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Jun 16, 20234 min read

BoJ unch, RoW yields 'higher for longer, JPY weakens / China softer GDP forecasts / OpEx expiry day



  • BOJ announces no change to JGB Yield Curve Control tolerance band, as widely expected, ignoring trend of higher rates in RoW, no wonder JPY weakening, how much longer? Ueda: we have not changed policy because Japan's inflation is not sustainable

  • The ECB might have to continue with interest-rate increases after the summer, according to Bundesbank President Joachim Nagel, ECB's Rehn: Future decisions will continue to follow a data-dependent approach

  • $2.2 Trillion notional $SPX/ $SPY contracts are set to expire today during the quarterly expiration, this will be the largest June OpEx on record - yesterday, there was the highest daily call buying of SPX ion history.. >>> stuff like this cannot continue for much longer, (famous last words), technically we can push towards 4600 SPX JulyOpex though, final kind of push?

  • Why hasn’t the economy responded more to higher rates? A key reason, must be (partly at least..) that monetary policy works primarily through the housing market, and the huge amount of fixed-rate mortgages done last few years....has blunted the impact of Fed rate hikes (and other CB's..) - different duration in some countries clearly..

  • China’s real estate investment shrank at a faster pace in May, underscoring the industry’s struggle as a market recovery loses stream >>> UBS (and others) lowered its forecast for China’s 2023 economic growth to 5.2%, from 5.7% previously

  • U.S MM funds saw outflows of $4.66bn in week ended June 14th..ICI >>>> all jumping into equity markets again....FOMO like... this is first outflow since April tax day

  • Boris Johnson has "built his career on basically playing against the truth and for the first time, the truth has won the game."

 

Markets :

  • FED : hawkish skip/pause was confirmed, as expected, dots 50bps higher, July and Sep maybe in play, 14 priced for July and 3-4bps in September

  • ECB : delivered the fully priced 25bps, more to come, now with 22 for Aug and 15bps priced for Sep, ''not thinking about pausing'', Depo Rate to 3.50%, highest since 2001, and main Refi to 4%, highest since 2008

  • BoE : will do 25bps minimum, with 30bps or so priced, could move to 50bps straight away and 5.75% by year-end, CABLE over 1y highs, helpful !

  • BoJ does nothing again, speculation pushed back to July..it will come one day, very hard to tell when (best play a shift, via options), meanwhile with higher yields and risk, CROSSJPY's been on fire

  • Equity markets : on fire, momentum, tech/AI driven still (300bps in reals and it will force profit taking-Hartnett), Nikkei (multi decades), AAPL, MSFT new ATH's. SPX at 75 RSI..

  • FXland all been about higher CROSSJPY's while BoJ stays put, risk and RoW yields up..

 





1. "We see a much higher-than-average chance of a 5% SPX down-move over the next month. 2. Continued weak ISM new orders suggest a weak outlook among US manufacturing managers. Also, the decline in FCF yield of S&P 500 companies shows that they are in a weaker position to weather a slow economy in the context of higher interest rates. These variables have statistically proven to be significant indicators of elevated downside asymmetry for equities. 3. While our estimate of the probability of downside asymmetry over the next month is in its 99th percentile vs the past 27 years, put prices are only in their 20th percentile. Result: The gap between our expected probability of downside and put prices is in its 100th percentile vs the past 27 years". (GS derivs)





Stuff of nightmares



whaoo, what a terrible situation, village been emptied while though, but imagine having lived there all your life..






have a wonderful Friday and sunny weekend

team PVM



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