BoJ offers to buy unlimited amount of bonds as yields rise

Summary:

• Japanese central bank offers to buy an unlimited amount of bonds in order push yields back
• Amazon presents mixed Q2 earnings, Intel beats expectations but shares fall over 6% anyway
• NASDAQ (US100 on xStation5) loses 1%, Dow Jones (US30) moves through resistance as the week comes to an end

The Friday’s session across the currency market has been passing quite calmly so far without any sudden moves. Either way, over the recent days major attention has been paid to the Japanese central bank which is going to meet as soon as next week. Let us recall that market participants were offered rumours on the last Friday that the BoJ could tweak its monetary policy (it was seen as a hawkish tip), and as a result the national bond market slumped on Monday (notice that the Friday’s news came after the close of the bond market). Obviously, yields moved up with the 10Y yield crossing 0.1%. On Friday the same yield reached its highest level since February 2017 crossing 0.11%.

The Japan’s yield curve has seen the meaningful steepening over the recent week. Source: Bloomberg

The Bank of Japan decided to step in in order to rein in rising yields offering to buy an unlimited amount of 10Y bonds at the yield of 0.1% during its special buying operation (it was the second such an operating this week). The news has not had any impact on the yen as of yet even as it’s been clearly dovish suggesting the bank is unwilling to let market rates increase. Anyway, do notice that the Japanese yield curve has steepened over the recent week mirroring the latest torrent of hawkish remarks (unconfirmed though). For instance, the yield on the 40Y bond (representing the largest duration there) increased almost 14 basis points since the past Friday nearing 1%.

The USDJPY keeps hovering in the vicinity of its crucial support at around 111 and one cannot rule out that the Friday’s session will be crucial for the pair (US GDP on the agenda). Source: xStation5

Beside the FX market some US equities seem to deserve more attention as well. The earnings season is already well underway and yesterday we were offered two important releases. First of all, Amazon presented quite ambiguous numbers as EPS surged and came in at $5.07 smashing the median estimate at $2.50, whereas revenue totalled $52.9 billion falling short of the consensus at $53.41 billion. Note that the gargantuan beat in terms of net income per share stemmed from the fact that the North American segment’s operating income, which has been pressured by heavy spending, more than quadrupled to $1.84 billion. Apparently, analysts had underestimated this impact. The company underlined that its cloud service re-accelerated its sales growth for the third consecutive quarter to 49% in annual terms for all increased competition from such adversaries as Microsoft or Google. Shares fell immediately and rebounded roughly 3% thereafter in extended trading.

Intel is another stock being worth looking at, and this is the perfect example illustrating that expectations do matter a lot. Even as the company showed off brilliant earnings, producing $1.04 EPS compared to $0.96 being expected by analysts and revenue and revenue at $16.96 billion (also topped the consensus at $16.77 billion), its shares tumbled more than 6% after the closing bell. Furthermore, in its guidance the company said that it expects EPS to grow to $1.15 in the third quarter on revenue at $18.1 billion (again above analysts’ anticipations). Finally, the full year earnings per share outlook was raised to $4.15 on $69.5 billion revenue.

The Dow Jones (US30) has recently broken through its local resistance in form of the upper limit of the triangle pattern, and it looks as it would be set for reaching 25800 points relatively soon. The index closed 0.45% higher on Thursday producing the better outcome compared to the SP500 (US500) which fell 0.3%, and to the NASDAQ (US100) which was down 1%. Technically one may suggest that any pullback toward the broken resistance could constitute an interesting buying opportunity. Source: xStation5