Market Report:
Japan enters a whirlwind between the BoJ and the Fed.
📈 The BOJ minutes showed a hawkish stance to continue raising rates and strengthen the yen. A few weeks ago we suggested the BOJ may wait for the Fed’s rate decision, reducing the need to hike in Japan. But recent events have pushed the situation to an extreme. Weak US data in recent weeks favored expectations of an imminent Fed rate cut, cheapening the dollar and slightly strengthening the yen. The waiting plan had worked. After this, the BOJ announced its rate hike and commitment to reduce Bonds purchases, further boosting the yen vs dollar. But last friday, very weak US jobs data sank the dollar, appreciating the yen perhaps to unforeseen levels, triggering Japanese stock selling. Unfortunately, Friday’s dollar fall was not accompanied by US stock gains, possibly indicating investors now fear a deeper-than-expected recession.
📉 Related Market:
Japan’s Nikkei and Topix indices fell almost 20% from their all-time highs, marking the greatest three-day falls since the Fukushima nuclear catastrophe in 2011.
🔮 Possible scenario:
Nikkei225 has fallen more than 25% from the highs and has yet to touch the range supports, at 30.000 points.
📉 The bad US data go too far.
The US labour market employment data on Friday led to an exacerbated fall in the dollar. The dollar index definitively lost 104 points of support and has continued to fall even in today’s session close to 102.50 points. Bond yields have plunged, with the 2-year bond currently trading at a yield near 3.75%, levels not seen since the spring of 2023, when US regional banks experienced liquidity problems and generated fears in the markets.
📉 NFP which was expected at 176 K, came in at 114k, much weaker than expected. the unemployment rate, which was expected to remain at 4.1%, having rebounded for 3 consecutive months, rebounded further, this time to 4.3%. factory orders which were expected to contract by -2.7%, plunged by -3.3%. the median income rate, which was expected to fall to 3.7%, fell to 3.6%, indicating further weakness in people’s incomes as well.
📉 There is a possibility that the US economy is deteriorating faster than expected, and, what could be positive in facilitating a rate cut to reduce financing costs in the economy, perhaps shows a worse situation, and is motivating safe havens and sell-offs by investors. Gold reached $2500 on Friday.
📈 Related Market:
In the dollar weakness is lifting pairs like EURUSD again, however Europe also has a very complicated backdrop, worse than the US from an economic point of view. As EURUSD rises to levels near 1.10 or even beyond, 1.1150, large bearish positions could emerge looking for a long term corrective move.
🌍 Geopolitics:
The Philippines and Germany committed to signing a defence cooperation arrangement this year, vowing to uphold rules in the disputed South China Sea. They agreed to establish long-term armed forces relations through expanded training, exchanges and potential armaments cooperation. Is the US forcing its partners to take positions that break away from China’s economy?
🤝 Finland’s president concedes and suggests beginning peace negotiations with Russia. From believing that “peace in Ukraine will only be achieved on the battlefield” to advocating for quick talks between Russia and Ukraine, it took Alexander Stubb two and a half months to change his mind.
🛡 The Pentagon announced it will bolster its military presence in the Middle East by deploying additional warships and fighter jets to protect US personnel and defend Israel amid escalating regional tensions. The moves come after Iran and its allies vowed retaliation for killings of Hamas and Hezbollah commanders that Israel has claimed or not commented on. Discussions were held in Tehran on a potential simultaneous or staggered response from the Iranian-led “axis of resistance.”
🇺🇸 Neo-Con Republican group allies against Trump and endorses Kamala Harris. “There is nothing ‘conservative’ about Trump” – Adam Kizinger. The same person who said “we can destroy Russia and conquer that country in just 3 days.” In the past, Donal Trump claimed that some of these neoconservatives “were obsessed with World War III”.
