FOREX: JPY Extends Advance. Katayama and Takaichi Provide Supportive Backdrop
Dec-23 09:59
- The US dollar is weaker again on Tuesday, continuing the theme that played out across Monday’s session. The USD index has extended the week’s decline to 0.7% in a broad greenback move, however, the advance for the Japanese yen has been most notable as we approach the holiday season.
- The yen received a significant boost from finance minister Katayama’s comments on Monday, who provided the most forceful warning of intervention in recent times, stating that the MoF have a ‘free hand’ to take bold action on the currency. This backdrop has kept pressure on USDJPY, which at its lowest level this morning has erased around 210 pips from last Friday’s close. Indeed, the latest acceleration lower was likely tied to the pair sinking through the BOJ press conference lows at 155.85, further pressuring short-term longs.
- Additionally, PM Takaichi may have exacerbated this morning’s price action, providing another angle of yen optimism through her communication that she will not implement irresponsible tax cuts or bond issuance, allaying fiscal concerns somewhat.
- Finally, the technical angle has also assisted the pullback, with last Friday’s rally falling just 10 pips shy of key resistance at 157.89, the Nov 20 high and a bull trigger. Given the volatile moves in recent sessions, the most notable support lies at 154.40, the 50-day EMA. A clear breach of it would undermine the bull theme and signal scope for a deeper corrective pullback.
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RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
Nov-21 21:46
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
Nov-21 21:03
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
Nov-21 21:01
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
