FUNDAMENTAL NEWS AND TECHNICAL ANALYSIS REPORT – 12 JANUARY 2023

12 Jan 2023

As inflation rises, BOJ’s ability to manage yields will be put to the test once more

Asian stock market closes in green on Wednesday. The Shanghai Composite is down 0.24% at 3161.84. Overall, the Singapore MSCI is down 0.82% at 292.18. Over in Hong Kong, the Hang Seng Index is up 0.49% at 21436.05. In Japan, the Nikkei 225 is up 1.03 at 26446.00. While the Topix index is up 1.08% at 1901.25 South Korea’s Kospi is up 0.35% at 2359.53. Australia S&P/ASX 200 up 0.90% at 7195.30.

Top News of the Day:

The Bank of Japan (BOJ) will likely raise its inflation forecasts next week and debate whether further steps are needed to address market distortions it sought to fix with December’s surprise tweak to its yield control policy, sources say.

The BOJ’s decision last month to widen the band around its 10-year yield target has failed to remove market distortions caused by its huge bond buying, leaving traders guessing whether more steps could come as early as its Jan. 17-18 rate review.

While the distortions could be among topics of debate at the Jan. 17-18 meeting, many BOJ officials prefer to spend more time scrutinising the effect of December’s decision, said five sources familiar with the bank’s thinking.

“Japan has yet to see inflation stably and sustainably achieve the bank’s 2% target,” one of the sources said.

Market Summary as per 11/01/2023:

European equities Wednesday closing. The DAX futures contract in Germany traded up 1.17%% at 14947.91, CAC 40 futures up 0.80% at 6924.19. UK 100 futures contract in the U.K. up 0.40 at 7724.98

In the U.S. on Wall Street, the Dow Jones Industrial Average Closed up 0.80% at 33973.01. The S&P 500 up 1.28% at 3969.61 and the Nasdaq 100 up 1.76% at 10931.67, NYSE closes 0.90% up at 15749.09.

Top Market News Today:

In the Forex market, GBPUSD down 0.01% at 1.2143. The USDJPY down 0.60% at 131.66, The USDCHF up 0.26 at 0.9331. EURUSD up 0.05% at 1.0762. EUR/GBP up 0.13% at 0.8862. The USD/CNY down 0.14% at 6.7599 at the time of writing.

In the Commodity market U.S. Gold futures up at 0.27% $1,880.18. Elsewhere, Silver futures up 0.94% at $23.63 per ounce, Platinum down 0.53% at $1067.16 per ounce, and Palladium up 0.44% at $1780.50.

Brent Crude Oil up 0.10% at $82.75 per barrel.

In the Cryptocurrency Markets, Bitcoin at 18153.90 up at 1.16%, Ethereum up 0.97% at 1401.54, Litecoin at 84.25 up 0.21%, at the time of writing.

Top Market Segment to Watch Out Today:

BITCOIN– Bitcoin surges above $18K to cap 8-day winning streak. Bitcoin (BTC $18,100) has clocked eight straight days of increasing prices and has surged back above $18,000 for the first time since mid-December.

The cryptocurrency hadn’t recorded such a prolonged winning streak since July 2021, at the height of the COVID-19 pandemic.

Economic News:

US: – U.S. President Joe Biden and Japan’s Prime Minister Fumio Kishida are expected to discuss joint security issues as well as the global economy in summit talks on Friday, a senior administration official told Reuters.

The talks between the close allies are likely to include control of semiconductor exports to their strategic rival China after the United States announced strict curbs last year, the official said.

Washington is working closely with Japan on the issue and believes they share a similar vision even if their legal structures are different, the official said, adding that the more countries and significant players that backed the controls the more effective they would be.

“There will be discussion about technology and about the importance of both preserving our own advantages and making sure that we are applying appropriate controls and safeguards to do that,” the official said.

Kishida has said he backs Biden’s attempt to limit China’s access to advanced semiconductors with export restrictions. Still, he has not agreed to match sweeping curbs on exports of chip-manufacturing equipment that the U.S. administration imposed in October.

Asked if the two sides saw eye to eye on the issue, the U.S. official said:

“We’re working very effectively with them. I think there’s a remarkably similar vision of the challenges. Obviously, you have different systems, different legal structures, so it’s hard to say that it will be exactly the same, but I don’t think the Japanese question the basic premise that we need to be working closely together on this.”

The official said threats from North Korea, China’s military build-up and Russia’s invasion of Ukraine had prompted Japan to take a more enhanced security role, referring to sweeping Japanese defence reforms announced last month.

“What’s really remarkable is that 10 years ago this would have been pretty much unimaginable,” he said.

The official, who spoke ahead of a meeting of U.S. foreign and defence ministers on Wednesday, also said Article 5 of the U.S.-Japan security treaty will be expanded to cover space.

“Essentially what we are saying is we will be announcing that our security guarantees apply in space as well,” he said.

Euro Zone: –

The European Central Bank expects to continue raising interest rates “significantly” at future meetings, at a sustained pace, to ensure that inflation returns to the 2% target over the medium term, ECB policymaker Pablo Hernandez de Cos said on Wednesday.

“Keeping interest rates at tight levels will reduce inflation by dampening demand and will also protect against the risk of a persistent upward shift in inflation expectations”, De Cos told a financial event in the evening.

His stance was in line with the ECB’s guidance and comes after ECB policymaker Mario Centeno said on Tuesday the current process of interest rate increases was approaching its end.

The ECB has delivered four successive rate hikes since July to halt a historic surge in inflation and has promised further increases to steer price growth towards its goal.

The ECB sees inflation in the euro zone exceeding its 2% target through 2025 and in response has raised interest rates by a combined 2.5 percentage points since July – its fastest pace of monetary tightening on record.

If these projections are taken as valid, this would indicate that achieving the inflation target over the medium term would require “an increase in interest rates above what the market expected at the time.”