From Marc to Market:
Overview: The BOJ underscored its commitment to capping the 10-year yield at 0.25% and sent the yen reeling. The dollar rose to JPY131, a new 20-year high. Sweden's Riksbank caught many wrongfooted with a 25 bp hike to initiate the tightening cycle. The krona shot up and is the strongest of the major currencies, rising about 0.65% against the US dollar. Most of the other currencies are =/- 0.25% against the greenback. The euro briefly traded below $1.05 late Asia. Better than expected results for Meta helped lift Asia Pacific equities. Of the large markets in the region, only Taiwan and China failed to rise by more than 1% today. The Chinese yuan is the weakest among the emerging market currencies, sliding about 0.75%, which puts the greenback above CNY6.60 for the first time since November 2020. Europe's Stoxx 600 gapped slightly higher at the open and its gains are being led by tech, energy, consumer discretionary, and financials (also helped by favorable earnings). The US 10-year yield is little changed near 2.82%. The drop in the yen appears to have no impact. European yields are mostly 1-2 bp higher.
Gold was sold to a new two-month low near $1872 but has steadied in the European morning and is now a little higher on the day. June WTI continues to consolidate. It has not been above $103 this week and for the second session is finding support around $100. US natgas prices are struggling to extend the roughly 11% gain over the past three sessions, while Europe's benchmark is off almost 4.4% after rallying almost 17% in the past two sessions. Iron ore rose for a third session, but it still has not recouped Monday's 9.5% drop. Note that China announced it would remove tariffs on coal (3%-6%) to ensure adequate energy supplies. Copper is little changed. July wheat is trading higher and has recouped yesterday's 0.35% decline.
Asia Pacific
The Bank of Japan did not back down an inch, and instead reinforced its message. The coming rise in inflation is not going to be sustainable and the economy still needs robust monetary support. A weaker yen is overall beneficial but too quick of a pace could hurt companies. The BOJ stands ready to buy an unlimited about of 10-year Japanese government bonds to defend the 0.25% cap on 10-year yields indefinitely. As expected, the BOJ raised this year's inflation forecast to 1.9% from 1.1% and left the next two year's forecasts unchanged at 1.1%. It also reduced this year's growth forecast to 2.9% from 3.8% but lifted next year's projections to 1.9% from 1.1%.Separately, Japan reported weaker-than-expected March industrial output. The earthquake last month disrupted output and a 0.3% gain was recorded after a 2.0% rise in February. On the other hand, March retail sales were stronger than expected, rising 0.9%, not the 0.3% that the median in Bloomberg's survey anticipated. Meanwhile, according to the weekly MOF portfolio report, Japanese investors continue to the campaign that goes back to the second half of October of selling foreign bonds. In those subsequent 29 weeks, Japanese have sold foreign bonds in all but eight weeks. The monthly breakdown that is included in the current account report does not appear the US Treasuries are being singled out, but rather a bear market is global bonds seems to be the main consideration. And this this point, indirect bidders, where foreign demand is recorded, at US auctions, continue to be strong....
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