Europe Summary and Highlights 27 May
The JPY has held onto marginal gains in Europe in holiday thinned trading with the U.S. and UK on holiday today.
Europe Session
BOJ Ueda comments have helped to underpin the JPY, as speculation grows about additional BOJ normalisation. However, the market is not getting overdone with the next 10bps hike in the BOJ policy rate nearly discounted for July rather than the June 14 meeting – though we see the move arriving in June. The G7 statement on Saturday did not prompt a reaction, as the statement on FX volatility did not change and Japan remains on its own re the JPY.
No FX reaction to a key FT interview with ECB Lane, though bond yields edged lower. ECB Lane guidance that the 1 rate cut is pretty certain and will be followed by gradual moves to reduce policy restriction is of interest. Though the market expects the ECB to cut key rates by 25bps on June 6, debate exists over whether 2024 will see 2 or 3 cuts in total. Lane comments are more leaning towards 3, as he points to more controlled wage tracker data. He also noted that the neutral rate was 2.0% or just above, which suggests that 3 rate cuts would still leave policy restrictive this year.
Asia Session
The speech from Ueda sound somewhat supportive towards more tightening (We have made progress in moving away from zero and lifting inflation expectations, but we must now re-anchor them, this time at the 2% target) but the ambiguity (Not so clear if Japan has overcome deflationary norm) is not suggesting confidence in BoJ's next step. Nevertheless, data would be a better cue for policy changes rather than any forward guidance. 10yr JGB yields are steady above 1% and quickly approaching last Thursday high at 1.027%. USD/JPY is trading 0.13% lower at 156.74 with a session high at 156.99.
Regional sentiment improves as China launched a US$47bn state-backed fund to boost the country's semiconductor industry. While the policy itself maybe induced from U.S. sanctions, the setup of such state-back fund will be driving more economics growth and demand for raw materials, which indirectly benefits proxy trades like the Aussie. Combined with the positive industrial profit data from China in April, AUD/USD is trading 0.09% higher at 0.6634, NZD/USD is also 0.12% to 0.6128 while USD/CAD is 0.02% higher at 1.3664. Else, EUR/USD and GBP/USD are up 0.02%.