The JPY is the strongest and the CHF is the weakest as the North American session begins.

The JPY is the strongest and the CHF is the weakest as the North American session begins.Overnight, Bank of Japan Deputy Governor Uchida, in an interview with Nikkei media, said that the central bank plans to maintain the Yield Curve Control (YCC) policy to continue easy monetary conditions. While discussing the possibility of adjusting YCC, he emphasized the importance of ensuring easy policy while considering its impact on financial intermediation and market function. He suggested that the risk of missing the 2% inflation target due to a premature policy shift is greater than the risk of being late in tightening monetary policy. He also acknowledged that there is a considerable distance to ending the negative interest rate, equating such a decision to a 0.1% rate hike. Uchida also commented on the Yen, saying that rapid, one-sided declines are undesirable and the currency should reflect economic fundamentals.

In addition, Former Japanese Vice Finance Minister Eisuke Sakakibara, also known as “Mr. Yen,” predicts that the USD/JPY could potentially exceed 160, possibly next year. At that level, he suggests that authorities might be inclined to intervene to fortify the yen. He also indicated that the yen could continue to depreciate unless the Bank of Japan (BOJ) tightens its monetary policy. This could involve abolishing negative rates and relinquishing controls on bond yields by the end of next year. If the Japanese economy heats up as anticipated, he expects a likely tightening in 2024. As for his personal strategy regarding currency intervention, Sakakibara believes in the efficacy of surprise actions, suggesting that he would intervene unexpectedly, without waiting for the market. However, he acknowledges that the BOJ is unlikely to pre-announce any intervention, ensuring an element of surprise remains regarding timing.

Despite the tilt in comments to a weaker JPY, the JPY initially tried to move higher in the earlier Asian session with the comments. However, the JPY turned around and moved higher at the end of the Asian Pacific session, and in the European morning session. The USDJPY is traded to the lowest level since June 23 with the 38.2% of the move up from the June 1 low at 142.528 now in trader’s sites. PS the BOJ next meets on July 27/28.

In the European session this morning, European Central Bank (ECB) Vice President Luis de Guindos described labor market dynamics in the Eurozone and globally as very positive. He noted that inflation in the services sector has proven to be more persistent. The future of interest rates in September remains an open question. de Guindos mentioned the advanced transmission of their unprecedented policy hikes to tighter financing conditions and the emerging impact on the real economy. However, he emphasized the job isn’t done yet, with a need for continued monitoring of services inflation and labor costs. Even though underlying price pressures remain strong, he pointed out that most indicators have started to show signs of softening. The expectations are that the ECB will raise rates by 25 basis points when they announce their next decision on July 26.

Today is nonfarm payroll day in the US and the USD is trending modestly lower. Adam had a nice preview of the data posted yesterday (you can find it here). Expectations are for around 225K, but given the sharp rise in the ADP yesterday (plus 497K versus 170K estimate), the market will likely be looking for something higher.

Some employment statistics for June already released show:

  • ADP employment 497K vs 170K expected
  • ISM manufacturing employment 48.1 vs 51.4 prior
  • ISM services employment 53.1 vs 49.2
  • Philly employment -0.4 vs -8.6 prior
  • Empire employment -3.6 vs -3.3 prior
  • Initial jobless claims survey week 265K vs 259K expected.

Barring a huge surprise on the weak side today (like a negative number), the Fed is expected to hike rates by 25 basis points when they announce their next rate decision on July 26. The odds of a rate hike in July are up to over 92%. The probability of a September 20 move is 29%, but November 1 is near 50%. The Fed penciled in two hikes between now and the end of the year at the June meeting.

Yesterday, Dallas Fed President Lorie Logan, expressed that she would have been comfortable with a rate hike in June. She believed that additional rate hikes are likely needed and expressed concern about whether inflation will subside quickly enough. Logan attributed the decision to pause in June to the challenging and uncertain economic environment. She also noted that the process of rebalancing the economy has been slower than anticipated and expressed skepticism about the delayed impact of previous rate hikes by the Fed. Logan suggests that the housing market may have reached its lowest point, but warns that a rebound in the housing sector could pose a threat to controlling inflation.

Canada will also release their employment statistics 8:30 AM with expectations of an employment change of +19.8K with the unemployment rate moving to 5.3% from 5.2%.

A snapshot of the markets currently shows:

  • Crude oil is trading up $0.30 or 0.42% at $72.10. Yesterday the price settle at $71.80
  • Spot gold is trading up $6.54 or 0.34% $1917.34
  • Silver is trading down $0.03 or -0.13% at $22.70
  • Bitcoin is trading at $30,129. The price was at $30,240 near 5 PM yesterday

In the premarket for US stocks, the major indices are trading modestly lower after the indices fell yesterday

  • Dow Industrial Average is trading down -2 points after yesterday’s -366.38 point decline
  • S&P index is trading down -1.6 points after yesterday’s -35.21 point decline
  • NASDAQ index is trading down -22 points after yesterday’s -112.62 point decline

In the European equity markets, the major indices are trading mixed. Yesterday the major indices all fell sharply to the downside.

  • German DAX is up 0.55%. Yesterday the index fell -2.57%
  • France’s CAC is up 0.56%. Yesterday the index fell 3.13%
  • UK’s FTSE 100 is down -0.30%. Yesterday the index fell -2.17%
  • Spain’s Ibex is down -0.53%. Yesterday the index fell -2.12%
  • Italy’s FTSE MIB up 0.61% (delayed). Yesterday the index fell -2.53%

In the Asian Pacific market today, markets closed modestly lower

  • Japan’s Nikkei tumbled -1.17% %
  • Australia’s S&P/ASX 200 index tumbled -1.69%
  • China’s Shanghai composite index fell -0.28%
  • Hong Kong’s Hang Seng index fell -0.90%

In the US debt market, yields are modestly higher in early US trading

  • 2-year yield 5.011%, +0.5 basis points
  • 5-year yield 4.397% , +2.7 basis points
  • 10-year yield 4.067%, +2.5 basis points basis points
  • 30-year yield 4.013%, +1.0 basis points basis points

In the European debt market, benchmark 10-year yields are mixed:

This article was written by Greg Michalowski at Source