As the North American session begins, the JPY is the strongest and the EUR and USD are the weakest (they are battling it out for the weakest crown). The focus day has been on the USDJPY and the JPY crosses as the anticipation for an exit from the yield curve controls and negative interest rate policy is heightened. BoJ Board Member Nakagawa highlighted the gradually increasing prospects of achieving the 2% inflation target sustainably, while noting that consumption remains weak in both nominal and real terms, which requires close attention. Nakagawa mentioned that waiting for wage negotiation outcomes from smaller firms could extend the timeline until autumn or beyond. The decision on policy shifts will be made after careful scrutiny of data and its duration of analysis. The discussion on ending negative interest rates will also involve deliberation on the fate of other unconventional monetary easing tools. Consumption trends will play a crucial role in determining the timing to end negative rates, with wage hikes and sustained wage gains expected to bolster consumption.
Nakagawa emphasized that it’s not essential to wait for the outcome of all wage negotiations among small and mid-sized firms to decide on ending negative rates. Ensuring a continuous rise in wages to sustain inflation around 2% is vital. There is no predetermined plan regarding the concurrent ending of Yield Curve Control (YCC) with an exit from negative rates. The decision to end negative rates will not solely depend on the outcomes of wage talks from the previous and current years.
Meanwhile, BOJ governor Ueda said it is fully possible to seek an exit from stimulus while striving to achieve the desired 2% inflation target. He added that they would mull adjusting easing if they can achieve the price target and that the chance of reaching the target is gradually rising. He once again reiterated that the central bank would consider paring back the stimulus program once a positive cycle wages inflation is confirmed.
PS Japan’s largest trade union confederation Rengo said today that the average wage demands topped 5% for the first time since 1994
In the UK, the BOE Monthly Decision Maker Panel one year ahead CPI inflation expectations declined to 3.3% in February from 3.4% in January. Meanwhile, the three-month average of the three-year inflation expectation fell to 2.8% versus 2.9% in January. The three-month moving average expected wage growth remained unchanged at 5.2%.
The ECB rate decision will be released at 8:15 AM ET expectations for no change for the main refinancing rate at 4.5% as policymakers wait for inflation to give a clearer picture (Lagarde press conference at 8:45 AM ET). The April wage data outcomes is also a sticky point for policy decisions. The market is pricing in a June cut (92% chance), and three – four cuts by year-end.
US initial jobless claims will be released at 8:30 AM with expectations of 215K unchanged from last week. Trade data in the US will also be released with expectations of a deficit of -63.5 billion versus a deficit of -62.2 billion last month. Revised productivity and unit labor costs for Q4 expected to show 3.1% for activity down from 3.2% in the preliminary report. Unit labor costs are expected to rise by 0.6% versus 0.5 previously reported.
The key US employment data is approaching with it scheduled to be released at 8:30 AM ET on Friday. The expectation is for a gain of just under 200K non-farm payroll jobs versus a surprisingly stronger-than-expected 353K last month. The unemployment rate is expected to remain unchanged at 3.7% with average hourly earnings tapering to 0.2% from 0.6% last month.
US stocks are higher in premarket trading with yields marginally lower. Gold continues its move to the upside and trades at a record level. Bitcoin is steady from a day ago by down marginally from its all-time high reached on Tuesday at $69,210.
A snapshot of the markets as the North American session begins currently shows:
- Crude oil is trading at down $0.28 or -0.37% at $78.85. At this time yesterday, the price was at $70.80
- Gold is trading a new record high and is trading up another $10.49 or 0.49% at $2158.30. At this time yesterday, the price was at $2133.81
- Silver is trading up $0.02 or 0.07% at $24.17. At this time yesterday, the price was at $23.78
- Bitcoin currently trades at $66,655. At this time yesterday, the price was trading at $66,133. Earlier this week, the price reached a new all-time high of $69,210
In the premarket, the US stocks, the major indices are trading higher after gains yesterday:
- Dow Industrial Average futures are implying a gain of 140.71 points. Yesterday, the index rose 75.86 points or 0.20% at 38661.06
- S&P futures are implying a gain of 12.10 points. Yesterday, the index rose 26.13 points or 0.54% at 5104.77
- Nasdaq futures are implying a gain of 81.67 points. Yesterday, the index rose 91.95 points or 0.58% at 16031.54
In the European equity markets, the major indices are trading modestly higher:
- German DAX, +0.05%
- France CAC +0.17%
- UK FTSE 100, +0.03%
- Spain’s Ibex, +0.75%
- Italy’s FTSE MIB, +0.11% (delayed by 10 minutes).
Shares in the Asian Pacific markets were mixed:
- Japan’s Nikkei 225, -1.23%
- China’s Shanghai composite index, -0.41%
- Hong Kong’s Hang Seng index, -1.27%
- Australia S&P/ASX, +0.39%
Looking at the US debt market, yields are marginally higher:
- 2-year yield 4.557% -0.4 basis points. At this time yesterday, the yield was at 4.549%
- 5-year yield 4.109% -0.9 basis points. At this time yesterday, the yield was at 4.142%
- 10-year yield 4.092% -1.2 basis points. At this time yesterday, the yield was at 4.148%
- 30-year yield 4.218% -2.1 basis points. At this time yesterday, the yield was at 4.291%
- The 2-10 year spread is at -46.6 basis points. At this time yesterday, the spread was at -40.2 basis points
- The 2-30 year spread is at -33.8 basis points. At this time yesterday, the spread was at -25.7 basis points
European benchmark 10-year yields are lower:
European benchmark 10 year yields