A surge of yen strength shook currency markets when USD/JPY crossed above 150, prompting calls that the BOJ had finally intervened after much warning. Whether they have remains to be confirmed by officials, but the -290 pip fall in five minutes suggests they likely have.
The last time the BOJ intervened back in October, it marked the beginning of a -16% decline on UD/JPY over the next three months. Yet with US bond yields screaming higher along with the US dollar, it seems unlikely we'll see a similar move on USD/JPY over the coming weeks unless bond traders step up to the mark to support prices to suppress yields. But even then, the Fed remains hawkish and the US dollar remains bid. And that makes USD/JPY is a difficult market to bet against as pullbacks are likely to be bought.
Still, prices are a little shell-shocked and that could make for difficult trade today in Asia. Prices have already flat-lined to a narrow range Tuesday’s aggressive selloff, which suggests prices may struggle to find a clean move today as traders absorb the latest developments.
US employment data bolsters Fed hike bets, bond rout deepens
US JOLTS job openings rose 690k to 9.61 million, bolstering bets that the Fed may have to hike at least one more time. Fed fund futures now imply a 30.1% chance of a 25bp hike in November, up from 16% one week ago. The Fed’s Mester says she is likely to support another hike at the next meeting if the current economic situation holds and does not see cuts happening any time soon. And whilst Bostic sees a single 25bp, it is not until the end of next year.
US bond yields continued to scream higher, particularly at the long end with the 10, 20 and 30-year rising ~2-3x their normal 1-year ‘up-day’ average. The 30-year yield reached a 16-year high and within striking distance of 5% as yield curve attempts to normalise, which is when the long end of the curve is higher than the short end (currently the yield curve is inverted with shorter yields trading higher than longer yields).
- AUD was the weakest FX major, with AUD/USD down nearly 1% and falling to its lowest level since November and within pips of testing 63c
- JPY was the strongest FX major, which saw AUD/JPY suffer its worst day in nearly 7 months
- The S&P 500 broke beneath its October trendline yet held above the 4200 handle, the VIX (volatility index) rose to a 6-month high
- The MOVE index (bond market implied volatility) rose to a 4-month high
- The US dollar index reached a fresh YTDF high, although it was a small-range shooting star which suggests a loss of momentum to the trend
- Gold fell for a seventh consecutive day to a 7-month low and trade just $20 above $1800, the next key level of support for bulls to defend
- APAC futures point to a weak open for local share markets today, with the Nikkei expected to open at a 4-month low and the ASX down at a 6-month low around a key support level at 6900
Events in focus (AEDT):
- Public holiday in China
- 09:00 – Australian AIG construction, manufacturing index, S&P global services PMI
- 10:00 – South Korean industrial production, retail sales, service sector output
- 11:30 – RBA chart pack
- 12:00 – RBNZ interest rate decision, statement
- 18:55 – German services, composite PMIs
- 19:00 – ECB president Lagarde speaks
- 19:30 – UK services, composite PMIs
- 20:00 – Euro PPI, retail sales
- 21:00 – OPEC meeting
- 23:15 – US ADP employment change
- 00:45 – S&P Global US services, composite PMIs
- 01:00 – ISM services PMI
ASX 200 at a glance:
- The ASX 200 fell to a 6-month low on Tuesday and below 7,000 for the first time since March
- 6900 is a major support level which has supported the ASX 200 for the best part of a year, so how it interacts with that level today could be key for sentiment going forward
- A weak lead from Wall Street and SPI futures overnight points to a weak open, but should just above hold above 6900 (initially at least)
- If dip buyers manage to support the market, 7,000 comes into focus, where bears may be waiting on the sideline to re-enter and seek a break below 6,900
- Rising AU yields are likely to keep pressure on ASX stocks, so they may need to pull back from their cycle highs for the ASX to stand any chance of finding a swing low
View the full economic calendar