BoJ Stays the Course

Equities Performing Well 

Stocks are a bit firmer this morning after a mainly upbeat session on Wall Street and gains for the Nikkei overnight on continued Bank of Japan dovishness. The DAX added a quarter of a percent after easing back on Monday by 0.6%, whilst the FTSE 100 added a third of a percent to yesterday’s 0.5% rally. The Dow Jones Industrial Average touched a fresh record high, hitting 37,393.45 for the first time but ended the session flat as Apple shares fell on news it would halt Watch sales. Yields were a bit firmer as Chicago Federal Reserve President Austan Goolsbee added to the rate-cut-narrative pushback began by NY Fed president John Williams on Friday. But the market isn’t really listening to this – the S&P 500 rallied another half a percent and the Nasdaq composite climbed 0.62% to 14,905.

BoJ Still Dovish 

USDJPY extended its rally as yen bulls were left disappointed by yet more dovishness from the Bank of Japan. The BoJ was unchanged with policy and said they’re not in a rush to raise rates until the spring wage negotiations. Governor Ueda said “it is difficult to present a firm picture on exit (from ultra easy policy)" and that they "don't have a detailed picture on what steps and the order of it when it comes to exiting negative interest rates".  If you fancy a festive surprise though, Kuroda is due to deliver a speech on Christmas Eve to Japan’s Keidanren business lobby group. And today he say said that, generally speaking, policy change could involve an element of surprise.  

Oil Up; Risks Not Getting Priced? 

Oil prices surged 4-5% to settle a two-week high. Impairment of shipping routes in the Middle East sent oil prices higher as BP and said they will pause transit through the Red Sea amid heightened fears of attacks on vessels. The region amounts to almost 9m bpd of daily oil transit and a huge amount of cargo transit. Markets had kinda discounted the risk of escalation in the Middle East but this is certainly evidence that oil traders should always be vigilant to geopolitical risk premia.  

Oil Rally Due a Slip? 

Nevertheless, the futures curve remain in contango, which suggests the physical market remains amply supplied for now. Watch for this to flip into backwardation to indicate stress about delivery schedules. Despite the rally oil, which had been down more than a fifth since the middle of October, is still off by ~17% since then. News of a US-led taskforce helped to settle some nerves and oil is a bit lower this morning.  

Inflation and the Fed 

Eurozone inflation is expected to be confirmed at 2.4% in November later today, which would represent a 0.5% monthly decline. Elsewhere, we hear from Fed members Bostic, Barkin and Goolsbee.