This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Governor Kuroda remained sanguine about inflation. In the post-decision press conference, he said that consumer inflation is expected to reach the target of 2% in the first half of FY2016.
However, he acknowledged that the timing of reaching the target is still contingent on oil prices. In the near term, the BOJ expects the rate of change in the CPI to remain flat, due to lower energy prices. As a whole, he pledged to continue QQE policy until the inflation is stable at 2%, adding that the central bank will not hesitate to ease policy further if necessary.
BOJ’s easing bias is the main reason why the Japanese yen is oscillating around the 120 handle in the past three weeks since the sharp drop from around 125 in mid-August. Market participants are contemplating the possibility of an expansion to the QQE programme, especially after Liberal Democratic Party (LDP) MP and advisor to PM Abe, Kozo Yamamoto remarked that the BOJ should increase the pace by another ¥10 trillion.
With weak risk sentiments, and a relatively stronger yen, Japanese equities have few incentives to rally. The Nikkei 225 struggled to preserve its grip on the 18,000 level, trimming early gains to close at +0.34%. Good gains in the consumer sector helped to offset losses in the financial and telecommunication industries.
China erases gains from last week
It seemed that support for Chinese shares remains flimsy, amid falling trading volume. The Shanghai Composite Index (SHCOMP) fell 3.5% today, closing near the key 3000 level, and erasing the 1.3% gain from last week. The lack of buying demand can be partially traced to the significant pullback in margin financing. Margin debt fell to the lowest in the year, falling over 55% since the June peak. Weakness in the Chinese economy, as reflected in the soft macro data, also kept investors on the side-lines. The challenge for the Chinese authorities remains a juggling act between pressing on with several reforms (financial, SOE, etc) and supporting the stock market, as well as stabilising the yuan.
Singapore stocks remain sluggish
The STI broke below 2850 earlier on and remained capped below the level for much of the session. The lower Chinese market and sluggish trading in the European open dented local investors’ appetite for risk. The heavy-weight financial sector has been one of the worst performers, dropping 0.8, alongside an over 1% decline in the industrials category. Weak global sentiments continued to be the key factor driving down Singapore stocks. Meanwhile, the Singapore dollar strengthened as banks and leveraged entities reduced exposure in the greenback ahead of the FOMC decision. Sell stops below $1.4050 were triggered, which pushed USD/SGD to around $1.40. According to the futures markets, there is about one-in-three chance of a Fed rate hike on Thursday.
*For more timely quips, you may wish to follow me on twitter at https://twitter.com/BernardAw_IG