Tip:
Highlight text to annotate it
X
There was an overnight rebound in US stocks, with the DOW up 180.85 points, bringing Asian
markets broadly higher today. The Nikkei rose over 340 points and pared some of this week's
sharp losses. Japanese Yen crosses followed and recovered mildly while Aussie and Kiwi
also strengthened slightly. The Bank of Japan minutes for May 21st-22nd meeting noted a
member thought the difficulty to meet the inflation target within the time frame triggered
speculation on more extreme measures from the central bank and "could cause financial
imbalances". But in response to that, several members argued that the current policy framework
allows the bank of Japan "enough flexibility". Board member Kiuchi proposed to loosen the
target by turning it from a two year target to a medium to long term goal but was voted
down by 8-1. Forecast of the policy makers on core consumer inflation was diverse with
members expecting 0.8% to 2.3% inflation in the year to March 2016. Median forecast was
1.9%. The US Dollar remained soft this week with
the dollar index extending recent decline to as low as 80.59 yesterday before recovering.
The greenback has somewhat decoupled from stocks and yields. The DOW was merely stuck
in range despite recent volatility and is held comfortably above the 55 day EMA so far,
and defended 15,000 on multiple attempts. 10 year yield made another 2013 high earlier
this week. Recent development makes next week's Federal Open Market Committee meeting more
important than usual. Markets are somewhat worried that the Fed will taper the stimulus
program while the economy is not ready for self sustaining growth. Fed Chairman Ben Bernanke
tried to convey the message that winding down the asset purchase doesn't mean a total exit
nor does raising interest rates" but markets have not been listening. The Fed will probably
tweak the accompanying statement next week to adjust market expectations.
In the Eurozone European Central Bank executive board member Mersch said the underlying price
pressure in the Eurozone is "subdued" while recovery is "shallow" with "weak credit dynamics".
And export growth would "benefit from recovery in global demand". He said that a negative
deposit rate may provide additional accommodation "theocratically" but there would be "possible
caveats and unintended side effects" that may "run counter to the central bank's policy-easing
intentions". And, "negative rates are in our bag of tools, but may or may not be deployed
depending on the economic landscape." On the data front, New Zealand business NZ
manufacturing index improved to 59.2 in May. Eurozone CPI final reading in May will be
released in the European session with Q1 employment. The US will release PPI, industrial production
and Michigan sentiment later today.