Consolidative Moment As Markets Wait For Fresh Developments

Japan's October current account surplus was in line with forecasts at JPY2.144 trillion. However, the trade surplus on a balance-of-payments basis was a little smaller than expected at JPY971 billion. It is still the largest monthly trade surplus since February and stood at JPY224 billion in October 2019. The capital account is notable. Trust accounts, which act for the pension funds, bought a record amount of foreign bonds in October (~JPY2.97 trillion) and sold a record amount of foreign equities (JPY2.52 trillion). Country-specific highlights include the purchases of a record amount of Canadian bonds. Japanese investors also were keen buyers of Australian and UK bonds, while sellers of French bonds. 

Japan's Prime Minister Suga unveiled a JPY73.6 trillion (~$710 billion) fiscal package that includes JPY40 trillion of new fiscal measures. The new efforts include funds for a new furlough program, health care expenditures, cash handouts, and funds for single-parent families.  Almost half of the new fiscal measures will be paid for by already earmarked funds. The popular Go-To Travel, incentives for domestic tourism, which also dampens CPI, will be extended.  Note that the BOJ meets next week and is expected to extend its current facilities deeper into 2021.  

The dollar is in a tight range against the Japanese yen. It has not been below JPY103.95 or above JPY104.15. There is a $910 million option at JPY104 that expires today, but its impact has likely been neutralized. In the somewhat larger picture, the greenback remains confined to a JPY103.65 to JPY104.75 range.

The Australian dollar traded widely yesterday, on both sides of the ranges seen in the previous two sessions, but the close was neutral, and an inside day is being recorded. Options for around A$1.7 billion are struck at $0.7400-$0.7405 and expire today. The PBOC set the dollar's reference rate at CNY6.5320, in line with expectations. The central bank injected liquidity into the banking system for the first time after conducting draining operations over the last five sessions. The dollar slipped to a new low for the move to about CNY6.5210 before recovering to almost back into Monday's range (~CNY6.5295-CNY6.5440).  


Neither the UK nor the EU moved, and the same three issues that have vexed negotiators from the beginning remain unresolvedThe mood has deteriorated. There will be a face-to-face meeting between Prime Minister Johnson and EC President von der Leyen in the next day or two. There has been some suggestion that Johnson talks to Merkel and Macron too. Indeed some have been critical that the Prime Minister has not done more in this vein.  However, Johnson did signal that he is prepared to modify the Internal Markets bill that would unilaterally overrule the Withdrawal Bill and where the controversial parts were restored after the House of Lords diluted them. While Johnson's stance was welcome, the move had already frayed nerves and patience while sowing distrust. Moreover, that strategy will be doubled down on with today's introduction of the tax bill that is also seen unilaterally overriding the Withdrawal Agreement. 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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