JPY: USD/JPY Dips Under 147.00 Amid Equity Weakness, PM Ishiba Backs Pay Rises
Yen gained a little over 0.50% for Monday's session USD/JPY got to fresh multi month lows of 146.64 on Monday before finding some support. The pair tracks near 147.15/20 in early Tuesday dealings, as markets digest the sharp US equity falls from Monday amid continuing growth concerns. Yen, along with NOK, were the only two currencies to rise against the USD for Monday's session.
- The trend needle in USD/JPY continues to point south. Monday's sell-off has resulted in a breach of 146.95, 61.8% of the Sep 16 ‘24 - Jan 10 bull leg. Sights are on 145.92, the Oct 4 2024 low. Key short-term resistance is 151.30, the Mar 3 high. Clearance of this level is required to signal a base.
- The sharp falls in US equities, the SPX lost 2.70%, the Nasdaq down 4.00% sub 17500, to multi month lows, aided yen outperformance. Safe haven demand for US Tsys also saw a sharp move down in yields, with 6-12bps moves lower, led by the front end. This is driving US-JP yield differentials lower, but JGB yields are likely to play some catch up today to the downside.
- Late yesterday, Japan's PM Ishiba pushed companies and unions to achieve strong wage gains this year (see this BBG link). This follows the Rengo pay tally from last week - underlining pay demands at their highest level in over 30 years for the 2025 Shunto round (+6%). While the March BoJ decision sees little chance of a rate hike - the May 1st meeting could be more consequential, for which the decision could be contingent on the Tankan survey on April 1, reports from the Bank's branch managers' meeting on April 7, the updated Rengo tally in April, and CPI.
- Today on the data front we have Jan household spending (+3.7%y/y rise forecast versus 2.7% prior), along Q4 GDP revisions. The market isn't forecasting any shifts to the initial print of 0.7%q/q.
- Note in the following in the option expiry space as well for NY cut later: Y146.45-65($1.0bln), Y148.70($543mln).
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AUSSIE 10-YEAR TECHS: (H5) Resistance Remains Intact
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.665/851 - High Feb 5 / High Dec 11
- PRICE: 95.575 @ 16:37 GMT Feb 7
- SUP 1: 95.275 - Low Nov 14 (cont) and a key support
- SUP 2: 94.477 - 1.000 proj of the Dec 11 - 23 - 31 price swing
- SUP 3: 94.495 - 1.0% 10-dma envelope
The Aussie 10-yr futures contract continues to trade below the Dec 11 high of 95.851. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish theme. For bulls, a confirmed reversal and a breach of 95.851, the Dec 11 high, would instead reinstate a bull cycle and refocus attention on resistance at 96.207, a Fibonacci retracement point.
FED: Gov Kugler: "Prudent" To Hold Rates "For Some Time"
Gov Kugler (permanent voter, leans dovish) said Friday that rates were likely to be held for "some time" - making her the latest FOMC participant to express little impetus for a cut in the near-term.
- "The cautious and the prudent step is to hold the federal funds rate where it is for some time, given that combination of factors, given that the economy is solid, given the fact that we haven't achieved our 2% target, and given the fact that we may have uncertainties and other factors that may be pushing up inflation or maybe reducing output and growth into the future."
- "We reduced our policy rate 100 basis points through December, but the recent progress on inflation has been slow and uneven, and inflation remains elevated. There is also considerable uncertainty about the economic effects of proposals of new policies." She noted in a Q&A that inflation has recently "firmed a little bit."
- She noted that the January jobs report is "consistent with a healthy labor market that is neither weakening nor showing signs of overheating,"
FED: Federal Reserve "Earnings" Briefly Go Positive, But Hole Is Still Large
The Federal Reserve posted positive net earnings in the week to Feb 5, the first time it has done so since September 2022. The $0.4B uptick compares with an average of negative $1.3B over the preceding 6 months.
- Technically, this was a less negative "deferred asset". When the Fed "earns" money on its asset holdings after netting out expenses, it remits this money to the Treasury. With the Fed posting negative earnings for the past 2+ years, it is falling in to deeper and deeper cumulative negative earnings, a "deferred asset" which means that until the figure goes back into a positive balance, no remittances are made to Treasury.
- The "deferred asset" is currently $220.8B.
- The variability of earnings is due to the relationship between rates paid on Fed liabilities versus those paid on its assets.
- The post-GFC rise in the balance sheet saw ZIRP policy and a large set of Treasury and MBS holdings, meaning Fed remittances to the Treasury rose from 0.2% of GDP and 1.3% of government receipts in 2007 to 0.6% and 3.4%, respectively, in 2015, per St Louis Fed calculations. The 2015-18 tightening cycle saw a pullback in remittances, with about $900B remitted to the Treasury over the course of the 2011-20 period.
- The pandemic balance sheet expansion and return to ZIRP saw remittances pick up strongly again, but they have since pulled back. The 52-week average of weekly remittances has shifted, from showing about $10B in monthly "losses" in late 2023/early 2024, to around $6B on a monthly basis now.
- This reflects first the inversion of the yield curve amid the Fed's tightening cycle, and the slow normalizing of the curve since then.
- Unless the Fed easing goes much further, the Fed is unlikely to transmit cash to Treasury for some time.
