BOJ shot across the bow
July 28, 2023
–As leaked yesterday by Nikkei/Reuters, BOJ tweaked 10y JGB yield curve control, leaving a soft +/- 50 bps range, but a hard cap at 1%. JGB yield rose to 57.5 bps this morning. The BOJ news sparked huge moves across assets, but the ECB also raised rates yesterday morning as expected. From Lagarde: “Do we have more ground to cover? At this point I wouldn’t say so.” But she added that future decisions would be driven by data. EURUSD sank to 1.1009, and this morning is 1.0975, having been above 1.12 a couple of weeks ago.
–In the US the 30 yr yield ended (at time of futures settle) at a new high for this calendar year 4.058%. up 13.4 bps. Tens jumped 16.7 bps to 4,014%. Red, green and blue SOFR contracts fell 18 to 19 bps. SFRU4 settled at 9546, equaling the low close for the move from 7-July. SFRU3/SFRU4 spread settled at a new high of -88 (9458/9546), still significantly inverted but well off the recent low of -140. Implied vol was pumped across rate products. For example, atm TYU 111^ settled 1’53 or 7.4, from Wednesday’s 112.25 atm straddle at 1’43 or 6.5.
–Huge day in SPX with a key reversal: New high for the year at 4607, outside range day (and yesterday engulfed the range of the week so far), closed down on the day at 4537 (-0.64%). An indication that buying pressure has now been exhausted. This formation most likely signals that the highs are in for the near future. As an aside, I saw a snippet that Mastercard (MA) beat expectations with “better than expected purchase volume +13.5% to $1.84T vs expected $1.83T” (due in large part to travel and entertainment). However, this stock also made a new high for the year, but closed down 2% with an outside day. Am Express was down 2.5%, Discover down 2.1% and Visa down 1.1%. (AXP, DFS, V) Are these stocks telling us that this is as good as it gets, and that the consumer has topped out?
–Today’s US news includes the Fed’s preferred measure of inflation, PCE prices, expected 3.0% from 3.8 last, with Core 4.2% from 4.6%. Headline m/m expected +0.2%.
Employment Cost Index 1.1% from 1.2% last. Then U of M consumer and inflation expectations. Fed’s SLOOS (Sr Loan Officer Survey) is released Monday.
