Subdued inflation in Japan, NASDAQ partially erases losses

Summary:

• Japan’s headline inflation accelerates in October but core measures remain unchanged

• NASDAQ (US100) bounces back and erases some of its prior losses ahead of Thanksgiving

• Fed could end its cycle of interest rate hikes as soon as the spring, according to MNI

Inflation, where are you?

Thanksgiving in the United States is expected to contribute to thinner liquidity in afternoon trading hours but more subdued trading was already seen during Asian trading hours irrespective of what a market we are focusing on. Stocks in China are trading slightly lower just a while before the close, the US dollar is delicately poised but not against Antipodean currencies - both NZD and AUD down this morning losing 0.35% and 0.15% at the time of writing. Moving to the economic calendar during the Asian session the sole noteworthy reading came from Japan - inflation for October. While headline CPI sped up to 1.4% YoY from 1.2% YoY, core measures held unchanged producing values of 1% YoY and 0.4% YoY for indices excluding fresh food and fresh food, energy respectively - all values matched estimates.

Japan’s inflation remains quite weak compared to the BoJ’s 2% objective. Source: Macrobond, XTB Research

However, does it mean the Japanese currency is on track to weaken in the upcoming year? We see a bunch of reasons that it has not to be the case. First of all, the Bank of Japan has recently slightly adjusted its rhetoric referring to effects coming from loose monetary policy suggesting that the Japan’s economy is currently in a position which no longer demands so a large scale of monetary easing. Secondly, the Federal Reserve continues lifting rates and other major central banks such as the BoE and the ECB are expected to pull the trigger next year. Having in mind that the global economic growth has begun slightly slowing down, the BoJ would want to tighten policy at least to some extent in order to make a cushion for the future when a more severe economic slowdown comes in. Thirdly, there are risks that after years of extremely dovish policy the JPY could respond really sharply to any hints suggesting the BoJ is about to change the course in its policy. Therefore, doing so with the current levels of the USDJPY (113 this morning) it seems to have room to let the yen strengthen. Last but not least, the stronger yen could be welcome by the White House as it might be seen as a sign that the Japan’s economy is not going to abuse the weak currency to widen its trade surplus with the US.

The USDJPY could see its first obstacle nearby 113.65, this level could be a hard nut to crack for bulls. Therefore, a possible reversal could occur in the aftermath. Source: xStation5

NASDAQ gains, Fed to end tightening this spring?

The last full trading day on Wall Street turned out to be positive for technology stocks as the NASDAQ (US100) ended the day with a 0.9% gain partially trimming the prior losses made in earlier days. While such gains could be welcome, equity experts in the US seem to agree that it was rather a corrective bounce than the start of a long-term upward trend. Keep in mind that higher interest rates, a trade war, the slowing housing market - these are all reasons to be less bullish on stocks in the following year. On the other hand, some revelations regarding the Fed’s policy crossed the wires yesterday suggesting the cycle of rate hikes could come to an end as soon as this spring. These comments were reported by MNI which cited senior people at the Federal Reserve who did want to be identified. They pointed that factors such as inflation, seen peaking around 2% before falling, suggest no need for more restrictive policy. They also said that even as there is no the accurate estimate of the neutral rate, the Fed officials appear to believe it hovers somewhere around 3% - it would imply three, four hikes including the move in December. The MNI reported that the next month rate increase is all but assured but the debate will become more levely beginning another ‘big’ meeting in March or June.

The NASDAQ is poised to mark the second bearish weak in a row. Source: xStation5

In the other news:

• Italy’s Conte to present an urgent report on the dispute over the budget, according to Ansa

• German finance ministry sees the economy will continue to grow but at a slower pace