Early Morning Call: JPY rally continues as YCC speculation mounts
USD continues to strike new lower lows, USD/JPY closing in on 126.36 May 2022 support, while USD/CNH is at a new six-month low.
Equity market overview
Ther is no real direction in equity markets in Europe this morning, after a mixed session in the APAC region overnight.
US equity and bond markets will be closed today to celebrate Martin Luther King Day.
In Japan, producer price index (PPI) rose at a faster-than-expected pace in December - a 10.2% increase year-on-year (YoY) - following a 9.7% increase the previous month, and higher than the median market forecast for a 9.5% gain. This is another confirmation of the recent growing signs of inflationary pressure that could force the central bank to raise interest rates soon.
Currencies
The yen's rally continues this morning, following a strong week of gains. Over the past few days, speculation around potential further policy tweaks has been mounting. The Bank of Japan (BoJ) surprised the markets about a month ago with its decision to widen the band around its 10-year yield target to 0.5% from previous 0.25%.
Last Friday, the Bank of Japan had to step in with a record amount of bond-buying operations after the benchmark 10-year bond yield cap climbed as high as 0.54%.
The US dollar is down this morning, not only against the yen, but also against all major currencies. Cable trades at a one-month high, EUR/USD is back near the nine-month high set at the end of last week, and the Australian dollar rose for a few hours overnight above the psychologically important level of 70 cents against the greenback.
The recent dollar weakness also benefits gold. The precious metal is now trading comfortably above $1,900, having reached $1,929 earlier this morning, a near nine-month high.
UK retail
It's been a surprisingly good Christmas, on the whole, for the UK retail sector according to the reports we've seen thus far.
Some tading statements to be published this week, starting on Tuesday with Ocado. Marks & Spencer said that it was taking 30% of Ocado’s Christmas spending online.
On Wednesday: WHSmith, Currys, Burberry Group, Just Eat Takeaway.com, and Thursday: Deliveroo, Dunelm and Boohoo.
According to the Times, Marks & Spencer plans to open 20 new stores, which would lead to the creation of 3,400 jobs in the UK. The newspaper says the retailer will open eight "full-line" stores and 12 food halls.
Earnings season
US earnings season officially started last Friday with reports from four of the six main US banks.
US earnings publications will resume tomorrow with Goldman Sachs, Morgan Stanley, and United Airlines.
On Wednesday sees Alcoa reporting, followed on Thursday by Procter & Gamble and Netflix.
Commodities
Oil prices consolidated this morning after the gains recorded during the second half of last week.
Last week, the Baker Hughes total rig count rose by three to 775. The number of oil rigs in operation increased by five to 623.
There is also a pause on the industrial metals market: copper, zinc, and aluminium are trading lower this morning, after last week's strong gains.
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