Ok, so as detailed earlier this morning, the first thing you should note about the overnight session was the action in the loonie and peso following Donald Trump’s decision to avoid ripping apart NAFTA (for the time being).
You can read the full story on that with some additional color from FX trader Mark Cudmore here.
We also got the BoJ, which did nothing as expected.
- BOJ maintains 10-year JGB yield target at about zero percent
- BOJ maintains policy balance rate at -0.100%
- FY2019 core cpi forecast is 1.9%
- FY2018 core cpi forecast is 1.7%
- Bank of japan FY2017 GDP forecast is 1.6%
- FY2018 gdp forecast is 1.3%
It is worth noting that the bank said this in the accompanying statement:
Japan’s economy has been turning toward a moderate expansion
That may not sound like a big deal, but it is. In fact, it’s the first time they’ve used the word “expansion” since March 2008 when the bank said “Japan’s economy is expanding moderately as a trend.”
Following the (non)announcement, the euro was eyeing a six-week high versus the yen.
“The euro is likely to extend its gain against the yen in the near term,” Daisuke Karakama, a market economist at Mizuho Bank Ltd. in Tokyo told Bloomberg, adding that “the BOJ lags the most among the three as the Fed tightens and the ECB mulls tapering.” Ultimately, the yen and Japanese bonds were little changed. “The BOJ downgraded its CPI forecast, while slightly raised the growth forecast, but this drew no surprise from the market,” SMBC Nikko Securities Chief Bond Strategist Hidenori Suezawa noted.
There were of course some hilarious Kuroda quotables. “It’s premature to discuss an exit [because that] would confuse markets,” he said at a briefing. “We’re only halfway to [our] price target and it’s too early to talk of exiting current monetary policy campaign.” Got it.
Meanwhile, the Swedish krona fell against the euro and the dollar after the Riksbank said it will extend its bond-buying program while keeping the repo rate unchanged at a record low of -0.5%. The extension of the asset purchases was a “surprise.”
“The Riksbank’s decision to delay first rate hike and extend bond buying program took economists by surprise,” Bloomberg noted a couple of hours ago. “This makes monetary policy even more expansive,” SEB chief economist Robert Bergqvist said via Twitter. He also retweeted something fun.
Divided (50/50) & dovish Riksbank makes monetary policy EVEN (!) more expansive – sorry but cannot not understand RB thinking right now.
— Robert Bergqvist (@BergqvistRobert) April 27, 2017
Riksbank meeting, summarized in one gif. pic.twitter.com/30tkQNN6Oa
— Adnan Chian (@adnanchian) April 27, 2017
Meanwhile, SEB chief strategist Johan Javeus was also critical: “Riksbank needs to prepare for wave of criticism.” As was Danish economist Lars Christensen:
@riksbanken on the way to make a significant inflationary policy mistake…very surprising that Riksbanken is this aggressive.
— Lars Christensen (@MaMoMVPY) April 27, 2017
“A first rate hike is now far far far far away,” Nordea’s head of research Mikael Sarwe said. “A dovish Riksbank will delay an expected recovery of SEK [even as] all other fundamental factors suggest a stronger krona,” Erica Blomgren, SEB chief strategist in Norway, said.
You get the idea. Here’s Goldman’s less critical take:
Today’s announcements were more dovish than we expected owing to the announcement of further bond purchases, even if small in scale. That said, the revisions to the repo rate path (and growth and inflation) are close in line with our expectations. We therefore maintain our forecast of no further repo rate cuts (we also do not expect further bond purchases beyond what the Riksbank announced today). We continue to expect a first rate hike in early 2018, somewhat ahead of the Riksbank signal of a first hike in mid-2018.
Generally speaking, the dollar was mixed versus G–10 peers although, as noted, gains versus the yen and the Swedish krona were pronounced. Here’s SocGen’s overnight take:
President Trump’s tax plans were laid out in a few bullet-points, which feeds unease about how much of this can really be passed into law by divided Republicans in Congress. So, while plans to cut corporation tax rates, simplify the tax code and encourage repatriation of money from overseas look very positive for the economy on the surface, market participants are holding back their enthusiasm until they see detail of how they will be funded. The one proposal that did more FX markets was that the assurance that NAFTA will survive. That meant that the MXN was the strongest major currency overnight, up by over 1% against the dollar, while the CAD was the strongest of the G10- currencies.
The MXN bounce speaks to the power of carry in this market, as almost half of the sell-off we saw in the previous couple of days has already been recovered. In that kind of a world, shorting the yen still makes sense. The BOJ left policy unchanged, and while they raised their growth outlook they have also lowered the near-term inflation forecast. They’ve also lost control of their currency, which continues to track global bond yields while JGBs are quasi-fixed. The bounce in US and European bond yields since the French election has inevitably slowed but still, a rising yield environment will undermine the yen.
The highlight this morning will be the ECB meeting, though the idea that they will pre-empt the French election outcome and do anything to fuel expectations of near-term unwinding of policy accommodation seems a bit far-fetched. They may acknowledge upside growth risks, but will want to keep policy ion a steady path. EUR/USD, and EUR/JPY may pause today but any pull-back is a chance to buy.
Asian equities were mixed while European stocks are lower ahead of the ECB as Deutsche Bank is getting clubbed after earnings:
- Nikkei down 0.2% to 19,251.87
- Topix down 0.05% to 1,536.67
- Hang Seng Index up 0.5% to 24,698.48
- Shanghai Composite up 0.4% to 3,152.19
- Sensex up 0.01% to 30,135.83
- Australia S&P/ASX 200 up 0.2% to 5,921.48
- Kospi up 0.07% to 2,209.46
- FTSE 7255.09 -33.63 -0.46%
- DAX 12453.02 -19.78 -0.16%
- CAC 5276.52 -11.36 -0.21%
- IBEX 35 10673.10 -90.30 -0.84%
Got all that?
Good. Now cue Draghi and claims.
- 8:30am: Advance Goods Trade Balance, est. $65.2b deficit, prior $64.8b deficit, revised $63.9b deficit
- 8:30am: Wholesale Inventories MoM, est. 0.2%, prior 0.4%
- 8:30am: Retail Inventories MoM, prior 0.4%
- 8:30am: Durable Goods Orders, est. 1.3%, prior 1.8%
- 8:30am: Durables Ex Transportation, est. 0.4%, prior 0.5%
- 8:30am: Cap Goods Orders Nondef Ex Air, est. 0.5%, prior -0.1%
- 8:30am: Cap Goods Ship Nondef Ex Air, est. 0.1%, prior 1.0%
- 8:30am: Initial Jobless Claims, est. 245,000, prior 244,000
- 8:30am: Continuing Claims, est. 2.01m, prior 1.98m
- 9:45am: Bloomberg Consumer Comfort, prior 49.9
- 10am: Pending Home Sales MoM, est. -1.0%, prior 5.5%
- 10am: Pending Home Sales NSA YoY, prior -2.4%
- 11am: Kansas City Fed Manf. Activity, est. 16.5, prior 20