Daily Market Outlook, January 18, 2023

BoJ Double Down or Bust
The Bank of Japan has once again remained anchored to their easy monetary stance, frustrating bond traders who had been poised to profit from an about turn in Yield Curve Control policy, the Japanese Yen shed 2% as the Nikkei ascended by a similar amount. The BoJ stated its intention to continue to purchase bonds at whatever amounts required to maintain the much maligned 0% yield on 10 year JGB, hence, the trading band is maintained at -0.5%/+0.5%, the central bank has deployed billions to defend the ceiling in recent trading sessions, the 10 year yield retreated from a high of 0.51% back towards 0.35% on the announcement.
Market watchers now see the BoJ left having to purchase record amounts of domestic debt, essentially making them the prime source of liquidity backstopping the debt markets, this move may be considered a last chance saloon scenario for investors still holding JGB exposure, to exit at reasonable levels before the appointment of a new BoJ Governor and an official reorientation in the Yield Curve Control strategy.
UK CPI inflation data released earlier this morning showed that inflation pulled back front he peak of 10.7% to print 10.5% in December inline with market expectations, the majority of the retreat is attributed to the decline in petrol prices, market watchers now look for further declines in food and energy prices next month as the UK market begins to aline with other developed economies, looking past the peak in inflationary pressures, however, the UK economy continues to witness a very tight employment market and general domestic pressures remain stubbornly elevated, this combination will likely keep the Bank of England on course for its tenth consecutive rate increase at its next meeting.
In the Eurozone investor focus this morning will be the final print for December inflation data which is expected to confirm a back to back monthly decline in consumer prices, however, recent rhetoric from European Central Bank officials suggest they have set a course for further restrictive monetary policy, with markets currently pricing another 50bps move at the February meeting
In the US all eyes will be on retails sales and industrial production data both of which are expected to show continued weakness, industrial production is set to have taken a hit from significant winter storms seen stateside. On the retail sales side of the ledger weakness is expected to be driven by record declines in the used car sales market. The US data slate is rounded out today with Producer Prices data which is expected to follow CPI’s lead and show a build in disinflationary pressures for Producers, investors will have one eye on the wires as Fed officials are set to make further remarks today.
Markets-wise, investors will continue to monitor moves in the bond markets and the JPY remains in focus, the US 10yr continues to rotate around the 3.5% with the Dollar Index anchored around the 102 handle. Commodity markets remain supported with many investors eyeing the breakout in WTI Crude taking out resistance at the $80 a barrel level, $83.50 is the next level of interest, Gold continues to shine, bulls will be looking for the yellow metal to remain supported above 1890 for a move to test 1950 next!