Yen moves back on Japan’s MoF comments, US stocks tumble

Summary:

• Japanese yen gives back some of its yesterday’s gains after remarks from Ministry of Finance

• House of Representatives votes to end a partial government shutdown, we are still far away from resolving the impasse over Trump’s demand though

• US stocks tanked on Friday in response to weak ISM and Apple announcement

Profit-taking on JPY

Friday’s trading in Asia has brought a sell-off in the Japanese currency which is giving back its huge gains it made on Thursday in the aftermath of the flash crash. The yen is currently the weakest major currency losing 0.4% against the greenback. This result came following an array of comments delivered by the Ministry of Finance (MoF) and the Bank of Japan. Note that Japan came back on Friday after holiday. First of all, the MoF’s Asakawa said that it would take appropriate steps in the FX market if needed and that both G7 and G20 countries had confirmed cooperation in the currency market if necessary. On top of that he added that FX moves were very volatile and were undesirable for the stable economy. Trying to blame some factors behind such the incredible yen’s surge Asakawa pointed to shrinking US-Japan spreads owing to a growing divergence in monetary policy. Seeking to reassure companies Japan’s finance minister Aso added that corporate conditions were extremely good.

In turn, BoJ’s Governor Haruhiko Kuroda said that markets were somewhat rough. He also added that it was important to take consistent policy patiently and persistently towards beating deflation. He wanted such policy to beat deflation to be undertaken with the government. Meanwhile, the Nikkei press agency reported on Thursday that the BoJ would consider cutting its inflation projections during a meeting later this month due to falling oil prices and lower mobile phone fees. The news said that this year’s forecast might be reduced to 1% from 1.4% to include a consumption tax hike planned for this October. In terms of macroeconomic data from Japan we were offered the final manufacturing PMI reading showing slightly better results compared to the initial one. The index grew to 52.6 in December instead of 52.4, up from a November’s value of 52.2.

Looking at the weekly chart of the USDJPY one may notice that this week is likely to end above the crucial support zone at 108. If so, a corrective move toward 111 could be in the offing, however, it is likely to be rather a temporary swing rather than a longer-term trend change. Bear in mind that the JPY is placed among top three the most undervalued major currencies. Source: xStation5

House passes a bill to end the shutdown

Thursday was the first day with the Democratic-held House of Representatives and it resulted in passing the spending packages to end the partial government shutdown. However, the move will not take the Congress closer to end the impasse as the passed bill does not include money for President Donald Trump’s proposed border wall. Therefore, one can be certain that Trump will not sign this bill leaving the government shut for the 13th consecutive day. In its statement the Trump administration wrote that the president “cannot accept legislation that provides unnecessary funding for wasteful programs while ignoring the Nation's border security needs.” Note that one bill passed by the House would fund eight closed US departments through September 30 while the other one would reopen the Department of Homeland Security through February 8. The US dollar index is going nowhere this morning while the US 10Y yield is moving below 2.58% after it crashed on Thursday. The huge downward move in US yields and stocks (SP500 down 2.5%, Dow Jones down 2.8% and NASDAQ down 3%) came after the ugly manufacturing ISM release as well as the Apple’s announcement on China. As a result, markets are currently pricing a rate cut this year assigning as much as 50% to such the scenario based on fed funds futures.

Note that the SP500 failed to move back above 2490 points yesterday, hence there is the likelihood that we may head south. If so, the first level to watch for bears is 2320 points. Source: xStation5

In the other news:

• China and the US will hold vice-minister level trade negotiations on January ⅞

• Chinese Caixin PMI for services ticked up to 53.9 from 53.8 in December beating the consensus of 53, the composite gauge reached its 5-month high at 52.2

• Australian services PMI fell to 52.7 from 53.7 in December compared to the preliminary value of 52.2

• API reported that oil inventories fell by 4.5 million barrels last week while gasoline inventories jumped as much as 8 million barrels

• Crude prices rise 1%, NIKKEI lost 2.3% after Japanese investors came back from holiday while stocks in China move up 1.5-2%, the SP500 futures point to a 1% gain at the open