Summary: Bank of Japan Governor Ueda's remarks on the challenges of maintaining easy policy led to a surge in yen strength. USDJPY broke below its 200DMA before recovering slightly in the late US session to move higher from lows of 141.71. The pair is now back around 143.50 as markets question whether an early policy move is likely and position for the US jobs data due today. Meanwhile, the Nasdaq 100 rose 1.5%, surpassing 16,000, driven by tech stocks. Alphabet surged 5.3% post the launch of the Gemini language model, set to boost Google's generative AI competitiveness when widely available in early 2024.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: The Nasdaq 100 added 1.5% to rally above 16,000 to finish at 16.022 on Thursday, driven by mega-cap tech stocks. Alphabet surged 5.3% after the launch of its Gemini large language model which will significantly enhance Google’s competitive position in generative AI once Gemini is made widely available early next year. AMD soared 9.9% after the chipmaker unveiled new AI chips and said Microsoft, Meta, and Oracle would adopt its AI chips. Nvidia rose 2.4%. The S&P500 gained 0.8% to 4,586, led by technology stocks.
Fixed income: The 10-year Treasury yield rose 5 bps to 4.15%, while the 2-year remained unchanged at 4.59% ahead of the US job data on Friday. The increase in Treasury yields was partly attributed to a 12 bps rise to 0.76% in the 10-year Japanese Government Bond (JGB) yield. On Thursday, during his testimony to the parliament, BoJ Governor Ueda said, 'the situation will become even more challenging from the end of the year to next year,' hinting that he was conscious of an exit from monetary easing. Later on Thursday, Ueda met with Prime Minister Kishida and reportedly exchanged views on monetary issues, according to Nikkei. Taken together with BoJ Deputy Governor Himion’s remarks that exiting the negative rate policy would have relatively little impact on Japan’s economy, these have raised market expectations of actions by the BoJ in its December 18-19 meeting. The results of the 30-year JGB auction on Thursday were very poor, with bonds awarded at over 7 bps higher than the level of the auction deadline.
China/HK Equities: The Hang Seng Index and the CSI300 declined again, finishing the session 0.7% lower at 16,346 and 0.2% lower at 3,391, respectively. China’s imports in November unexpectedly fell by 0.6% in USD terms, signalling weak domestic demand. Industrials and energy exerted downward pressure on the benchmark indices, while banks, internet, and EV stocks traded mixed.
FX: Dramatic move in JPY as traders boosted bets of a December policy tweak from Bank of Japan. USDJPY broke below its 200DMA before recovering slightly in late US session to move higher from lows of 141.71. Pair is now back around 144 as markets question whether an early policy move is really likely and position for the US jobs data due today. If however yen continued to strengthen, there is a risk of forced unwinding in carry trades and significant bond volatility. EURJPY is down to 155-levels and AUDJPY plunged to 95. The move in yen pushed the dollar lower, and AUDUSD rose to 0.66 handle while EURUSD tested a break above 1.08.
Commodities: Crude oil prices steadied with WTI still below $70/barrel raising risks of an emergency OPEC+ meeting. Focus turns to US NFP data today and what signals it can bring for the demand outlook. Iron ore gained after China’s exports rose for the first time in seven months and Copper pushed higher on imports also rising strongly with refined copper imports touching the highest levels this year as strong demand from energy transition underpins. Gold continues to find support at the $2,009 area and big test comes today from the monthly US job report.
Macro:
Macro events: German HICP Final (Nov), US Employment Report (Nov), University of Michigan (Dec P)
In the news:
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2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
