In focus today
Today, euro area final HICP data for November will be released. With all the details out, it will be interesting to see what drove the downtick in inflation in November.
In the US, we will get housing starts and building permits for November.
On the central bank front, we have a few ECB speakers and Fed’s Bostic on the wires today.
Following today’s BoJ decision, we will get Japanese trade data overnight.
Also, overnight, China will announce 1-year and 5-year loan rates but no changes are expected at this point.
The 60 second overview
BoJ: The Bank of Japan kept its quantitative and qualitative easing with yield curve control policy unchanged this morning as expected. The policy rate stays at -0.1% and the 10-year yield target around 0, with the upper bound of 1.0 percent as a reference rate. The bank offers no clues on plans for tightening in 2024 and even kept the pledge to “not hesitate to take additional easing measures if necessary”. USD/JPY took a leg higher on the decision as it traded back above 143, but the yen remains off the very weak levels from November. We continue to look for the April meeting as the most likely timing for the next move from the BoJ but the January meeting could also be interesting. Dismantling YCC and hiking the policy rate out of negative will be on the agenda if wages accelerate in the spring as expected.
Red Sea: The attacks by Houthi rebels on vessels passing through the Red Sea continue to induce shipping companies to pull out of the region. Yesterday, energy prices rose following BP’s decision to bypass the waters due to security risks. According to shipping data compiled by Bloomberg, transportation activity through the Red Sea has dropped 35% since the beginning of December. As about 10-15% of global seaborne trade passes through the Suez Canal, the risk of new supply disruptions has risen. This could also pose upward risks to inflation next year. US Defence Secretary Austin will today meet fellow ministers to gather a maritime task force to deal with the attacks.
Equities: Global equities were marginally higher yesterday as US and cyclical growth stocks rose. It was interesting to see financials, industrials, and utilities lower. We argue this does not mark a change of the recent rotations, but markets have made it a long way the last two months and we may be in for a period with smaller moves and less difference between best and worst performers. In the US yesterday, Dow +0.00%, S&P 500 +0.5%, Nasdaq +0.6% and Russell 2000 -0.1%. Asian markets focus on the BoJ meeting which did not bring much news or changes. This resulted in a weaker yen and higher equities. Futures in Europe are marginally higher while US futures are flattish.
FI: Hawkish comments from ECB/Fed members provided some headwinds to bond markets in yesterday’s session. Bund yields rose 5-6bp across the curve with markets continuing to price in 150bp worth of cuts next year. The 10Y BTP spread to Bunds tightened a couple of basis points throughout the session. Inflation swap rates rose slightly with energy prices as BP halted their shipping routes through the Red Sea.
FX: The JPY weakened immediately after Bank of Japan’s decision to leave rates and YCC unchanged. USD/JPY rose from 142.60 to 143.60. After last week’s gyrations, EUR/USD has remained flat around 1.09 this week. EUR/GBP moved higher again yesterday with focus on a speech by MPC Breeden later today and CPI tomorrow. EUR/NOK has continued to trade on a heavy note this week with the cross moving firmly below the 11.40-mark and EUR/SEK too is on the defensive.
