BOJ "Clarifies", While The Greenback Remains Firm

Overview: Oil, equities, and bonds are stabilizing after yesterday's sell-off. Crude oil tumbled in the past five sessions, dropping 8-9% before recovering today. The sharp sell-off in US indices yesterday dragged global markets lower today, but the US futures are trading higher. Today's sell-off leaves the MSCI Asia Pacific Index a little changed on the week. The 0.4% loss in the Dow Jones Stoxx 600 halves the week's gains, but it still has extended the advance for the third week and six of the past seven. The US 10-year yield that reached 1.75% yesterday is now closer to 1.68%. European benchmark yields are off 4-5 bp. The US yield is up about eight basis points this week, while most European 10-year rates have risen 3-5 bp this week. The dollar is trading with a firmer bias against most of the majors. On the week, the Japanese yen (~0.20%) and Swiss franc (0.15%) are the strongest, while the Scandis are the weakest (-0.6%-1.05). Among emerging markets, the three strongest today, Turkey, Mexico, and South Africa, are also the strongest for the week. The JP Morgan Emerging Market Currency Index has been alternating between gains and declines since March 11. Today's 0.3% gain doubles the week's gain and is the second consecutive weekly advance. Gold's recovery faltered near $1745, and at around $1736 now, it is up about 0.6% for the week.  

Asia Pacific

The Bank of Japan did two things today.  First, BOJ Governor Kuroda claimed to simply be clarifying the central bank's stance when it announced that the 10-year yield can move in a 25 bp band around the zero target. Until now, the market perceived the range as 20 bp, but Kuroda was adamant that in 2018, he said the 10 bp range would be about doubled, and that has always been 25 bp. Second, as widely expected, the BOJ adjusted its equity purchases.The BOJ will only buy ETFs linked to the Topix, not the Nikkei 225.The Nikkei fell by 1.4% today, while the Topix rose by 0.4%. Many have been critical of the Nikkei ETF purchases because of the price-weighted index, which means that the purchases favor the heavily weighted companies. In 2016 and 2018, the BOJ reduced its Nikkei ETF purchases. The BOJ also abandoned the JPY6 trillion (~$55 bln) annual target of equity purchases but maintained the JPY12 trillion cap to preserve the capacity to act if needed.  

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Read more by Marc on his site Marc to Market.

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