• Main potential market movers already hit the screens this morning before the start of European dealings with the BOJ policy decision and the UK consumer data. The BOJ as expected left its policy rate unchanged at 0.25%, but communication on the timing of future rate hikes was more balanced than expected.
The BOJ upgraded its assessment on private consumption (on a moderate increasing trend versus being reliant previously) as the virtuous cycle from income to spending gradually intensifies. With respect to consumer prices the BOJ still sees (underlying) inflation at a level that is generally consistent with the price stability target in the second half of the policy horizon, even as the impact from past rise in import prices is waning. The statement didn’t reveal any intentions on (the timing of) further hikes. In the news conference, governor Ueda indicated that the BOJ is still prepared to raise rates further, but there’s no rush. Uncertainty on the economic outlook overseas and instability on financial markets are a reason to take time to assess developments. The rise of the yen also eased the upside risk to prices. The BOJ apparently doesn’t want to further accelerate the sharp rise of the yen since late July. More aggressive Fed rate cuts in this respect are also important input for the path of BOJ normalization. An October rate hike now looks unlikely. The yen early this week touched peak levels below USD/JPY 140 for the first time since end-July last year, but today rebounded further to the 144 area.
UK consumer data were mixed. GFK consumer confidence unexpectedly tumbled from -13 to -20 as consumers turn more negative on their personal situation and on the global economy. On the other hand, August retail sales showed solid growth for the second consecutive month (Aug +1.0%, July upwardly revised from 0.5% to 0.7%). The UK data only had limited impact on UK interest rate markets. Gilts are trending in line with Bunds (UK yields +/- 1 bp higher across the curve). EUR/GBP tested the key support at 0.8383, but no sustained break occurred.
• Trading on core US and European markets took a pause as positions have been adapted to the 50 bps Fed rate cut, and new guidance. US yields are rising modestly (2-y + 4.5 bps, 30-y +2.5 bps). Markets need more data to become more convinced on potential additional 50 bps steps later this year. In the meantime, key support levels are ‘blocking’ further downside in yields. German yields are rising about 1 bp. After yesterday’s reflationary jump, especially European equites are falling prey to profit taking (Eurostoxx 50 -1.2%, S&P 500 -0.2%). Despite a less buoyant risk sentiment, the dollar is holding near recent lows (DXY 100.75, EUR/USD 1.116), with USD/JPY the exception (cf supra).
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