Month: March 2016

Bank of Japan keeps monetary policy steady

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Japan’s central bank kept its powder dry at its March policy review on Tuesday, with economists only expecting further stimulus in July as the central bank waits to assess the impact of its uncharted entry into negative interest rates.

After a two-day monetary policy meeting that began on Monday, the Bank of Japan (BOJ) maintained its commitment to raise the monetary base by 80 trillion yen annually and left the rate it charges commercial banks on certain reserves at 0.1 percent.

The benchmark Nikkei stock index traded down 0.4 percent following the decision, while the yen was little changed at 113 per dollar.

If needed, additional easing steps will be taken to hit 2 percent inflation, the BOJ said, adding that it will review the ratio of reserves for which negative interest rates are applied every three months.

Money reserve funds (MRFs) will be excluded from the negative rate, the BOJ said. Instead, a zero rate will be applied to MRFs starting in May.

Before Tuesday’s market open, the Nikkei business daily reported that the central bank was looking to downgrade its assessment of a moderate economic recovery. At Tuesday’s meeting, the BOJ said the economy remained in a gradual recovery, attributing recent weakness in exports and output due to a slowdown in emerging markets.

The central bank also said it will monitor the impact of recent financial market ructions on business confidence, warning it could delay a transition from Japan’s decades-old deflationary mindset.

The BOJ blindsided global markets on January 29 by unexpectedly announcing it will apply a negative rate to some excess reserves that financial institutional place at the bank, following the Swiss National Bank and the European Central Bank in effectively charging depositors for the privilege of parking their spare cash.

The BOJ’s move raised two-fold concerns. One, central banks may compete to lower rates deeper into negative territory, sparking a tit-for-tat currency devaluation fight. Secondly, negative rates could weigh on bank profits.

While Japan’s depressed economy may warrant more stimulus at present as core consumer prices are still well below the BOJ’s 2 percent inflation target, the central bank isn’t likely to move until July, according to most analysts.

“The NIRP [Negative Interest Rate Policy] component of the current policy only took effect in mid-February, and we believe the BOJ would prefer to take some time to monitor how negative rates affect the behavior of financial institutions and the real economy,” Barclays said in a recent note.

“Further rate cuts could be more effective if the effects from the initial cuts to negative territory are demonstrated first, especially amid growing doubts about the effectiveness of monetary policy globally.”

Moreover, recent market volatility doesn’t support the case for lowered rates.

“The perverse and unintended yen surge post-negative rates alongside Nikkei sell-off led by banking stocks, (ostensibly triggered by negative interest rate worries) tighten overall monetary conditions and accentuate downside all else equal. So the case to further negative rates at this point is flimsy, if not risque. What’s more, even tweaks to the policy could benefit from more considered options,” said Vishnu Varathan, senior economist at Mizuho Bank.

Like Barclays, he’s also betting on more easing during the second quarter.

Societe Generale estimates the overall probability of more stimulus in 2016 to have increased to 30 percent, from 10 percent previously.

Another factor supporting the case for delayed stimulus is the closely-watched Upper House parliamentary elections in July. If Prime Minister Shinzo Abe’s ruling party can win a two-thirds majority, he will be able to implement key reforms, including plans to boost the number of women in the workforce and a revision of the pacifist Constitution.

Until July, the BOJ may aim for flexible fiscal policy, the second arrow of Abenomics, opting only to cut rates after the election, Barclays noted.

“The BOJ is also experiencing significant backlash because of the anger and frustration that it [negative rates] has caused for the public, flagged Kathy Lien, managing director of FX strategy at BK Asset Management, referring to recent reports by The Wall Street Journal of senior citizens buying safes to hoard cash amid fears that commercial banks may soon charge them interest on deposits.

“While Japan needs another round of stimulus, the earliest that we could see more easing from the BOJ is July,” Lien said.

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Asia shares mixed; Nikkei flat, Kospi up 0.2%, ASX down 0.5%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asia markets were mixed Tuesday, tracking US equities’ performance overnight, with some analysts saying traders are turning more cautious and hesitant after the recent market rally.

The Nikkei 225 was flat in early trade, wavering between positive and negative territories. In South Korea, the Kospi added 0.17 percent.

The Australian S&P/ASX 200 index was lower by 0.49 percent in early trade, weighed by losses in the energy subindex, which fell 1.53 percent, and the financials subindex, which was 0.56 percent lower.

Rodrigo Catril, a currency strategist for fixed income, currencies and commodities at the National Australia Bank, said in a note Tuesday that recent trading suggest markets have turned to a more “cautiously optimistic mode,” following the delayed upward reaction to the European Central Bank’s fresh stimulus last week.

Catril said while Asia and European equities extended their gains on Monday, US stocks reflected “a more hesitant mood.”

“This cautious mode has…been reflected in currencies with the safe haven Japanese yen the only (small) outperformer against the US dollar,” he wrote.

In the currency market, the Japanese yen remained at the 113 handle against the dollar, ahead of the Bank of Japan’s (BOJ) monetary policy decision due later in the day. The dollar/yen pair traded at 113.80 in early morning trade.

Japanese exporters traded mixed, with Toyota and Nissan losing 0.29 and 1.03 percent, respectively. Electronics maker Sony added 0.2 percent. A strong yen is usually a negative for exporters as it reduces their overseas profits when converted into local currency.

Down Under, the Australian dollar/US dollar pair traded up 0.16 percent at 0.7525 as of 8:30 a.m. HK/SIN time.

Evan Lucas, market strategist at IG, said in a morning note that one reason the Australian dollar (AUD) is seeing strength is on a carry trade, given the country’s AAA sovereign ratings, the relatively good shape of its budget and better bond yields compared with its peers. Carry trades seek to profit from expectations of better yields and potential appreciation in a different currency.

Other reasons for the Australian dollar’s rise include the rebound in commodity prices in recent weeks, the Reserve Bank of Australia’s (RBA) decision to keep the cash rate at 2 percent on February 29 and China’s heavy spending on materials and infrastructure, which makes “the quasi-China currency in the Australian dollar hot property,” Lucas said. China is among Australia’s largest trading partners, providing a large market for its resources exports.

Down Under, the Reserve Bank of Australia’s March meeting minutes were released, with the central bank saying there were “reasonable prospects” for continued economic growth, Reuters reported.

Australian resources producers were lower, with shares of Rio Tinto falling 0.94 percent, BHP Billiton down 0.45 percent and South32 shedding 3.48 percent.

Commodity prices retreated overnight. Copper futures on the London Metal Exchange (LME) fell 0.5 percent, while three-month aluminium shed 1.2 percent and three-month nickel was lower by 2.5 percent. Iron ore was down to USD 55.50 a tonne, after moving past the USD 60-mark last week.

Oil prices advanced during Asian hours, after retreating overnight on renewed concerns about oversupply. U.S. crude futures were up 0.38 percent at USD 37.32 a barrel, following a decline of 3.4 percent during US hours. Global benchmark Brent was up 0.3 percent at USD 39.65 a barrel, after finishing lower by 2 percent overnight.

Reuters reported that a poll of analysts showed crude inventories across the US likely hit record highs for a fifth straight week last week, forecasting a rise of 3.3 million barrels.

Energy plays in Asia were mostly lower, with Santos down 1.38 percent, Woodside Petroleum off by 1.79 percent and Japan’s Inpex down 0.98 percent.

In corporate news, the Japanese Nikkei newspaper reported that Toshiba is in a late-stage negotiations with Chinese household appliance giant Midea Group to sell its white goods business.

Toshiba is looking to offload the majority of shares in its fully-owned subsidiary Toshiba Lifestyle Products & Services by this summer to Midea, the Nikkei reported, adding the deal is expected to bring tens of billions of yen.

Shares of Toshiba were up 1.03 percent.

Overnight, major US indexes closed mixed, with the Dow Jones industrial average flat, the S&P 500 lower by 0.13 percent and the Nasdaq composite flat.

In central bank watch, the BOJ will wrap up its two-day policy meeting; most market watchers expect the central bank to stand pat on rates today. In the US, the Federal Open Market Committee begins its two-day meeting.

On the data front, China’s foreign direct invest numbers for February are due.

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Central banks will create global socialism: Marc Faber

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asia stocks higher, Nikkei up 1.3%, Kospi rises 0.2%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Fed, BOJ in the spotlight but no fireworks expected

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US stocks surge more than 1% to post 4-week win streak

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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U.S. stocks closed sharply higher Friday as oil prices rose and investors took a more positive view of Thursday’s European Central Bank announcements on stimulus.

“The monetary policy tools we believe are effective are being expanded and the monetary policy tools we don’t believe to work are being limited,” said Art Hogan, chief market strategist at Wunderlich Securities.

Also supporting gains in stocks was a rise in oil following the International Energy Agency’s report that said oil might have bottomed. Baker Hughes data showed U.S. rigs declined by six.

U.S. crude oil futures settled up 66 cents, or 1.74 percent, at $38.50 a barrel.

The major U.S. averages rallied more than 1 percent to swing into positive territory for the week, their fourth-straight week of gains since November.

Both the Dow and S&P 500 ended at their highest since intraday trade on Jan. 4, the first trading day of the year. As of Friday’s close, the indexes were just about 1 percent lower year-to-date.

The S&P 500 gained 1.6 percent to top the psychologically key 2,000 level and close above its 200-day moving average for the first time since Dec. 30.

“2,000 — that’s a level that has a certain magical quality about it,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “There’s significant overhead resistance at 2,020 – 2,050.”

The Dow Jones industrial average closed about 218 points higher, also above its 200-day moving average for the first time since Dec. 30.

“The reason not to buy is less. There’s much more reason to participate now especially as the market grinds higher,” said Jeremy Klein, chief market strategist at FBN Securities.

Concerns about China were also alleviated by the yuan’s strongest midpoint fix against the dollar for the year so far. The PBOC set the peg at 6.4905 against the dollar on Friday, after the greenback’s drop Thursday following the ECB stimulus announcements. The yuan’s 0.34 percent move from the prior day’s fix was the largest daily strengthening since November, according to StreetAccount.

“That obviously’s been a bit helpful, the stabilization in the currency,” said Peter Coleman, head trader at Convergex.

U.S. stocks closed mostly lower Thursday, under pressure from low oil prices and concerns about the effectiveness of monetary policy following the morning’s announcements from the European Central Bank. The S&P 500 did manage to squeeze out a gain of less than one point.

On Thursday, the euro reversed an initial decline to hit its highest against the U.S. dollar in nearly a month after ECB President Mario Draghi surprised markets by saying he didn’t anticipate a need to reduce rates further, although new facts can change the situation and the outlook.

“I think the reaction was a little bit rash and quick after all the information that came out yesterday,” Coleman said.

“I think the fact that our markets rallied and stabilized a bit helped sentiment overseas. You got all the key risk-on factors up today,” he said.

Gold futures for April delivery settled down $13.40 at $1,259.40 an ounce, while Treasury yields rose. The 2-year yield was 0.94 and the 10-year yield was around 1.98 percent.

The U.S. dollar index held a touch higher, with the euro near $1.115 and the yen at 113.77 yen against the greenback.

“I think with oil and rethinking (ECB President) Mario Draghi’s powerful message that he sent to the markets, because he did do more than we were expecting … I think that rethinking of the actions is going to lead the market higher along with higher oil prices,” said Peter Cardillo, chief market economist at First Standard Financial.

However, skepticism on the sustainability of the recent rally remained.

BTIG Chief Technical Strategist Katie Stockton said in a note that indicators show that Friday’s rally “will likely fail and give way to a loss of short-term momentum.”

“Yesterday, the SPX registered an overbought “sell” signal intraday, although a relatively strong close prevented it from being confirmed. An outside-down day was narrowly avoided, as well, but the same cannot be said for the other major indices. The NASDAQ Composite Index and Russell 2000 Index both have overbought “sell” signals and outside-down days that support a broad-based pullback in the next two weeks,” she said.

In U.S. economic news, February import prices declined 0.3 percent, while export prices fell 0.4 percent.

European stocks closed sharply higher Friday, with the German DAX up 3.51 percent.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why the worst is not necessarily over for oil: IEA

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asia markets lower; Nikkei off 1.2%, ASX down 0.5%, Kospi flat

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asia traded lower Friday morning, following a weaker finish on Wall Street overnight and as traders digest the European Central Bank’s (ECB) stimulus announcements.

The Japanese benchmark Nikkei 225 was lower by 1.15 percent and the Topix was off 0.94 percent. Australia’s S&P/ASX 200 was lower by 0.51 percent and South Korea’s Kospi was flat.

Overnight, the ECB delivered a surprise package of measures to kick start Europe’s economy by cutting its main interest rates and expanding its massive bond-buying program.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Will ‘super Mario’ deliver? High hopes for robust ECB easing

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow