Fundamental News And Technical Analysis Report – 27 January 2023

27 Jan 2023

BOJ uses the funds-supply weapon once more as yields begin to rise.

Asian stock market closes in green on Thursday. The Shanghai Composite is up 0.76% at 3264.81. Overall, the Singapore MSCI is up 0.68% at 308.52. Over in Hong Kong, the Hang Seng Index is up 2.37% at 22566.78. In Japan, the Nikkei 225 is down 0.12 at 27362.75. While the Topix index is down 0.12% at 1978.40, South Korea’s Kospi is up 1.65% at 2468.65. Australia S&P/ASX 200 down 0.30% at 7468.30.

Top News of the Day: –

The Bank of Japan said on Friday it will extend five-year loans against collateral to financial institutions, the second time it has made such an offer after ramping up the funds-supply operation this month to defend its yield control policy.

The announcement underscores the central bank’s resolve to prevent simmering market speculation of a near-term interest rate hike from pushing up bond yields too much.

The BOJ will conduct the funds-supply operation on Tuesday, under which it will offer loans with a five-year duration from Feb. 1, it said in a statement.

The amount of loans to be offered will be announced on Tuesday, it added.

The announcement came after the 10-year Japanese government bond (JGB) yield crept up near the BOJ’s 0.5% cap on Friday, partly on data showing core consumer inflation in the capital Tokyo hit a near 42-year high of 4.3% in January.

In the previous offer made on Monday, the BOJ extended five-year loans worth 3.13 trillion yen ($24.09 billion). The minimum bid interest rate was 0.110%.

At this month’s policy meeting, the BOJ amended rules for the funds-supply operation, so it can pump funds extending up to 10 years to financial institutions against collateral.

Market Summary as per 26/01/2023:

European equities Thursday closing. The DAX futures contract in Germany traded up 0.34% at 15132.85, CAC 40 futures up 0.74% at 7095.99. UK 100 futures contract in the U.K. up 0.21 at 7761.11

In the U.S. on Wall Street, the Dow Jones Industrial Average Closed up 0.61% at 33949.41. The S&P 500 up 1.10% at 4060.43 and the Nasdaq 100 up 1.76% at 11512.41, NYSE 0.61% closes at 15985.87.

Top Market News Today:

In the Forex market, GBPUSD down 0.30% at 1.2369. The USDJPY down 0.23% at 129.87, The USDCHF up 0.24 at 0.9220. EURUSD down 0.14% at 1.0874. EUR/GBP up 0.22% at 0.8790. The USD/CNY up 0.00% at 6.7820 at the time of writing.

In the Commodity market U.S. Gold futures down at 0.24% $1,924.85. Elsewhere, Silver futures down 1.22% at $23.60 per ounce, Platinum down 1.15% at $1007.33 per ounce, and Palladium down 0.64% at $1662.26.

Brent Crude Oil up 0.47% at $87.87 per barrel.

In the Cryptocurrency Markets, Bitcoin at 22961.00 down at 0.07%, Ethereum down 1.15% at 1582.71, Litecoin at 87.76 up 0.25%, at the time of writing.

Top Market Segment to Watch Out for Today:

OIL– Oil prices edged ahead for a second session on Friday, buoyed by stronger-than-expected U.S. economic growth and hopes of a rapid recovery in Chinese demand as COVID-19 cases and deaths plunged from last month’s peak levels.

The prices were flat compared with last Friday’s close. If they end at higher levels, it would mark the third straight week of gains for crude.

Economic News:

US: – The amount of money sloshing around the U.S. economy shrank last year for the first time on record, a development that some economists believe bolsters the case for U.S. inflation pressures continuing to abate.

The Federal Reserve’s main measure of the nation’s money stock – known as M2 money supply – slid for a fifth straight month in December, dropping by a record $147.4 billion to a seasonally adjusted $21.2 trillion from the month before, data from the U.S. central bank released this week showed.

From a year earlier, the volume of cash, coins, checking and savings deposits, other small-time deposits and cash parked in money market funds fell by nearly $300 billion and has fallen by more than $530 billion since last March when the Fed kicked off its aggressive – and ongoing – process to drain liquidity from the economy to combat high inflation.

M2 took off in March 2020 as the Fed slashed rates and started buying trillions of dollars in bonds to help support the economy as the coronavirus pandemic started, ultimately mushrooming by $6.3 trillion – a 40% increase – from its level right before the start of the crisis.

The recent decline in the money supply comes as the Fed has been aggressively raising rates to push inflation back to its 2% target. Since last June, it has also cut its holdings of Treasury and mortgage bonds by $400 billion to roughly $8.5 trillion to augment that process, further stripping the economy of financial liquidity.

Money-supply purists have long argued that the country’s ever-growing stock of money was an inflation powder keg. It’s an argument that lost credibility with policymakers in the record-long economic expansion before the pandemic when M2 rose by more than 80% but inflation never rose sustainably above the Fed’s 2% target and spent much of that decade notably below it.

That dynamic changed in the last two years, though, with money supply trends moving in roughly the same direction as inflation pressures: As money supply rose rapidly into early 2022, so did inflation; since M2 started a persistent decline last summer, inflation pressures have also receded.

Euro Zone: – British finance minister Jeremy Hunt will promise on Friday to tackle the country’s weak productivity with post-Brexit finance reforms to boost growth, but he will also stick to the tax rises that have angered some lawmakers in his Conservative Party.

Hunt, who steadied financial markets after the turmoil of former Prime Minister Liz Truss’ “mini-budget” in September last year, is preparing to announce a plan for growth in a budget statement in March.

He intends to use a speech on Friday to counter talk of Britain’s economic decline and focus on growth industries, including digital technology and the shift to new, high-value industries such as renewable power and advanced manufacturing.

“Confidence in the future starts with honesty about the present, and we should not shy away from the biggest challenge we face which is our poor productivity,” Hunt was due to say in the speech, excerpts of which were released by the ministry.

“Our plan for long-term prosperity tackles that challenge head-on. It is a plan necessitated, energized and made possible by Brexit which will succeed if it becomes a catalyst for the bold choices we need to take.”

Hunt would confirm that reforms to the European Union’s Solvency II rules will be implemented in the coming months, allowing insurers to invest more in the economy, the ministry said.

The Telegraph newspaper said Hunt would reject calls from some Conservative lawmakers to bring forward tax cuts as a way to spur growth.

Earlier on Thursday, Hunt told fellow ministers that he had to stick to the fiscal discipline he outlined in November in order to help reduce inflation which is running above 10%, according to Prime Minister Rishi Sunak’s office.

Top Economic Releases Today:

USD: Core PCE Price Index (MoM) (Dec) Forecast 0.3%, Previous 0.2% at 19:00
USD: Pending Home Sales (MoM) (Dec) Forecast –0.9%, Previous –4.0% at 20:30
USD: U.S. President Biden Speaks at 01:15
EUR: ECB President Lagarde Speaks at 16:00
JPY: Tokyo Core CPI (YoY) (Jan) Actual 4.3%, Forecast 4.2%, Previous 4.0% at 05:00