Photo - Andreas Zanin
Andreas Zanin
Analysis, Market Analysis | January 23, 2024

JASPER’S MARKET SQUAWK 23-01-2024

USDJPY in focus as Bank of Japan keeps policy steady

Market Movers

  • Bank of Japan (BOJ) holds rates at -0.1%, maintains yield curve control.
  • GBP/USD nears 1.2740 as Bank of England (BoE) expected to keep the policy rate at 5.25%.
  • Chinese stocks face significant drop, Shanghai Composite experiences major one-day sell-off.
  • US Dollar Index (DXY) dips, influenced by geopolitical tensions and economic data.
  • Global equities rise, with the S&P 500 hitting a new record high, while US Treasury yields fall.

What’s Happening

BOJ’s Steady Policy Approach

The Bank of Japan has decided to maintain its current monetary policy, keeping rates at minus 0.1% and continuing its yield curve control strategy. This move, influenced by the country’s ongoing battle with deflation and a deflationary mindset, signals the central bank’s commitment to ensuring economic stability. Governor Kazuo Ueda’s emphasis on monitoring the wage-price cycle underlines the cautious approach the BOJ is taking in navigating Japan’s complex economic landscape.

GBP/USD Uplift on BoE’s Stance

The British Pound Sterling (GBP) has seen an upward movement against the US Dollar (USD), reaching close to 1.2740. This rise is largely attributed to market expectations that the Bank of England will maintain its restrictive policy stance, keeping the policy rate at 5.25%. The market’s reaction indicates confidence in the BoE’s approach amidst a challenging economic environment in the UK.

Chinese Market Volatility

Chinese stocks have undergone significant pressure, with the Shanghai Composite experiencing its most substantial one-day drop since April 2022. This downturn reflects market uncertainties and the Chinese government’s intervention to stabilize the market using public funds. The situation highlights the ongoing challenges facing the Chinese economy and the government’s active role in market regulation.

USD Dynamics and Geopolitical Tensions

The US Dollar Index (DXY) has shown some volatility amid a mixed bag of economic data and geopolitical tensions. There has been a slight let up in the heightened geopolitical situation, particularly in the Middle East, limiting risk aversion, influencing the demand for the safe-haven US Dollar.

Global Equity and Bond Market Trends

The global equity market has experienced gains, with the S&P 500 reaching a new record high. This growth reflects investor confidence and a positive market outlook. Concurrently, US Treasury yields have seen a decline, indicating a shift in investor sentiment towards bond markets.

Econ Calendar

  • EU consumer confidence data for January.
  • US Philly Fed Non-Mfg Activity, Richmond Fed Mfg Index, and Business Conditions reports.
  • Major earnings reports including P&G, Verizon, Lockheed Martin, Halliburton, J&J, and 3M Corp.
  • Bank of Japan Governor Kazuo Ueda’s press conference at 0630 GMT.
  • Preliminary UK S&P Global PMI data for January.

Chart of the Day

This is to reiterate that, especially for stock market indices and even more so for US ones, selling just because “it has gone up too much” is not a good idea at all, not even when historical highs are exceeded.

 

Source: Matteo Marchetti, KTM Market Analyst

For all the latest market developments follow Matteo @MMTradingKTM and Key to Markets @keytomarkets on Telegram

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