The Fright Subsides, Eyes Back on Japan
After four months of exuberance markets had had a few hours of pure fright on Thursday but the near-panic that gripped Japan never spread beyond its borders. The dollar and yen have drifted lower as fears subside. DRAGHI'S speech hailed the effectiveness of the bond buy program on the market but remained concerned with the macroeconomic weakness in the periphery. There were no refefences to interest rates. BOJ Governor Kuroda speaks in the upcoming session when all eyes will be fixed on Japanese markets. Added 1 USDJPY, 2 New EURJPY, 1 new USDCAD and moved the stops and targets in both of our existing EURUSD trades ahead of tomorrow's release of German Q1 GDP and IFO. All of this and the silver as well as the Aussie trades are in the latest Premium Insights.
Markets were on edge heading into US trading but two solid data points helped to calm nerves. First, initial jobless claims were at 340K compared to 345K expected and then the May Markit US manufacturing PMI reading was 51.9 compared to the 51.8 consensus. The numbers were a reminder that nothing had changed in the economy even with the Nikkei plunging 7.3%.
Later some minor numbers on US housing were also a reminder of the latent strength in that part of the economy.
Fed speakers also re-iterated a stance very close to neutral. San Francisco Fed President Williams said that even if the Fed tapers, it could later hike purchases. Bullard said tapering should only be done in relatively small increments.
Aside from the race to the exits in yen shorts, other markets took a nonchalant view. Commodity currencies climbed throughout US trading and the S&P 500 finished the day only 0.3% lower. It's too early to sound the 'all clear' signal but an upbeat mood in Asia could lead to a fresh round of optimism.
One factor to watch is at 0255 GMT when Bank of Japan leader Kuroda speaks at a conference on the future of Asia. Kuroda may wish to address the weakness in the Japanese bond market and the volatility in stocks.