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Rise and shine everyone and Happy Friday!
The Bank of Japan had there meeting and to no one’s surprise didn’t change a thing. After the week we’ve had with all the macro announcements, it’s nice to close on a quiet note. Governor Ueda reaffirmed that they are still concerned about the pace of wage growth and we’re not likely to see changes until inflation takes hold. The Japanese Yen is not taking it very well closing in on recent highs of 148.46 against the US Dollar.
We’ve been reiterating this message - the most important factors that the BoJ has been looking at is the wage growth and consumption driven inflation numbers.
“Because we aren’t in a state where inflation accompanied by wage growth — sustainable and stable inflation — is in sight, we’re patiently continuing with monetary easing under the current framework,” - Governor Ueda (from Bloomberg)
We also received a host of PMI numbers for Europe and the UK with every number in contractionary territory pushing yields higher. Interest rate hikes have definitely made their way through to economic activity there. We get US numbers later today at 9:45am.
After two days brutal sell-off, US Equities are bouncing back ever so slightly. US equities are tracking the biggest monthly decline since last December… thus far. We still have a week left until the month ends. The US Dollar Index is still holding firm above 105.5. Gold, Oil and Bitcoin are all higher. Yields are pulling back slightly and the Yield Curve is at -0.65%.
Asia and Australia
Asian equities mixed Friday. Japan's Nikkei and Topix both down though off intraday lows following BOJ meeting. Greater China stocks rebounded and outperformed region. South Korea lower, Taiwan higher, ASX flat.
Japan inflation came out broadly steady, service prices consolidate at 2% for the first time in three decades. Core CPI rose 3.1% YoY in August, compared to consensus 3.0% and follows 3.1% in the previous month.
Japan’s Flash manufacturing PMI was 48.6 in September, following 49.6 in the previous month. Marks the fourth straight month in contraction and the weakest level in seven months.
Qualcomm reducing workforce in China and Taiwan, signaling longer-than-expected industry downturn and slow recovery
China: yields on shorter term Chinese government bonds are rising even after two recent LPR cuts this year, as tightening capital supply undermines PBOC easing. While long-term yields have fallen, five-year and shorter maturities have risen with curve flattening.
Europe, Middle East, Africa
European equity markets mostly lower. Basic Resources and Oil & Gas sectors both outperforming amid higher commodity prices thanks in part to rising hopes of more stimulus measures out of China on the horizon.
Markets put the probability of a November BoE rate hike at less than 50% despite policy statement leaving door open to more tightening, if needed.
UK retail sales remained subdued in August, up 0.4% versus consensus 0.5% and prior 1.1% drop. The numbers were in part driven by by food sales and strong month for clothing. However, internet sales were down, and fuel sales dropped as an increase in prices weighed on demand.
UK GfK consumer confidence hit a 20-month high in September at -21 versus prior -25, which was the strongest level since January 2022 just before Russia's invasion of Ukraine.
The Americas
Flow dynamics in focus as higher-for-longer theme puts upward pressure on rates and weighs on risk sentiment. Latest Flow Show report from BofA noted global equity funds saw outflows of $16.9B in week-ended 20-Sep, the most since December 2022. US equity funds saw outflows of $17.9B, also the most since last December
Morgan Stanley said that absent a rebound in spot, CTA models will likely turn sellers over the next few days. Nomura recently estimated that a drop below 4,409 on the S&P 500 triggers selling by CTAs with an estimated $12.3B of equity futures for sale in aggregate
UAW's targeted work stoppages against big Detroit automakers expected to expand today given few signs of progress on wage and benefit negotiations
Calendar
(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)
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