Article Highlights

  • German PPI m/m: 0.3% vs. 0.1% expected, 0.7% previous
  • German PPI y/y: 0.1% vs. -0.2% expected, -0.4% previous
  • Swiss trade balance: CHF 3.64B vs. CHF 3.56B expected, CHF 2.66B previous
  • Euro Zone current account: €28.4B vs. €24.2B expected, €27.7B previous
  • U.K. CBI realized sales: 35 vs. 20 expected, 26 previous
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Commodities were in retreat during the morning London session, but oil swam against the tide, which is probably why the Loonie managed to win out against its peers. The other comdolls, meanwhile, got bushwhacked.

Major Events/Reports:

BOJ Presser – Forex Gump already has a more condensed write-up, so read it here, if you’re interested on what the BOJ did or did not do during today’s monetary policy decision.

But with regard to the details of Q&A portion of the presser, BOJ Shogun Kuroda was asked to comment on the impact of the yen’s recent slump on inflation. And Kuroda had this to say:

“In general, a weak yen directly pushes up prices through a rise in import costs. In the long run, it also affects prices indirectly through (a narrowing of the) output gap and inflation expectations.”

“We will reflect these market developments and their impact on the economy and price outlook at our next policy meeting. They will be taken into account in our semi-annual outlook report in January.”

Okay, pretty basic stuff that you can read from an economics textbook. The bit about inflation is also reflected on their upgraded forecast for 2016 inflation. However, it is very interesting that Kuroda acknowledges that BOJ officials haven’t fully taken into account the impact of the yen’s decline yet.

Moving on, Kuroda was also asked about raising its 10-year bond yield target above 0% in order to stop the yen’s deterioration. Kuroda replied thus:

“Monetary policy doesn’t target currency rates … It’s possible the divergence in monetary policy directions could affect currency moves. But for now, I don’t see current yen falls as excessive or posing any problem. Current levels are around the same levels seen in February. They aren’t too surprising a level.”

“We are still distant from our 2 percent inflation target. It’s therefore appropriate to continue with powerful monetary easing.”

“It’s absolutely not the case that Japanese government bond yields are allowed to rise in tandem with overseas long-term interest rates, or that (any such rise in Japanese yields) would prompt us to raise our yield targets.”

In short, the BOJ is not yet worried about the yen’s slump. In fact, I bet Kuroda jumps for joy whenever nobody’s is looking. After all, a weaker yen is good for both inflation and Japan’s export-oriented economy. With regard to bond yields, Kuroda is saying that he and his gang ain’t budging from the 0% target, which would make Japanese bonds even less attractive as yield spread widens all the more.

Commodities retreat, oil stands fastMost commodities were in retreat during the morning London session.

Precious metals got whupped.

  • Gold was down by 1.05% to $1,130.70 per troy ounce
  • Silver was down by 2.01% to $15.765 per troy ounce

Base metals were more mixed, but many were already in the red.

  • Copper was down by 0.14% to $2.496 per pound
  • Tin was down by 0.70% to $ 20,975.00 per dry metric ton

As for oil benchmarks, they managed to go against the red flow.

  • U.S. crude oil was up by 0.60% to $53.38 per barrel
  • Brent crude oil was up by 0.82% to $55.37 per barrel

The broad-based commodities slide was likely due to the stronger Greenback, since the USD index was up by 0.52% to 103.61 for the day. A stronger Greenback makes globally-traded commodities, which are usually priced in U.S. dollars, relatively more expensive.

Oil’s resilience, meanwhile, was attributed by market analysts to speculation that U.S. oil inventories will be reporting a large draw tomorrow.

Updates on Italian Banking Crisis – Yesterday, the Italian government requested Parliament to approve a €20 billion loan to assist Italy’s troubled banks, with Reuters reporting that the funds may be used to bail out Monte dei Paschi “as early as this week.”

And today, Bank of Italy Governor Ignazio Visco said that the embattled banks and the Italian government are not the only ones involved when he said this:

“The difficulties of some banks are being handled with the maximum commitment not only by the banks themselves but also by national and European authorities, which are identifying where reasonable and satisfactory solutions are needed within a complex and varied regulatory context.”

Risk appetite gets revived – After a skittish start to the week, signs of risk-taking began to emerge during today’s morning London session. Practically all of the major European equity indices were able to printed moderate gains during the session.

  • The pan-European FTSEurofirst 300 was up by 0.24% to 1,426.08
  • The blue-chip Euro Stoxx 50 was up by 0.50% to 3,272.50
  • Germany’s DAX was up by 0.14% to 11,441.65
  • The U.K.’s FTSE 100 was up by 0.22% to 7,032.30

The risk-on mood also gave U.S. equity futures a lift.

  • S&P 500 futures were up by 0.21% to 2,264.75
  • Nasdaq futures were up by 0.12% to 4,944.62

According to market analysts, the upbeat mood was due to optimism over mergers and other year-end corporate deals, as well as hope that Italy would be able to sort out its banking problem. The risk-on mood was apparently soured a bit by the poor performance of mining shares, thanks to the slide in commodity prices that I mentioned earlier.

Major Market Movers:

CAD – The Loonie was the best-performing currency of the morning London session. There weren’t really any catalysts, but demand for oil during the session likely fueled demand for the Loonie as well.

EUR/CAD was down by 41 pips (-0.30%) to 1.3894, AUD/CAD was down by 35 pips (-0.36%) to 0.9698, NZD/CAD was down by 43 pips (-0.46%) to 0.9239

NZD – The commodities slide likely exerted some bearish pressure on the Aussie and the Kiwi. However, the Kiwi got the worst of it, since it got its butt kicked by ALL its peers. Aside from the broad-based commodities slide, there was no apparent reason for the Kiwi’s weakness. However, it’s possible that we’re also seeing some preemptive activity ahead of today’s dairy auction. Another possibility is that last week’s theme is continuing to play out.

NZD/USD was down by 35 pips (-0.51%) to 0.6886, NZD/JPY was down by 29 pips (-0.35%) to 81.32, NZD/CHF was down by 12 pips (-0.18%) to 0.7102

Watch Out For:

  • 1:30 pm GMT: Canadian wholesale sales (0.5% expected, -1.2% previous)
  • 2:00 pm GMT: CB’s Chinese leading index (0.8% previous)
  • 9:45 pm GMT: New Zealand’s trade balance (-$500M expected, -$846M previous)
  • 9:45 pm GMT: New Zealand’s visitor arrivals (2.2% previous)
  • Dairy auction currently underway (+3.5% previous); auction usually ends at around 2:00 pm GMT

See also:

Asian Session Recap

U.S. Session Recap

Bonnie and Clyde, peanut butter and jelly, Kanye West and Kanye West. Some things just go well together.

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