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Morning Bid: Intervene, rinse, repeat

Published 02/05/2024, 02:32 pm
Updated 02/05/2024, 02:36 pm
© Reuters. An electronic screen displays a graph showing Japanese Yen exchange rates surged against the U.S. dollar amid signs of intervention by Japanese authorities in Tokyo, Japan May 2, 2024, REUTERS/Issei Kato
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A look at the day ahead in European and global markets from Tom Westbrook

Sudden yen rallies and a 5.5 trillion yen ripple in Japan's money markets seem to put us in the midst of another round of intervention. The latest yen surge came in the thin morning of the Asia day, an hour after daybreak in Wellington.

Like Monday, it occurred during low-liquidity trading. Only this time, it did not follow any wild drop in the yen and came instead as markets drifted in the wake of Federal Reserve chair Jerome Powell's post-meeting news conference.

The Fed held rates and Powell noted that fighting inflation was taking longer than expected.

Then he framed the outlook as a decision between cutting or holding, a relief for markets nervous about the risk of another rate hike and a slight negative for the dollar.

Enter Japan, or so traders suspected, as the dollar suddenly tanked from 157.5 yen to 153.

Assuming it was the work of Japanese authorities, the tactic is an evolution - riding dollar weakness for effect and not just correcting sudden falls in the yen.

But the worrying part for them is how quickly and strongly the bid for dollars returned.

By mid-morning in Tokyo, the dollar/yen was back to 156, suggesting that some speculators - rather than being rinsed out - are simply taking the opportunity to reload bets against the yen at more favourable prices.

Markets are pricing only one Fed cut this year and less than 20 basis points of tightening in Japan. That doesn't add up to much when the short-term rates differential is more than 500 basis points.

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Outside of currencies, Apple (NASDAQ:AAPL) results headline U.S. earnings releases. Hugo Boss, Novo Nordisk (CSE:NOVOb), and Shell (LON:RDSa) report in London and Europe.

Final manufacturing PMIs will roll out in Europe and there is second-tier data in the U.S., including initial jobless claims and durable goods orders.

Chinese markets are closed for a holiday. Bank of Japan minutes showed members agreeing that markets ought to be setting benchmark yields in the government bond market. Qualcomm (NASDAQ:QCOM) shares rose 4% after hours as the chipmaker's results showed better-than-expected profits and strong China sales.

Standard Chartered (LON:STAN) beat estimates with a 5.5% rise in first-quarter pretax profit.

Key developments that could influence markets on Thursday:

Economics: Euro zone final manufacturing PMIs

Earnings: ArcelorMittal, Hugo Boss, ING, Novo Nordisk, Universal Music (AS:UMG), Apple.

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