Some Water to Tread

The quickening pace of the spread
Of delta means looking ahead
The prospects for both
Inflation and growth
Seem likely, some water, to tread

The upshot is central bank staff
Will trot out some chart or some graph
Highlighting that rates
In all nation states
Should once more be cut, least in half

The talk of the markets is the pace of the spread of the delta variant of Covid and how the latest wave of lockdowns and other measures has reduced growth forecasts for the second half of the year.  This is especially true throughout Asia as nations that had seemingly weathered the initial wave of Covid with aplomb find themselves woefully unprepared for the current situation.  A combination of less widespread vaccinations and less effective health infrastructure has resulted in the fast spreading virus wreaking havoc.  China, for instance, finds itself in this position as half of its 32 provinces are reporting cases and officials there have closed major tourist destinations because of the spread.  This is a far cry from their earlier claims of having controlled the virus better than anyone else.  But the same situation exists throughout Europe and the Americas as the delta variant runs its course.

The clearest market response to this situation has been from bond markets where yields continue to fall around the world on the weaker prospects for growth.  The amount of negative yielding debt worldwide has risen back to $16.7 trillion, up from $12.9 trillion at the end of June, although still below the $18.3 trillion reached in December of last year.  However, the trajectory of this move, which is approaching vertical, offers the possibility that we could easily take out those old highs in the next week or two.

The problem is that rapidly declining bond yields do not accord easily with higher inflation or inflation expectations.  Yet higher inflation continues to be present and inflation expectations continue to rise.  This is the great conundrum in markets right now.  How can markets be anticipating slower growth while inflation measures continue to rise?  Shouldn’t slower growth lead to lower inflation?

In ordinary economic environments, there has certainly been a strong relationship between growth and inflation, but I challenge anyone to describe this economic situation as ordinary.  Rather, as a result of collective government responses to the pandemic, with whole swaths of various economies around the world being closed, along with massive fiscal and monetary stimulus being added to those same economies, a series of supply shocks have been created.  Thus, when the artificially stoked demand (from the stimulus) meets the constrained supply (from the lockdowns) the natural response is for prices to rise in order to achieve a new equilibrium.  The point is that the supply constraints continue to drive much of the pricing behavior, and therefore the inflation story, while the central banks can only really affect the demand side of the equation.  After all, while they may be able to print lots of money, they cannot print chickens, toilet paper or semiconductors, all things that have seen supply reduced.

A large part of the central banks’ transitory inflation theme stems from the fact that their models tell them that supply will be replenished and therefore prices will ease.  Alas, there has been little indication that the real world is paying attention to central bank models, as we continue to see shipping delays, manufacturing delays and higher raw materials prices as the supply infrastructure remains under significant strain.

Perhaps the most telling feature regarding the current views on inflation, even more than the rise in economic statistics, is the growth in the number of stories in the mainstream media regarding why different ordinary products and services have become more expensive.  Just this morning, the WSJ explained why both vacations and patio furniture are more expensive, and a quick Google trends search shows the term “more expensive” is being searched at near peak levels virtually daily.  The central bank community has put themselves in a significant bind, and while some nations are beginning to respond, the big 3, Fed, ECB and BOJ, show absolutely no signs of changing their behavior in the near term.  As such, the outlook is for more printed money, the same or few available goods and higher prices across the board.

Turning to markets, all that money continues to be a positive for equity investors as a great deal of that liquidity keeps finding its way into equity markets.  While Japan (Nikkei -0.2%) lagged last night, the rest of Asia rebounded with both the Hang Seng and Shanghai indices rising 0.9%.  Europe, too, continues to perform well with the DAX (+0.8%), CAC (+0.4%) and FTSE 100 (+0.4%) all in the green after PMI Services indices were released.  While all of those data points were strong, they all missed expectations and were slightly softer than last month.  In other words, the trajectory continues to be lower, although the absolute readings remain strong.  Perhaps despite what Timbuk 3 explained, you won’t need shades for the future after all.

As to the bond market, we continue to see demand as yields are lower almost everywhere.  Treasury yields have fallen 1 basis point, with European sovereigns even stronger (Bunds -1.7bps, OATs -2.0bps, Gilts -1.3bps).  In fact, the only bond market to sell off overnight was in New Zealand (+5bps) as comments from the central bank indicated they are likely to raise rates next week, and as many as 3 times by the end of the year as inflation continues to rise while the unemployment rate fell to a surprisingly low 4.0%.

Commodity prices continue to lack direction, although the negativity on the economy has impacted oil prices which are down 1.1% this morning.  However, gold (+0.4%) is looking up, as are agricultural prices with the big three products all higher by between 0.3%-0.6%.  Base metals, though, are under pressure (Cu -0.4%, Sn -0.3%) which given the evolving economic sentiment makes some sense.

Finally, the dollar is ever so slightly softer this morning with only NZD (+0.7%) showing real movement and dragging AUD (+0.3%) along with it.  Otherwise, the rest of the G10 is +/- 0.1% from yesterday’s closing levels.  The EMG picture is a bit more mixed with gainers and losers on the order of 0.4%, although even that is only a few currencies.  The leader today is KRW (+0.4%) which responded to increased expectations that the BOK would be raising interest rates soon, perhaps later this month, with some analysts even floating the idea for a 50bp hike.  We have seen a similar gain in HUF (0.4%) as the market continues to digest hawkish commentary from the central bank there, but after those two, gainers have been far less impressive.  On the downside, TRY (-0.4%) is the laggard du jour as the market grows increasingly concerned that the central bank will not be able to keep up with rising inflation there.  Elsewhere, THB (-0.35%) fell on weakening growth prospects and the rest of the space was less interesting.

Two notable data points are to be released today with ADP Employment (exp 683K) early and then the ISM Services (60.5) index released at 10:00. The ADP number will be seen by many as a harbinger of Friday’s NFP, so could well have a big impact if it surprises in either direction.

Interestingly, the dollar continues to hold its own lately despite declining yields as it appears investors are buying dollars to buy Treasuries.  After all, as more and more debt turns into negative yields, Treasuries look that much more attractive.  At least until the Fed admits that inflation is going to be more persistent than previously discussed.

Good luck and stay safe
Adf

No Antidote

In Georgia, today’s runoff vote
For Senate is no antidote
To nationwide fears
The quartet of years
To come, more unease, will promote

Investors expressed their dismay
By selling stocks all yesterday
As well, though, they sold
The buck and bought gold
Uncertainty’s with us to stay

Markets certainly got off to an inauspicious start yesterday as a number of concerns regarding upcoming events, as well as the possibility that some markets are overextended, combined to induce a bit of risk reduction.  Clearly, the top story is today’s runoff election in Georgia, where both US Senate seats are up for grabs.  The Republicans currently hold a 50-48 majority, but if both seats are won by the Democratic candidates, the resulting 50-50 tie will effectively give the Democrats control of the Senate as any tie votes will be broken by the Vice-President.  In that event, the Democrats should be able to institute their platform which, ostensibly, includes infrastructure spending, the Green New Deal, or parts thereof, and more substantial stimulus to address the impact of the coronavirus.

This blue wave redux has been a key topic in markets of late.  You may recall that heading into the election in November, when the polls were calling for the original blue wave, the market anticipated a huge amount of fiscal stimulus driving significantly larger Federal budget deficits.  The ensuing Treasury bond issuance required to fund all this spending was expected to result in a much steeper yield curve, a continuing rally in the stock market as the economy recovered (and this was before the vaccine) and a declining dollar.  As the runoff election approached, markets started to replay that scenario which has, until yesterday, led to successive new all-time high closes in equity indices as well as a steeper Treasury yield curve.  As well, the dollar has remained under pressure, as that remains one of the strongest conviction trades of 2021.

But yesterday, and so far this morning, we are seeing a potential change of heart, or perhaps just a note of caution.  Because if the Republicans retain one of the two seats, that will put paid to the entire blue wave hypothesis.

Of course, there is another possibility that is driving investor caution, and that is the idea that markets, especially equity markets, remain extremely frothy at current levels.  Certainly, on a historical basis, valuation indicators like P/E or Shiller’s CAPE, or Price/Book or even Total Market Cap/GDP are at historically high extremes.  Is it possible that the market has already priced in every conceivable positive event to come?  There are those who would make that argument, and if they are correct, then the required catalyst for a correction of some sorts is likely not that large.  For instance, if the Republicans win even one seat, the entire stimulus bandwagon may never get going, let alone any of the more widescale projects.  And that could well be enough to force a rethinking of the endless stimulus theory with a resultant revaluation of investment risks.

One of the things that always bothered me about the blue wave hypothesis was the idea that the Treasury yield curve would steepen, and the dollar would decline.  Historically, a steeper yield curve has indicated a strengthening US economy which has drawn investment and strengthened the dollar.  I don’t believe that relationship will change, however, a weaker dollar does make sense if you consider how the Fed is likely to respond to rising Treasury yields; namely with Yield Curve Control (YCC).  The US government cannot afford for interest rates to rise substantially, especially as the amount of debt issued continues to grow rapidly.  In fact, the only way it can continue to pay interest on the growing pile of debt is to make sure that interest rates remain at historically low levels.  The implication is that if the Treasury continues to flood the market with issuance, the Fed will be required to buy all of it, and then some, in order to prevent yields from rising.  And whether it is explicit, or implicit, that YCC is going to result in increasingly negative real yields in the US (as inflation is almost certainly going higher).  Now, if you wanted a catalyst to drive the dollar lower, increasing negative real yields is a perfect solution.  While that may not be such a benefit for investors and savers, it will help the Fed retain the upper hand in the global policy ease race, and with it, help undermine the value of the dollar.  It is, in fact, the basis for my views this year.  All that from the Georgia run-off elections!  Who would have thunk?

As to markets this morning, yesterday’s weakness remains fairly widespread in the equity space, as all European bourses are lower (DAX -0.4%, CAC -0.5%, FTSE 100 -0.1%) after a mixed Asian session (Nikkei -0.4%, Hang Seng +0.6%, Shanghai +0.7%).  In fact, Shanghai reached its highest level since August 2015, the previous bubble we saw there.  US futures, meanwhile, are little changed at this hour as traders await the first indications from the Georgia elections.

Bond markets are broadly lower this morning, with Treasury yields higher by 1.3bps and most European bonds showing similar rises in their yields.  On the one hand this is unusual, as bonds generally benefit from a risk off mood.  On the other hand, if I am correct about the move toward negative real yields, bonds will not be a favored investment either and could well underperform going forward, at least until the central banks increase their purchases.

Another beneficiary of negative real yields in the US is gold, which rallied sharply yesterday, more than 2%, and is up a further 0.3% this morning, back at $1950/oz.  Oil, meanwhile, is starting to move higher as well, up 1.8%, as some optimism over the outcome of the OPEC+ meeting is adding to the broad commodity rally.

And finally, the dollar is generally weaker this morning, down against all its G10 counterparts and many of its EMG counterparts as well.  In the G10, SEK (+0.6%) is the leader, which appears to simply be an example of its higher beta relative to the euro or pound vs. the dollar. But we are also seeing the commodity bloc perform well (AUD +0.5%, CAD +0.3%, NOK +0.3%) alongside their main exports.  However, this is clearly a dollar weakness story as the yen (+0.25%) is rallying alongside the rest of the bloc.

Interestingly, in the EMG group, ZAR (-1.35%) is the worst performer, followed by RUB (-0.6%), neither of which makes sense based on the G10 performance as well as that of commodities.  However, it is important to remember that short dollar is one of the most overindulged positions in markets, and the carry trade has been a favorite with both these currencies benefitting from that view.  This looks like a bit of position unwinding more than anything else.  On the positive side in this bloc, the CE4 remain solid and are leading the way, while LATAM currencies are little changed on the open.

On the data front, this week brings a lot of new information culminating in the payroll report on Friday.

Today ISM Manufacturing 56.7
ISM Prices Paid 65.0
Wednesday ADP Employment 50K
Factory Orders 0.7%
FOMC Minutes
Thursday Initial Claims 803K
Continuing Claims 5.1M
Trade Balance -$67.3B
ISM Services 54.5
Friday Nonfarm Payrolls 50K
Private Payrolls 50K
Manufacturing Payrolls 16K
Unemployment Rate 6.8%
Average Hourly Earnings 0.2% (4.5% Y/Y)
Average Weekly Hours 34.8
Participation Rate 61.5%
Consumer Credit $9.0B

Source: Bloomberg

Last Thursday saw a stronger than expected Chicago PMI and yesterday’s PMI data was strong as well, so the economy remains a bit enigmatic, with manufacturing still robust, but services in the dumps.  The payroll expectations are hardly inspiring, and with lockdowns growing in the States, as well as worldwide, it doesn’t bode well for Q1 at least, in terms of GDP growth.  We also hear from seven Fed speakers this week, which could well be interesting if anyone is set to change their tune regarding how long easy money will remain the norm.  However, I doubt that will happen.

The dollar remains on its back foot here, and I see no reason for it to rebound in the short run absent a change in the underlying framework.  By that I mean, something that will imply real yields in the US are set to rise.  Alas, I don’t see that happening in the near future.

Good luck and stay safe
Adf

Hope Springs Eternal

The White House and Congress have talked
‘Bout stimulus but both sides balked
Still, hope springs eternal
That both sides infernal
Intransigence will get unblocked

Throughout 2019, it seemed every other day was a discussion of the trade deal with China, which morphed into the Phase one trade deal, which was, eventually, signed early this year.  But each day, the headlines were the market drivers, with stories about constructive talks leading to stock rallies and risk accumulation, while the periodic breakdowns in talks would result in pretty sharp selloffs.  I’m certain we all remember those days.  I only bring them up because the stimulus talks are the markets’ latest version of those trade talks.  When headlines seem positive that a deal will get done, stock markets rally in the US, and by extension, elsewhere in the world.  But, when there is concern that the stimulus talks will break down, investors head for the exits.  Or at least algorithms head for the exits, its not clear if investors are following yet.

Yesterday was one of those breakdown days, where despite reports of ongoing discussions between Treasury Secretary Mnuchin and House Speaker Pelosi, the vibes were negative with growing concern that no deal would be reached ahead of the election.  Of course, adding to the problem is the fact that Senate Majority Leader McConnell has already said that the numbers being discussed by the House and Congress are far too large to pass the Senate.  Handicapping the probability of a deal being reached is extremely difficult, but I would weigh in on the side of no action.  This seems far more like political posturing ahead of the election than an attempt to address some of the current economic concerns in the country.

Yet, despite yesterday’s negativity, and the ostensible deadline of today imposed by Speaker Pelosi (we all know how little deadlines mean in politics, just ask Boris), this morning has seen a return of hope that a deal will, in fact get done, and that the impact will be a huge boost to the economy, and by extension to the stock market.  So generally, today is a risk-on session, at least so far, with most Asian markets performing nicely and most of Europe in the green, despite rapidly rising infection counts in Europe’s second wave.  Remember, though, when markets become beholden to a political narrative like this, it is extremely difficult to anticipate short-term movements.

Down Under, the RBA said
We’re thinking, while looking ahead
A negative rate
Is still on the plate
So traders, their Aussie, did shed

While the politics is clearly the top story, given the risk-on nature of markets today, and the corresponding general weakness in the dollar, it was necessary to highlight the outliers, in this case, AUD (-0.4%) and NZD (-0.5%), which are clearly ignoring the bigger narrative.  However, there is a solid explanation here.  Last night, between the RBA’s Minutes and comments from Deputy Governor Kent, the market learned that the RBA is now considering negative interest rates.  Previously, the RBA had been clear that the current overnight rate level of 0.25% was the lower bound, and that negative rates did not make sense in Australia (in fairness, they don’t make sense anywhere.)  But given the sluggish state of the recovery from the initial Covid driven recession, the RBA has decided that negative rates may well be just the ticket to goose growth once covid lockdowns are lifted.  It is no surprise that Aussie fell, and traders extended the idea to New Zealand as well, assuming that if Australia goes negative, New Zealand would have no choice but to do so as well.  Hence the decline in both currencies overnight.

But really, those are the only stories of note this morning, in an otherwise dull session.  As I mentioned, risk is ‘on’ but not aggressively so.  While the Nikkei (-0.4%) did slip, we saw modest gains in Shanghai (+0.5%) and Hong Kong (+0.1%).  Europe, too, is somewhat higher, but not excessively so.  Spain’s IBEX (+0.85%) is the leader on the continent, although we are seeing gains in the CAC (+0.4%) and the FTSE 100 (+0.3%) as well.  The DAX (-0.3%), however, is unloved today as Covid cases rise back to early April levels and lockdowns are being considered throughout the country.  Finally, the rose-tinted glasses have been put back on by US equity futures traders with all three indices higher by a bit more than 0.5% at this hour.

Bond markets, however, are following the risk narrative a bit more closely and have sold off mildly across the board.  Well mildly except for the PIGS, who have seen another day with average rises in yield of around 3 basis points.  But for havens, yields have risen just 1 basis point in the US, Germany and the UK.

Commodity prices are little changed on the session, seemingly caught between hopes for a stimulus deal and fears over increased covid cases.

And lastly, the dollar is arguably a bit softer overall, but not by that much.  Aside from Aussie and Kiwi mentioned above, only the yen (-0.15%) is lower vs. the dollar, which is classic risk-on behavior.  On the plus side, SEK and NOK (both +0.5%) are leading the way higher, although the euro has been grinding higher all session and is now up 0.4% compared to yesterday’s close.  There has been no news of note from either Sweden or Norway to drive the gains, thus the most likely situation is that both currencies are simply benefitting from their relatively high betas and the general trend of the day.  As to the euro, the technicians are in command today, calling for a move higher due to an expected (hoped for?) break of a symmetrical triangle position.  Away from these three, though, gains are extremely modest.

In the emerging markets, CZK (+0.7%) is the outlier on the high side, although there is no obvious driver as there have been neither comments by officials nor new data released.  In fact, given that Covid infections seem to be growing disproportionally rapidly there, one might have thought the Koruna would have fallen instead.  But the rest of the CE4 are also firmer, simply tracking the euro this morning as they are up by between 0.3%-0.4%.  There have been some modest losers in the space as well, with THB (-0.25%) leading the charge in that direction.  The Thai story is a combination over concerns about further stimulus there not materializing and anxiety over the political unrest and student protests gaining strength throughout the nation.

On the data front, this morning brings Housing Starts (exp 1465K) and Building Permits (1520K), as well as four more Fed speakers.  Yesterday, Chairman Powell was not focused on monetary policy per se, but rather on the concept of digital currencies, and specifically, central bank digital currencies.  This is something that is clearly coming our way, but the timing remains unclear.  One thing to keep in mind is that when they arrive, interest rates will be negative, at least in the front end, forever.  But that is a story for another day.

Today, we are beholden to the stimulus talks.  Positive news should see further risk accumulation, while a breakdown will see stocks fall and the dollar rebound.

Good luck and stay safe
Adf

Risk is in Doubt

The chatter before the Fed met
Was Powell and friends were all set
To ease even more
Until they restore
Inflation to lessen the debt

And while Jay attempted just that
His efforts have seemed to fall flat
Now risk is in doubt
As traders clear out
Positions from stocks to Thai baht

Well, the Fed meeting is now history and in what cannot be very surprising, the Chairman found out that once you have established a stance of maximum policy ease, it is very difficult to sound even more dovish.  So, yes, the Fed promised to maintain current policy “…until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”  And if you really parse those words compared to the previous statement’s “…maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals”, you could make the case it is more dovish.  But the one thing at which market participants are not very good is splitting hairs.  And I would argue that is what you are doing here.  Between the old statement and Powell’s Jackson Hole speech, everybody already knew the Fed was not going to raise rates for a very long time.  Yesterday was merely confirmation.

In fact, ironically, I think the fact that there were two dissents on the vote, Kaplan and Kashkari, made things worse.  The reason is that both of them sought even easier policy and so as dovish as one might believe the new statement sounds, clearly some members felt it could be even more dovish than that.  At the same time, the dot plot added virtually nothing to the discussion as the vast majority believe that through 2023 the policy rate will remain pegged between 0.00%-0.25% where it is now.  Also, while generating inflation remains the animating force of the committee, according to the Summary of Economic Projections released yesterday, even their own members don’t believe that core PCE will ever rise above 2.0% and not even touch that level until 2023.

Add it all up and it seems pretty clear that the Fed is out of bullets, at least as currently configured with respect to their Congressional mandate and restrictions.  It will require Congress to amend the Federal Reserve Act and allow them to purchase equities in order to truly change the playing field and there is no evidence that anything of that nature is in the cards.  A look at the history of the effectiveness of QE and either zero or negative interest rates shows that neither one does much for the economy, although both do support asset markets.  Given those are the only tools the Fed has, and they are both already in full use (and not just at the Fed, but everywhere in the G10), it is abundantly clear why central bankers worldwide are willing to sacrifice their independence in order to cajole governments to apply further fiscal stimulus.  Central banks seem to have reached the limit of their capabilities to address the real economy.  And if (when) things turn back down, they are going to shoulder as much blame as elected officials can give with respect to who is responsible for the bad news.

With that as background, let’s take a peek at how markets have responded to the news.  Net-net, it hasn’t been pretty.  Equity markets are in the red worldwide with losses overnight (Nikkei -0.7%, Hang Seng -1.6%, Shanghai -0.4%) and in Europe (DAX -0.7%, CAC -0.8%, FTSE 100 -1.0%).  US futures are pointing lower after equity markets in the US ceded all their gains after the FOMC and closed lower yesterday.  At this time, all three futures indices are lower by about 1.0%.

Meanwhile, bond markets, which if you recall have not been tracking the equity market risk sentiment very closely over the past several weeks, are edging higher, at least in those markets truly seen as havens.  So, Treasury yields are lower by 2bps, while German bunds and French OATS are both seeing yields edge lower, but by less than one basis point.  However, the rest of the European government bond market is under modest pressure, with the PIGS seeing their bonds sell off and yields rising between one and two basis points.  Of course, as long as the ECB continues to buy bonds via the PEPP, none of these are likely to fall that far in price, thus yields there are certainly capped for the time being.  I mean even Greek 10-year yields are 1.06%!  This from a country that has defaulted six times in the modern era, the most recent being less than ten years ago.

Finally, if we look to the FX markets, it can be no surprise to see the dollar has begun to reverse some of its recent losses.  Remember, the meme here has been that the Fed would be the easiest of all central banks with respect to monetary policy and so the dollar had much further to fall.  Combine that with the long-term theme of macroeconomic concerns over the US twin deficits (budget and current account) and short dollars was the most popular position in the market for the past three to four months.  Thus, yesterday’s FOMC outcome, where it has become increasingly clear that the Fed has little else to do in the way of policy ease, means that other nations now have an opportunity to ease further at the margin, changing the relationship and ultimately watching their currency weaken versus the dollar.  Remember, too, that essentially no country is comfortable with a strong currency at this point, as stoking inflation and driving export growth are the top two goals around the world.  The dollar’s rebound has only just begun.

Specifically, in the G10, we see NOK (-0.5%) as the laggard this morning, as it responds not just to the dollar’s strength today, but also to the stalling oil prices, whose recent rally has been cut short.  As to the rest of the bloc, losses are generally between 0.15%-0.25% with no specific stories to drive anything.  The exception is JPY (+0.2%) which is performing its role as a haven asset today.  While this is a slow start, do not be surprised to see the dollar start to gain momentum as technical indicators give way.

Emerging market currencies are also under pressure this morning led by MXN (-0.7%) and ZAR (-0.6%).  If you recall, these have been two of the best performing currencies over the past month, with significant long positions in each driving gains of 5.3% and 7.1% respectively.  As such, it can be no surprise that they are the first positions being unwound in this process.  But throughout this bloc, we are seeing weakness across the board with average declines on the order of 0.3%-0.4%.  Again, given the overall risk framework, there is no need for specific stories to drive things.

On the data front, yesterday’s Retail Sales data was a bit softer than expected, although was generally overlooked ahead of the FOMC.  This morning saw Eurozone CPI print at -0.2%, 0.4% core, both still miles below their target, and highlighting that we can expect further action from the ECB.  At home, we are awaiting Initial Claims (exp 850K), Continuing Claims (13.0M), Housing Starts (1483K), Building Permits (1512K) and the Philly Fed index (15.0).

Back on the policy front, the BOE announced no change in policy at all, leaving the base rate at 0.10% and not expanding their asset purchase program.  However, in their effort to ease further they did two things, explicitly said they won’t tighten until there is significant progress on the inflation goal, but more importantly, said that they will “engage with regulators on how to implement negative rates.”  This is a huge change, and, not surprisingly the market sees it as another central bank easing further than the Fed.  The pound has fallen sharply on the news, down 0.6% and likely has further to go.  Last night the BOJ left policy on hold, as they too are out of ammunition.  The fear animating that group is that risk appetite wanes and haven demand drives the yen much higher, something which they can ill afford and yet something which they are essentially powerless to prevent.  But not today.  Today, look for a modest continuation of the dollar’s gains as more positions get unwound.

Good luck and stay safe
Adf