Japanese policymakers are ready to intervene to support the yen. In the US, inflationary pressures are expected to ease

November 14, 2023

At Monday’s stock market close, the Dow Jones Index (US30) was up by 0.16%, while the S&P 500 Index (US500) decreased by 0.08%. The Nasdaq Technology Index (US100) lost 0.22%. The broad market recovered from early losses on Monday after bond yields reversed to the downside, prompting coverage of short positions in equities. In addition, optimism that Tuesday’s US consumer price report for October would show an easing of price pressures gave stocks a boost.

On Friday, Moody’s Investors Service downgraded its outlook on the US credit rating from stable to negative, citing rising budget deficits and political polarization. The US lawmakers have until Friday evening this week to pass a temporary spending bill before funding runs out and the government shuts down.

Today, the US will release its CPI report. The Consumer Price Index is on the US Federal Reserve’s list of monitored indicators when regulating monetary policy. This report will measure the Fed’s progress in the fight to reduce inflation. Economists expect consumer inflation to show an increase of 0.1% on a monthly basis, while on an annualized basis, it is expected to decline from 3.7% to 3.3%. A sharper weakening in inflation could lead to renewed talk of a rate peak, fueled by the October jobs report, which pointed to weakening labor market conditions. But a cooling in demand is needed for Fed officials to have confidence that they are convincingly moving toward an inflation target. Demand is expressed in consumer spending, and that is usually retail sales and other related reports on how Americans spend money. Therefore, tomorrow’s retail sales data will give a better indication of the US Fed’s future trajectory.

Equity markets in Europe rallied solidly on Monday. Germany’s DAX (DE40) rose by 0.89%, France’s CAC 40 (FR40) gained 0.60% yesterday, Spain’s IBEX 35 (ES35) jumped by 0.96%, and the UK’s FTSE 100 (UK100) closed positive by 0.89%.

Inside the ECB, there is growing uncertainty over future plans. A representative of the ECB Governing Council, Kazaks, said yesterday that further ECB policy tightening seems to have become less necessary. His colleague, ECB Vice President Gindos, on the other hand, did not share this thought. Gindos said it was “premature” to discuss interest rate cuts because “we expect a temporary rebound in inflation in the coming months as the base effect of the sharp rise in energy and food prices in the fall of 2022 fades.”

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Crude oil and gasoline prices rose moderately on Monday. A weaker dollar on Monday provided support for energy prices. In addition, expectations of increased fuel demand in the US during the Thanksgiving holiday are a favorable factor for crude oil prices.

Asian markets were predominantly rising yesterday. Japan’s Nikkei 225 (JP225) added 0.05% for the day, China’s FTSE China A50 (CHA50) decreased by 0.44%, Hong Kong’s Hang Seng (HK50) added 1.30% for the day, and Australia’s ASX 200 (AU200) was negative by 0.40% for Monday.

Japan’s Finance Minister Shunichi Suzuki said on Monday that policymakers will respond to sharp fluctuations in the yen as needed. The Bank of Japan is unhappy with the recent decline in the yen, which has fallen by 1.45% against the US dollar in the past week alone. According to analysts, if the yen breaks through the 152 mark, there is a high probability of currency intervention by the Japanese authorities.

Goldman Sachs Group Inc. expects inflation in Australia and New Zealand to fall to just below 3% by the end of 2024, which would be in line with both central banks’ targets and pave the way for lower interest rates. The cooling in prices will be driven by global commodity inflation, lower labor demand, and wage pressures. This would open the door for both central banks to begin easing monetary policy from late next year. Goldman’s view diverges sharply from forecasts by Australia’s central bank, which last week raised interest rates to a 12-year high of 4.35%, predicting CPI will exceed its 2-3% target until mid-2025. On Monday, acting Reserve Bank of Australia assistant governor Marion Kohler said the next phase of inflation’s return to target is likely to be more “protracted.”

S&P 500 (F)(US500) 4,411.55 −3.69 (−0.084%)

Dow Jones (US30) 34,337.87 +54.77 (+0.16%)

DAX (DE40) 15,345.00 +110.61 (+0.73%)

FTSE 100 (UK100) 7,425.83 +65.28 (+0.89%)

USD Index 105.68 −0.19 (−0.18%)

News feed for 2023.11.14:

– Australia NAB Business Confidence (m/m) at 02:30 (GMT+2);
– Sweden Inflation Rate (m/m) at 09:00 (GMT+2);
– UK Average Earnings Index (m/m) at 09:00 (GMT+2);
– UK Claimant Count Change (m/m) at 09:00 (GMT+2);
– UK Unemployment Rate (m/m) at 09:00 (GMT+2);
– Switzerland Producer Price Index (m/m) at 09:30 (GMT+2);
– Switzerland Chairman Jordan Speaks at 09:45 (GMT+2);
– Eurozone GDP (q/q) at 12:00 (GMT+2);
– German ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
– Eurozone ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
– US Consumer Price Index (m/m) at 15:30 (GMT+2);
– US FOMC Member Barr Speaks at 17:00 (GMT+2);
– US FOMC Member Mester Speaks at 18:00 (GMT+2);
– US FOMC Member Goolsbee Speaks at 19:45 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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Japanese policymakers are ready to intervene to support the yen. In the US, inflationary pressures are expected to ease