After a lengthy period of trumpeting the rally charge, Chinese investors are coming up for air after an uptick in inflation gently pushed back those in the PBoC dovish camp. Still, other regional bourses are holding on to gains floated by the expectation of a further softening in the critical CPI inflation gauges later in Thursday's US session. Although admittedly, nothing is worse than having everyone on the same page regarding a high-risk event.
If the soft CPI signals a move to 25bp and the Fed follows through, they will narrow the distribution for policy rates and eliminate the right tail, bringing rates vol down further. Indeed, this helps risk assets and should weigh on the dollar. A further loosening of financial conditions increases the probability of a soft landing, given growth should be better.
As European growth starts to warm up, markets are pricing out a technical recession as the region's activity data has improved markedly in recent weeks, and incoming data has remained resilient.
China's earlier-than-expected reopening should provide a growth boost to the region. Beyond boosting growth, it should lift EU equity markets as Asia Pacific is a crucial importer of STOXX 600 constituents.
The prospect of the Fed U-turn continues to put a soft bid under the Euro this week. And assuming no upside surprises on the inflation front, currency traders' tunnel vision on China reopening growth impulses should be a key driver of commodity currency upside.
JPY is trading stronger after inbound spending recovered to nearly 40 % of Pre-Pandemic levels in November
The MOF also announced international securities transaction data for December 2022. Domestic investors remained large net sellers of foreign bonds, at -¥1.5 tn (November: -¥1.1 tn). Which also pushed cumulative net sales in 2022 up to ¥21.7 tn. Domestic investors have been net sellers of foreign bonds on an annual basis only once, in 2013 (-¥2.8 tn), since comparable data became available in 2005, highlighting the magnitude of the sell-off in foreign bonds in 2022.
With speculation running rife that the BoJ will continue to adjust or even do away with YCC as sovereign bond volatility slinks lower, a local press report suggests policymakers will continue to address Bond market plumbing issues via the effectiveness of YCC amid a Fed downshift regime sent tongues wagging on the expectation of even more inflows, sending the Yen on a stronger vector.
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