yield curve control policy

Rates Spark: Don’t dismiss the remaining yield upside just yet

The US borrowing estimate and the BoJ were not the drivers of another leg higher in rates as many had feared. While it's unlikely to be the end of the supply story and we still await the quarterly refunding announcement, markets will also focus on the data and the Fed meeting again. After all, economic resilience was the other factor of higher rates.

 

The long end took its cues from lower US borrowing and more cautious tweaks from the BoJ

Long-end rates took their cues for yesterday’s trading from the somewhat lower-than-expected US Treasury borrowing estimate as well as the Bank of Japan (BoJ) decision to only slightly adjust its yield curve control policy. In essence, two of the factors that many, including us, had seen as potential drivers of a renewed attempt at taking on the 5% threshold in 10Y UST yields proved to be duds. The UST curve kicked off with a bull flatteneing which also spilled over into other

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Asia in Focus: BoJ Meeting and China's Retail Sales Highlight the Week

ING Economics ING Economics 09.06.2023 09:10
Asia week ahead: BoJ meeting plus retail sales from China The Bank of Japan meets next week but don’t expect any changes. China has a raft of data but we’ll be particularly focused on retail sales.   BoJ policy meeting but don't expect any changes at this meeting We have changed our view on the Bank of Japan’s policy in the near term based on Governor Kazuo Ueda’s recent dovish comments. We expect the BoJ to keep all its current policy settings unchanged at its policy meeting next week. Likewise, a potential tweak in the BoJ’s yield curve control policy is not likely to happen this month. However, should inflation remain at current levels in the second half of the year, we could still see a possible adjustment in the YCC policy over the next few months.   Retail sales in China to be in focus China will release the usual raft of data on economic activity for May. This will include industrial production, fixed asset investment, construction, and retail sales. Of these, most attention will probably be on the retail sales number, as consumer spending is what is keeping the economy afloat while production and construction both struggle amidst a tough global trade environment.   But the news on retail sales will probably not be very encouraging. We anticipate a 13.8% year-on-year increase in retail sales, which only looks this strong due to a very weak base comparison period, and is equivalent to around a 1% month-on-month decrease in sales adjusted for seasonality. Residential construction is likely to remain depressed, as is production.
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US CPI Set to Fall to 3%, Bank of Canada to Hike Again?

Michael Hewson Michael Hewson 12.07.2023 08:27
US CPI set to fall to 3%, Bank of Canada to hike again? By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets saw another positive session yesterday, rising for the third day in a row in anticipation that China's efforts to support its property sector may translate into further measures to support a rebound in economic activity. The FTSE100 once again underperformed as the strong pound and weakness in pharmaceuticals acted as a drag.  US markets also closed higher on optimism that today's CPI report wouldn't spring any unpleasant surprises. This positive finish looks set to see markets here in Europe open slightly higher in a couple of hours' time. US inflation appears to be heading in the right direction, after sliding to a 2-year low last month of 4%, from 4.9% in April. A year ago, US CPI hit its peak at 9.1%. Core prices have continued to look sticky slipping back to 5.3% from 5.5%, however the continued hawkishness of the Federal Reserve has seen the slide in yields that came about because of these numbers, reverse sharply. With another rate rise due later this month this week's CPI numbers won't impact how the Federal Reserve is likely to act in 2 weeks' time, but the numbers might shine a light in whether we can expect another rate hike in September. June CPI is expected to slow further to 3.1% and core prices to slow to 5%. Having decided to signal a pause in their recent rate hiking cycle when they hiked rates in January, the Bank of Canada surprised markets in June by deciding to hike rates again, by 25bps to 4.75%. The decision followed a similar decision by the RBA days before on concerns that inflation was proving to be much stickier than feared. The Bank of Canada also tweaked its guidance about the need for further rate hikes giving them more flexibility when it comes to raising rates or choosing to hold them. Any decision could well be tempered by the current business outlook which in Q2 fell to its lowest levels since Q3 of 2020, although last week's June jobs report was strong, which could prompt the central bank to hike again by another 25bps to 5%. Core inflation did slow to 3.9% in May from 4.3% in April but remains elevated, and with the Fed likely to hike in two weeks' time it's quite likely the BoC will want to get out in front of them.  The Japanese yen has been one of the big movers in recent days on speculation that the Bank of Japan may start to look at tweaking its yield curve control policy, when it next meets at the end of the month.         EUR/USD – looks set for a move towards the recent range highs at 1.1100. Support at 1.0970 as well as last week's lows at 1.0830. Below 1.0820 targets 1.0780.     GBP/USD – continues to move higher as we look to extend to fresh 15-month highs, and the 1.3010/20 area. A move through 1.3020 signals potential for 1.3200. Main support at 1.2680 area.       EUR/GBP – sliding towards the 0.8500 area, with a break below potentially targeting 0.8460. Resistance remains back at the highs this week at the 0.8570/80 area. We also have resistance at the 50-day SMA which is now at 0.8620.     USD/JPY – slipped below the 50-day SMA at 140 which was the next support for the US dollar and could well extend towards the 138.50 area and cloud support. Last weeks' weekly reversal suggests that a short-term top might be in. We need to see a move back above 142.80 to stabilise and argue for a return to 144.00.   FTSE100 is expected to open 17 points higher at 7,299     DAX is expected to open 55 points higher at 15,845     CAC40 is expected to open at 35 points higher 7,235  
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FX Daily: Dollar Bears Urged to Be Patient as Dollar Reconnects with Rate Differentials

ING Economics ING Economics 24.07.2023 09:26
FX Daily: Dollar bears being asked for patience Quiet summer markets are seeing dollar pairs consolidate in new, slightly lower ranges. It will be another quiet session today ahead of a big week for G3 central bank meetings. Dollar bears may find some reassurance from emerging markets, where the PBoC is trying to limit USD/CNY gains and the South African rand is holding up despite the lack of a rate hike.   USD: Dollar reconnects with short-term rate differentials As my colleague Francesco Pesole has been writing this week, the dollar has made a modest comeback as both US yields adjust higher and short-term rate spreads stay in the dollar's favour. In fact, one could argue that the dollar should even be a little higher given that two-year US yields have retraced about 50% of their drop in the first half of July and the DXY has only retraced one-third of its losses. Price action over the past week probably shows that a switch to the disinflation trade will not be easy and will require a constant drip feed of supporting evidence – be it softer price or weaker activity data. Yesterday's drop in US initial claims clearly did not help here. Casting around the world in quiet FX markets we see the People's Bank of China (PBoC) continuing to fight a weaker renminbi by printing lower USD/CNY fixings than model-based estimates suggest. Despite credible calls for a lower renminbi to support growth and battle deflation, it seems Chinese policymakers prefer to keep renminbi losses contained and prevent a 'sell China' mentality building. The PBoC's battle against a stronger USD/CNY is a slight dollar negative in quiet summer markets – especially should it extend to outright dollar sales. Today's session should be a quiet one as the market prepares for US Federal Reserve, European Central Bank and Bank of Japan (BoJ) meetings next week. Regarding the BoJ, expectations of any Yield Curve Control policy tweak seem very low (perhaps too low) given that the 30-year Japanese government bond (JGB) yield is drifting lower and the forward market prices 10-year JGB yields at 50bp in three months and at only 55bp in six months. These 10-year yields should be priced a lot higher were the market expecting a policy change. USD/JPY may well drift to the 141.15/142.00 area before next Friday's BoJ meeting.
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FX Daily: Dollar Bears Urged to Be Patient as Dollar Reconnects with Rate Differentials - 24.07.2023

ING Economics ING Economics 24.07.2023 09:26
FX Daily: Dollar bears being asked for patience Quiet summer markets are seeing dollar pairs consolidate in new, slightly lower ranges. It will be another quiet session today ahead of a big week for G3 central bank meetings. Dollar bears may find some reassurance from emerging markets, where the PBoC is trying to limit USD/CNY gains and the South African rand is holding up despite the lack of a rate hike.   USD: Dollar reconnects with short-term rate differentials As my colleague Francesco Pesole has been writing this week, the dollar has made a modest comeback as both US yields adjust higher and short-term rate spreads stay in the dollar's favour. In fact, one could argue that the dollar should even be a little higher given that two-year US yields have retraced about 50% of their drop in the first half of July and the DXY has only retraced one-third of its losses. Price action over the past week probably shows that a switch to the disinflation trade will not be easy and will require a constant drip feed of supporting evidence – be it softer price or weaker activity data. Yesterday's drop in US initial claims clearly did not help here. Casting around the world in quiet FX markets we see the People's Bank of China (PBoC) continuing to fight a weaker renminbi by printing lower USD/CNY fixings than model-based estimates suggest. Despite credible calls for a lower renminbi to support growth and battle deflation, it seems Chinese policymakers prefer to keep renminbi losses contained and prevent a 'sell China' mentality building. The PBoC's battle against a stronger USD/CNY is a slight dollar negative in quiet summer markets – especially should it extend to outright dollar sales. Today's session should be a quiet one as the market prepares for US Federal Reserve, European Central Bank and Bank of Japan (BoJ) meetings next week. Regarding the BoJ, expectations of any Yield Curve Control policy tweak seem very low (perhaps too low) given that the 30-year Japanese government bond (JGB) yield is drifting lower and the forward market prices 10-year JGB yields at 50bp in three months and at only 55bp in six months. These 10-year yields should be priced a lot higher were the market expecting a policy change. USD/JPY may well drift to the 141.15/142.00 area before next Friday's BoJ meeting.
Quiet Start for Japanese Yen as USD/JPY Trades Higher

Quiet Start for Japanese Yen as USD/JPY Trades Higher

Kenny Fisher Kenny Fisher 29.08.2023 10:31
The Japanese yen is trading quietly at the start of the week. In the North American session, USD/JPY is trading at 146.60, up 0.11%. The yen has plunged 3.05% in August against the US dollar and is trading at its lowest levels since November 2022.   Powell, Ueda speak at Jackson Hole  There was a degree of anticipation as major central bankers gathered at the Jackson Hole summit. The meeting has been used as a launch-pad for shifts in policy, but one would be hard-pressed to point to any dramatic news from the summit. Bank of Governor Kazuo Ueda stayed true to his script that underlying inflation remains lower than the BoJ’s target of 2% and as a result, the BoJ will stick with the current ultra-easy policy. Ueda has followed his predecessor Haruhiko Kuroda and insisted that he will not lift interest rates until there is evidence that domestic demand and stronger wage growth replace cost-push factors and keep inflation sustainably around the 2% target. Ueda continues to argue that inflation is below target and that he expects inflation to fall, but core inflation indicators continue to point to broad-based inflationary pressures and have remained above the 2% target for around 15 months. Still, the BoJ is sticking to its loose policy and trying to dampen speculation that it will tighten policy. The BoJ tweaked its yield curve control policy in July but at the time, Ueda insisted that the move was not a step towards normalization of policy. Federal Chair Jerome Powell delivered the keynote speech on Friday, but anyone looking for dramatic headlines walked away disappointed. Powell reiterated that the battle to lower inflation to the 2% target “still has a long way to go”. Powell was somewhat hawkish with regard to interest rates, saying that the Fed would “proceed carefully” with regard to raising rates or putting rates on hold and waiting for additional data. There was no mention of rate cuts, a signal that the Fed isn’t looking to trim rates anytime soon. The future markets responded by raising the odds of a rate hike in September to 21%, up from 14% a week ago.   USD/JPY Technical There is resistance at 147.19 and 147.95 145.86 and 145.10 are providing support    
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Rates Rally: Examining the Factors Behind the Surge and What Lies Ahead

ING Economics ING Economics 02.11.2023 12:28
Rates Spark: Don’t dismiss the remaining yield upside just yet The US borrowing estimate and the BoJ were not the drivers of another leg higher in rates as many had feared. While it's unlikely to be the end of the supply story and we still await the quarterly refunding announcement, markets will also focus on the data and the Fed meeting again. After all, economic resilience was the other factor of higher rates.   The long end took its cues from lower US borrowing and more cautious tweaks from the BoJ Long-end rates took their cues for yesterday’s trading from the somewhat lower-than-expected US Treasury borrowing estimate as well as the Bank of Japan (BoJ) decision to only slightly adjust its yield curve control policy. In essence, two of the factors that many, including us, had seen as potential drivers of a renewed attempt at taking on the 5% threshold in 10Y UST yields proved to be duds. The UST curve kicked off with a bull flatteneing which also spilled over into other rates markets.   However, especially with a view on supply it is unlikely to be the end of the story. Markets are still awaiting the quarterly refunding announcement and the maturity split of the upcoming issuance today. Some had flagged the possibility of a more cautious approach focusing any increase on shorter-dated issues. But following the lower borrowing requirement, the US Treasury might feel less pressed on this topic. More importantly, the overarching concerns surrounding the medium- to long-term trajectory of the US deficit have not been addressed.   US economic resilience remains an important factor in keeping rates elevated as well Yesterday’s quarterly employment cost index rising to 1.1% should also remind us that the other important driver of higher long-end rates was the resilience of the economy and the job market in particular. It was in fact the faster wage growth figure managed to turn around the bullish dynamic yesterday and point yields higher again. The Federal Reserve has guided markets to firmly expect a hold at tonight’s FOMC meeting despite the more benign inflation backdrop, third-quarter GDP growth coming in hot, the jobs market remaining tight and inflation remaining well above the 2% target. But it has done so by pointing out that the higher long-end rates are now doing part of its job. That said, European rates markets were confronted with a more dovish data set as the eurozone flash CPI slipped below 3% and 3Q GDP growth came in with a negative sign. Yesterday's bull flattening was probably still more inspired by the overall direction given US and Asian events rather than the domestic data. That said, European Central Bank (ECB) officials are still attempting to anchor front-end rates by emphasising the outlook of keeping rates high for longer.     The US yield increase is stalling, but curves remain steeper   Today's events and market view The BoJ and US borrowing announcements have proved more benign for rates than anticipated with the 10Y UST yield dropping towards 4.8% before moves were reversed in month-end flows. Especially on the supply side, it is unlikely to be the end of the story with the refunding announcement coming today. But economic resilience should also not be dismissed as a potential driver of another leg higher in rates. To that end, we will get the  ADP payrolls estimate today ahead of the key jobs data on Friday. Also on today’s agenda are JOLTs jobs opening numbers as well as the ISM manufacturing. The key event for the day is the FOMC meeting tonight, although a hold has been well-flagged. The Fed is still likely to keep its bias for further tightening in place.  All Saints Day is observed in large parts of Europe. In today’s government bond primary markets, Germany will tap its 7Y bond for €3bn

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