From Marc to Market:
Overview: A pullback in US yields yesterday and the Bank of Japan's stepped-up efforts to defend the Yield Curve Control policy helped extend the yen's recovery. This spurred profit-taking on Japanese stocks, where the Nikkei had rallied around 11% over the past two weeks. Hong Kong, China, and Taiwan led the regional advance. However, facing a surge in inflation (Spain and German states) and a jump in European natural gas prices (~9%) is snapping the Stoxx 600's three-day advance. US futures are trading with a heavier bias. The US 10-year yield has edged a little higher to 2.40%, while the two-year that briefly traded above the 10-year yield yesterday is off about four basis points. European benchmark yields are 3-6 bp higher. The greenback is trading lower against all of the major currencies, led by the yen's recovery. After poking above JPY125 to start the week, the dollar fell to around JPY121.30 today before steadying. The Canadian and Australian dollars are the laggards with minor gains. Among emerging market currencies, the Turkish lira is the notable exception, and is posting a modest decline.
Gold appeared to post a bullish hammer pattern yesterday but there has not been much follow-through and the yellow metal is in around a $6 range on either side of $1922. May WTI is also in a narrow range--mostly $105-$107 today. Copper and iron ore are trading firmer. Wheat is still soft after losing around 8% over the past couple of sessions.
Asia Pacific
The Bank of Japan stepped-up its efforts to cap interest rates earlier today. It increased the amount of bonds it bought at its regular scheduled operation. It offered to buy JPY600 bln (instead of JPY450 bln) 3–5-year bond, and JPY725 bln (instead of JPY425 bln) of 5-10-year bonds, in addition to the pre-announced defense of the 0.25% cap on the 10-year bond. It did not increase the amount of longer-term bonds. Tomorrow, the BOJ is expected to announce next quarters asset purchase plans.
Although BOJ Governor Kuroda, who met with Prime Minister Kishida earlier today, does not seem concerned about the yen's weakness, Finance Minister Suzuki seemed more cautious. He suggested continuing to check if the yen's weakness is harming the economy. For example, the weaker yen is aggravating the surge in energy prices, which Kishida was to cushion the blow to households and businesses. If intervention is best understood as an escalation ladder, as we suggest, then this might be seen as a low rung. Separately, Japan reported that retail sales fell by 0.8% in February, which was more than twice the decline expected by the median forecast in Bloomberg's survey. It also drove the year-over-year rate below zero (-0.8%) for the first time since last September.
Beijing has offered some economic support for Shanghai, but the surge in Covid there, and lockdowns there and elsewhere, are seeing economists slash growth forecast and lift inflation projections. China's March PMI will be released tomorrow. A poor report is expected, and the risks are on the downside. Thus far, though, officials have used targeted measures and have not provided the overall economy with new support....
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