WORLDWIDE: HEADLINES
BOJ Offers To Buy Unlimited 10-year Bonds To Defend Yield Ceiling
The Bank of Japan on Monday offered to buy unlimited amounts of 10-year Japanese government bonds (JGBs) at 0.25%, stepping into the market to defend its implicit yield cap for the second time this year.
The move came after the 10-year JGB yield crept up to a six-year high of 0.245% in early trade, just a half of a basis point shy of the BOJ’s tolerance ceiling under its yield curve control policy.
The offer, which is the first since Feb. 10 and to be executed on Tuesday, pushed the dollar to a more than six-year high of 122.78 yen as investors focused on prospects of widening U.S-Japan interest rate differentials. read more
“The move, which was largely anticipated, will help curb rises in JGB yields,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.
“This operation is a message from the BOJ that it will maintain ultra-easy policy for the time being,” he said.
The 10-year JGB yield has been creeping up in tandem with a rise in U.S. long-term interest rates, as investors have priced in the prospect of aggressive rate hikes by the Federal Reserve.
Markets had been focusing on when the BOJ could step in to defend the 0.25% ceiling, after refraining to do so on Friday as the 10-year yield topped the level at which the central bank had offered to buy an unlimited amount in February.
The BOJ’s current guidance is that it will allow the 10-year yield to move flexibly around its 0% target as long as it stays below the 0.25% upper limit, though it will take into account not just the level but the speed of any rise in yields.
The 10-year JGB yield has been creeping up in tandem with a rise in U.S. long-term interest rates, as investors have priced in the prospect of aggressive rate hikes by the Federal Reserve over the course of this year.
BOJ Governor Haruhiko Kuroda has repeatedly said the central bank would maintain interest rates at the current ultra-low levels, given the fragile economic recovery and as inflation remains well below its 2% target.
Full coverage: REUTERS
Tesla Suspends Production At Shanghai Factory For 4 Days To Comply With COVID Curbs – Sources
U.S. automaker Tesla (TSLA.O) is suspending production at its Shanghai factory for four days after the city announced on Sunday night it would lock down in two stages to carry out mass testing for COVID 19, two people familiar with the matter said.
The company has notified its workers and suppliers of the move, the people said.
It initially attempted to create a closed loop to continue production and called workers in on Sunday, one of the sources said. However, it allowed them to leave that evening after it decided it did not have enough provisions for them, the source added.
Tesla did not immediately respond to a request for comment on Monday.
China’s financial hub of Shanghai said on Sunday it would lock down the city in two stages to carry out COVID-19 testing over nine days.
Authorities said they would divide Shanghai in two for the exercise, using the Huangpu River that passes through the city as a guide.
The Tesla factory is in the Lingang district of Pudong new area, which is part of Shanghai’s first lockdown stage. Its lockdown started early on Monday and is scheduled to last until Friday morning.
Full coverage: REUTERS
WORLDWIDE: FINANCE/BUSINESS
Asia Shares And Oil Slip; Yen Sinks As BOJ Stays Super-loose
Asian shares and oil prices both slid on Monday as coronavirus lockdown in Shanghai looked set to hit global activity, while the yen extended its stomach-churning descent as the Bank of Japan acted to keep local yields near zero.
China’s financial hub of 26 million people told all firms to suspend manufacturing or have people work remotely in a two-stage lockdown over nine days.
The spread of restrictions in the world’s biggest oil importer saw Brent skid $3.26 to $117.39, while U.S. crude fell $3.37 to $110.53.
Risk sentiment was helped by hopes of progress in Russian-Ukranian peace talks to be held in Turkey this week after President Volodymyr Zelenskiy said Ukraine was prepared to discuss adopting a neutral status as part of a deal.
Early action on Monday was muted with MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) off 0.8%. The index is down 3% for the month but well above recent lows.
Chinese blue chips (.CSI300) shed 0.8%. Japan’s Nikkei (.N225) lost 0.4%, but is still almost 6% firmer for the month as a sinking yen promised to boost exporter earnings.
S&P 500 stock futures eased 0.3%, while Nasdaq futures slipped 0.4%. EUROSTOXX 50 futures and FTSE futures both held steady for the moment.
Wall Street has so far proved remarkably resilient to a radically more hawkish Federal Reserve. Markets are pricing in eight hikes for the remaining six policy meetings this year, taking the funds rate to 2.50-2.75%.
Even that outlook is not aggressive enough for some. Citi last week forecast 275 basis points of tightening this year including half-point hikes in May, June, July and September.
“We expect the Fed to continue hiking into 2023, reaching a policy rate target range of 3.5-3.75%,” wrote the analysts at Citi. “Risks to the terminal policy rate remain to the upside given the upside risk to inflation.”
Full coverage: REUTERS
Yen Back Under Pressure As BOJ Steps In
The Japanese yen resumed its slide on Monday morning, after the Bank of Japan stepped into the market to defend its implicit yield cap.
The yen fell to as low as 122.78 per dollar, its weakest since December 2015, giving up its mini recovery from Friday when the Bank of Japan did not step in to defend its target.
However, On Monday morning, the BOJ offered to buy unlimited amounts of 10-year Japanese government bonds (JGBs) at 0.25%, after the 10-year JGB yield crept up to a six-year high of 0.245%.
“While a risk of near-term correction has risen given the rapidity of its ascent, we expect dollar-yen to remain well-supported at high levels,” said analysts at Barclays, citing monetary policy divergence and the negative impact from higher commodity prices on Japan’s terms-of-trade.
The U.S. Federal Reserve’s firmly hawkish stance has markets pricing in an aggressive pace of rate hikes this year, while the Bank of Japan is remaining dovish, particularly given policy markers’ fears that higher prices caused by rising energy costs could hurt the world’s third-largest economy.
A senior Japanese government official said on Sunday that monetary policy must remain loose.
While higher commodity prices have pummelled the yen in recent weeks, they have provide a powerful impetus to commodity currencies.
The Aussie dollar was at $0.75115 holding near last week’s four month high, while the Canadian dollar was at 1.2496 per dollar, just off Friday’s two month peak.
Aussie currency watchers are also looking out to Australia’s budget on Tuesday. Australia’s Treasurer said on Sunday the budget would mark a very significant material improvement to the government’s bottom line.
One possible headwind for the Aussie is the COVID-19 situation in China, after Shagnhai said on Sunday it would lcockdown the city to carry out COVID-19 testing.
The dollar climbed 0.17% on the offshore yuan on Monday morning to 6.394.
Major eurozone economises are due to report inflation figures from Wednesday, and “stronger-than-expected Eurozone CPI will add to rates market pricing for ECB tightening, underpinning the euro,” the Barclays analysts said.
Full coverage: REUTERS
Oil Slumps As Shanghai Lockdown Raises Fears Over Drop In Demand
Oil prices plunged about $4 on Monday as concerns over slower fuel demand in China grew after authorities in Shanghai said they would shut the country’s financial hub for a COVID-19 testing blitz over nine days.
The market kicked off another week of uncertainty, buffeted on one side by the ongoing war between Ukraine and Russia, the world’s second-largest crude exporter, and the expansion of COVID-related lockdowns in China, the world’s largest crude importer.
Brent crude futures slid as low as $116.00 a barrel and were trading down $3.88, or 3.2%, at $116.77 at 0131 GMT.
U.S. West Texas Intermediate (WTI) crude futures hit a low of $109.30 a barrel, and were down $3.92, or 3.4%, at $109.98.
Both benchmark contracts rose 1.4% on Friday, notching their first weekly gains in three weeks, with Brent surging more than 11.5% and WTI climbing 8.8%.
“Shanghai’s lockdown prompted a fresh sell-off from disappointed investors as they expected such a lockdown would be avoided,” said Kazuhiko Saito, chief analyst at Fujitomi Securities Co Ltd.
He added the market had factored in the impact of a missile attack on a Saudi oil distribution facility last Friday.
“Still, as OPEC+ is less likely to raise oil output at a faster pace than the recent months, we expect the oil market to turn bullish again later this week,” he said.
Shanghai’s city government said on Sunday all firms and factories would suspend manufacturing or have people work remotely in a two-stage lockdown over nine days, after the city reported a new daily record for asymptomatic COVID-19 infections.
Sapping fuel demand further, public transport, including ride-hailing services, will also be suspended during the lockdown.
On Friday, Yemen’s Houthis said they launched attacks on Saudi energy facilities and the Saudi-led coalition said Aramco’s petroleum products distribution station in Jeddah was hit, causing a fire in two storage tanks but no casualties.
Full coverage: REUTERS
