up $4 or 0.20% at $199.65
- Spot silver is trading down $0.04 or -0.17% at $23.25
- Bitcoin is trading at $34,525
In the US stock market, the major indices are trading modestly higher to the gains yesterday
- Dow Industrial Average futures are implying a gain of 67 points. Yesterday, the index rose 511.37 points or 1.58%
- S&P index futures are implying a gain of 10.10 points. Yesterday, the index rose 49.47 points or 1.20%
- NASDAQ futures are implying a gain of 16.25 points. Yesterday, the index rose 146.47 points or 1.16%
In the European equity markets, the major indices are trading higher
- German DAX, 0.58%
- France's CAC, 1.04%
- UK's FTSE 100, 0.52%
- Spain's Ibex, 0.56%
- Italy's FTSE MIB, 1.62% (10 minute delay)
In the Asia Pacific market, major indices were lower:
- Japan's Nikkei index, 0.53%.
- China's Shanghai Composite Index, -0.09%.
- Hong Kong's Hang Seng index, -1.69%.
- Australia's S&P/ASX index, +0.12%.
In the US debt market, yields are moving marginally higher:
- US 2Y T-NOTE: 5.024% -1.4 basis points
- US 5Y T-NOTE: 4.763% -4.1 basis points
- US 10Y T-NOTE: 4.822% -5.5 basis points
- US 30Y BOND: 4.974% -6.1 basis points
- 2 – 10-year spread is at -20.5 basis points
- 2 – 30 year spread is at -4.9 basis points
In the European debt market, benchmark 10-year yields are little changed:
