Wed, Feb 01, 2023 @ 18:31 GMT
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BOJ Makes Surprise Change to YCC Policy

Market movers today

Today, the German Producer Prices will be released for November. Consensus is looking for a second consecutive m/m decline, which would naturally signal good news for the German economy together with the yesterday’s more upbeat Ifo. Flash Consumer Confidence will be released for the broader euro area as well.

US housing starts will also be released for November, consensus is looking for a further decline in line with NAHB indicator released yesterday. That being said, the modest uptick in NAHB 6M expectations combined with US mortgage rates now below November highs could send an early positive signal for the US housing market as well.

On the central bank front, the National Bank of Hungary is expected to maintain policy rates unchanged. ECB’s Kazimir will also be on the wires today.

The 60 second overview

Japan: Bank of Japan surprised market by changing its yield curve control policy. It widened the upper part of the fluctuation band to 0.50%, while keeping the target of 0.00%. The move led to a jump in 10Y Japanese government bond yield above 0.40% and a drop in USD/JPY to around 133.

EU: EU finally settled on a natural gas price cap, the so-called gas market correction mechanism, which put a EUR180/Mwh ceiling over European natural gas price from 15 February and one year forward. The spot natural gas price benchmark was EUR107/Mwh yesterday.

Iran: UN nuclear officials were reported to have visited Iran Sunday for talks over future corporation and Iran reports it plans to meet EU officials in Jordan soon. It may bring talks over an Iran nuclear deal back to life, although it is likely up to the US whether it will end with a deal that will ease sanctions on Iran.

FI: Italian yields came under pressure yesterday extending the underperformance following the ECB meeting last week, in what was generally a rates up trading session. ECB’s VP de Guindos confirmed the hawkish tones from Lagarde last week, which added some 4-5bp to the peak policy rate of 3.24% (€STR). Curves bear steepened with 30y Germany adding 8bp yesterday.

FX: It has been an unusually quiet start to the week in FX markets with Majors spanning moves of little more than +/- 0.5%. EUR/USD remains close to 1.06 while EUR/SEK and EUR/NOK are trading around 11.00 and 10.50, respectively.

Credit: Credit markets traded mostly sideways yesterday, seeking to come to terms with the recent hawkish rhetoric from the ECB and squaring this with the recent widenings in spread. Both primary and secondary activity is quite low as many investors are closing down for the year. Itraxx main widened 1.6bp to 97bp while Xover tightened 1bp to 505.6bæ

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