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Japanese yen surges on BoJ comments as markets watch U.S. PCE data

 

Asian equities gain ahead of U.S. inflation report 

Broad-based gains for Asian equities overnight ahead of the US inflation report fed through to a more positive session for Europe at the open ahead of some key inflation data later. Wall Street closed lower on the session as fourth-quarter US GDP annualised growth was revised down from 3.3% to 3.2%.  

Yesterday saw more divergence in Europe as the DAX index added a quarter of a per cent, whilst the FTSE 100 declined by three-quarters of a per cent. Ocado rallied 6% but it’s still a case of jam tomorrow; shares -30% YTD. IAG barely moved despite doubling profits to €3.5bn. 

 US PCE inflation is the key data point today and has the potential to move market expectations. Core PCE (the Fed’s preferred gauge of inflation) is set to rise 0.4% MoM and 2.8% YoY in January. Slowing disinflation should help push out bets for interest rate cuts beyond May more firmly — quite frankly, I find it hard to buy into a May cut anymore. 

Catherine Mann says “lack of consumer discipline” harming BoE inflation policy 

Bank of England policymaker Catherine Mann, a hawk, said a “lack of consumer discipline” from wealthier people was harming efforts to contain inflation. This is super interesting, as it points to the problems in the transmission of monetary policy due to the structure of the mortgage market and the fact that so many consumers – i.e. those with money to consume more stuff – don’t have a mortgage, so raising rates has little impact on them. 

Too many boomers with too much cash! Force them to downsize! Force them to hand over their wealth to their kids! Seriously — this points to the very real cleavage between the haves and have-nots – or rather the have-house and have-no-house. 

 Japanese yen jumps on BoJ comments 

Eyes on the Bank of Japan with board member Hajime Takata suggesting it’s time for the central bank to exit its ultra-loose monetary policy: 

“We have reached a point where attainment of the 2% price stability target is finally in sight… It is necessary to consider shifting gears from extremely powerful monetary easing…  Japan is at an inflexion point”.  

There is definitely a sense that they are moving towards the exit door. It produced a very strong reaction in the currency markets as the yen rallied strongly against peers; USD to JPY pushing hard towards the 21-day EMA. Cue the usual response from Japan's finance ministry: “We’re watching currency moves with a strong sense of urgency and ready to respond appropriately”. 

  
USD to JPY

  

French inflation today was a bit higher than expected, though at its lowest level in more than two years, just helping to lift the euro above its 200-day line this morning. 

  
French inflation

  

Oil bulls rejected the move clear of the 50% retracement, but the 200-day line is now solid support. WTI futures ran higher to break free from the 200-day line and our 50% retracement level to nudge its best in three months but broke down on some mixed inventory data. 

  
Oil bull

  

Bitcoin extended its parabolic rally to break above $63,000 and is set for its best month since June 2020. Huge momentum here could see an attempt to break $69,000 before we see a proper consolidation. But it was not all plain sailing – Coinbase temporarily crashed as Bitcoin touched $64k and promptly fell $4k on the outage before recovering its posture. 

  
Bitcoin

  

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