BOJ sticks with its yield control - Financial Daily News Site

BOJ sticks with its yield control

Notes/Observations

– Risk aversion takes a short break as sentiment continues to pivot around inflation and growth concerns.

– EU Finance Ministers meet (EcoFin) and trying to get an agreement on the elusive global minimum tax.

– BOJ defies speculation it would follow its global peers and move toward tightening; no plans to raise ceiling on 10-year yield range.

– In general, Asia closed mixed, with the Hang Seng outperforming at +1.2%. Europe begins in the green +0.75-1.75%. EU bond yields are lower and US futures point to the upside 0.5-1.0%. Elsewhere Elsewhere Gold +0.2%, BTC -3.5%, ETH -3.0%, DXY +0.7%, Brent +0.9%, WTI +1.0%.

– Red flag inflationary affects were flashing across the corporate world as major UK grocery chain Tesco sees signs of changing customer behavior, specifically in a reduction of pasta and bread sales. Showcasing a potential connection to the wheat and grain shortage. In China, Tesla increased the price of Model Y’s by CNY19.0K, following their earlier announcement of increasing some models by $6K in the US.

– From the UK, London’s Gatwick airport is cancelling hundreds of flights over staff shortages, representing an ongoing aviation issue of being unprepared for the post pandemic travel boom.

– Positive Covid indications out of Beijing as an official said that spreading risks have declined from the recent bar outbreak.

– In summary, no significant macro changes this morning to the high inflation and stunted growth environment, with trading focus on the BOJ and Yen movements.

Asia

– BOJ left leave Interest Rate on Excess Reserves (IOER) unchanged at -0.10% and maintained Yield Control (YCC) around 0.00%. Maintained to conduct fixed rate operation of 10-year JGBS at 0.25% every business day, unless it was very likely no bids would be submitted.

– Japan MOF reappointed Kanda as vice finance minister for international affairs (country’s top currency diplomat).

Europe

– ECB chief Lagarde told the Eurogroup ministers that ECB planned to put limit on bond spreads; Crisis tool would address irrational moves and would kick in if spreads go too far, too fast.

Energy

– Russia’s state-owned gas Gazprom halted deliveries via the Nord Stream pipeline to Germany this week blaming missing turbine parts that were stuck in Canada due to sanctions.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 +1.04% at 407.06, FTSE +0.67% at 7,092.42, DAX +0.98% at 13,166.63, CAC-40 +0.77% at 5,931.60, IBEX-35 +0.73% at 8,136.85, FTSE MIB +1.37% at 22,025.00, SMI +0.76% at 10,554.56, S&P 500 Futures +0.87%].

Market Focal Points/Key Themes: European indices open generally higher and advanced as the session progressed; sectors among those leading to the upside are real estate and consumer discretionary; lagging sectors include materials and energy; oil & gas subsector supported as Brent close to $120/bbl; M&C Saatchi no longer recommends Next Fifteen’s offer; reportedly AstraZeneca considering offer for Mereo BioPharma; no major earnings expected in the upcoming US session.

Equities

Consumer discretionary: Nokian Renkaat [TYRES.FI] +8% (raises outlook).

Consumer staples: AB InBev [ABI.BE] +1% (CFO interview), Tesco [TSCO.UK] -0.5% (sales; comments on consumer behavior).

Healthcare: Addex Therapeutics [ADXN.CH] -18% (terminates study).

Technology: Future plc [FUTR.UK] +5% (trading update), M&C Saatchi [SAA.UK] -3% (does not recommend offer).

Speakers

ECB’s Knot (Netherlands, hawk) stated that if inflation worsened then several 50 bps hikes were possible.

France Fin Min Le Maire stated ahead of the EcoFin meeting that high inflation was the biggest short-term challenge. Still aimed for an agreement on minimum tax during EU presidency.

Hungary Chief of Staff Gulyas stated that Hungary to oppose global minimum tax at EU finance minister meeting.

Russia Dep Energy Min Sorokin: Russia might delay launch of new LNG projects by 1-2 years. Believed it could take 15-20 of global LNG market.

BOJ Gov Kuroda post rate decision press conference stated that it would stick with its YCC until inflation target was achieved; would not hesitate to ease further if needed.

Thailand Finance Ministry said to consider cutting GDP growth forecast citing oil prices and inflation.

India Central Bank (RBI) Gov Das reiterated stance that priority was addressing inflation; actions calibrated to bring CPI back to target.

India chief economic adviser Nageswaran: Important to ensure macro stability rather than growth.

China Politburo said to reiterate its stance to urge the prevention of financial risks, boosting reforms.

Currencies/Fixed income

– USD tried to regain some composures after some post-Fed decision weakness and softer US economic data.

– GBP/USD hovering around the 1.23 level after the initial disappointment of a 25bps BOE rate hike on Thursday. Dealers later concluded that BOE would continue to lift rates and could hike further yesterday in a marginally more convincing manner.

– EUR/USD drifted away from its Asian session highs of 1.0560 to re-approach the 1.0500 area. Dealers noted that ECB to remain vague on fragmentation criteria and specific yield spread levels that justify interventions.

– JPY currency was weaker after BOJ Gov Kuroda stress it had no plan to raise ceiling on 10-year yield range. BOJ continued to defy an intensifying global wave of central bank tightening from higher inflation pressures. USDJPY around 134.35 by mid-session.

Economic data

– (AT) Austria May Final CPI M/M: 0.8% v 1.1% prelim; Y/Y: 7.7% v 8.0% prelim.

– (TR) Turkey Central Bank TCMB June Inflation Expectation Survey: Next 12 Months: 37.9 v 33.3% prior.

– (CN) Weekly Shanghai copper inventories (SHFE): 55.2K v 51.5K tons prior.

– (RU) Russia Narrow Money Supply w/e June 10th (RUB): 14.29T v 14.16T prior.

– (HK) Hong Kong May Unemployment Rate: 5.1% v 5.0%e.

(EU) Euro Zone May Final CPI Y/Y: 8.1% v 8.1% advance (record high); CPI Core Y/Y: 3.8% v 3.8% advance; CPI M/M: 0.8% v 0.8% advance.

– (IT) Italy Apr Total Trade Balance: -€3.7B v -€0.1B prior; Trade Balance EU: -€1.0B v +€0.4B prior.

– (CY) Cyprus May CPI EU Harmonized M/M: 0.6% v 3.1% prior; Y/Y: 8.8% v 8.6% prior.

Fixed income issuance

– (IN) India sold total INR320B vs. INR320B indicated in 2027, 2034, 2036 and 2051 bonds.

Looking ahead

– (ES) ECB’s De Guindos (Spain).

– 05:25 (EU) Daily ECB Liquidity Stats.

– 05:30 (ZA) South Africa to sell combined ZAR1.2B in I/L 2033, 2038 and 2050 Bonds.

– 06:00 (PT) Portugal May PPI M/M: No est v 0.0% prior; Y/Y: No est v 24.6% prior.

– 06:00 (UK) DMO to sell £2.5B in 1-month, 3-month and 6-month bills (£0.5B, £1.0B and £1.0B respectively).

– 06:45 (US) Daily Libor Fixing.

– 07:30 (IN) India Weekly Forex Reserve w/e Jun 10th: No est v $601.1B prior.

– 08:00 (UK) Daily Baltic Dry Bulk Index.

– 08:00 (PL) Poland May CPI Core M/M: 1.1%e v 1.3% prior; Y/Y: 8.5%e v 7.7% prior.

– 08:30 (CA) Canada May Teranet House Price Index M/M: No est v 2.0% prior; Y/Y: No est v 18.8% prior.

– 08:30 (CA) Canada Apr Int’l Securities Transactions (CAD): No est v 46.9B prior.

– 08:30 (CA) Canada May Industrial Product Price M/M: 0.1%e v 0.8% prior; Raw Materials Price Index M/M: No est v -2.0% prior.

– 08:45 (US) Fed Chair Powell.

– 09:15 (US) May Industrial Production M/M: 0.4%e v 1.1% prior; Capacity Utilization: 79.2%e v 79.0% prior; Manufacturing Production: 0.3%e v 0.8% prior.

– 10:00 (US) May Leading Index: -0.4%e v -0.3% prior.

– 10:30 (UK) BOE Pill (chief economist).

– 11:00 (CO) Colombia Apr Trade Balance: -$0.4Be v -$1.5B prior; Total Imports: No est v $7.1B prior.

– 11:00 (EU) Potential sovereign ratings after European close.

– 12:00 (CO) Colombia Apr Economic Activity Index (Monthly GDP) Y/Y: 9.6%e v 7.6% prior.

– 12:00 (RU) Russia Q1 Preliminary GDP (2nd reading) Y/Y: 3.5%e v 3.5% advance.

-13:00 (US) Weekly Baker Hughes Rig Count.

Tags: #BOJ #sticks #yield #control

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