Headlines

* Yen explodes higher after BoJ Chief hints at exit from negative rates

* Nasdaq 100 ends up over 1% boosted by AI optimism

* Goldman sees ECB rate cut in April on stronger inflation retreat

* Gold steadies as dollar dips ahead of US payrolls reports

FX: USD dropped sharply falling to 103.27. But the DXY eventually closed off 0.5% and marginally above its 200-day SMA at 103.56. The yen dominated price action while data releases were mixed ahead of NFP.

EUR made a three-week low before moving above the support level at 1.0764. Expectations around ECB rate cuts have hit fever pitch with the first one seen as early as March with 150bps in 2024. Eurozone growth turned negative in Q3 compared to Q2. EUR hit an eight-year low versus CHF.

GBP moved up versus the dollar. Money markets show the first rate cut in the UK coming in June. Cabled had dipped below support at the 50% mark of the summer drop at 1.2589 before on the level.

USD/JPY had its biggest one-day fall since January. The sharp sell-off was fuelled by comments from BoJ Governor Ueda who said policy management would become even more challenging from year-end and into next year. He flagged that several options could come next. The 200-day SMA is 142.27. The Fib level (38.2%) of this year’s rise is 142.47.

AUD rebounded after sliding to a two-week low at 0.6525. The bounce took the major above the 200-day SMA at 0.6576.

Stocks: US equities gained, led by an uptick in weekly jobless claims and over a 3% gain in communication services. The S&P 500 added 0.80% to settle at 4585. The tech-heavy Nasdaq 100 finished 1.48% higher at 16,022. The Dow edged 0.17% north at 36,117. Google jumped over 5% along with other AI names after unveiling its latest AI model, Gemini. This is expected to compete with Microsoft’s Open AI. AMD surged more than 9% as it launched its new chips. There is an estimated $45bn market for its data centre processors.

Asian futures are in the green. APAC stocks dropped after the weak lead from Wall Street. Markets digested mixed Chinese data. The Nikkei 225 was the biggest underperformer sliding below 33k amid a firmer currency and modestly higher yields.

Gold advanced modestly higher for a second day and is trading above the 21-day SMA. All eyes are on the NFP data, ahead of next week’s CPI and Fed meeting.

Day Ahead – Will NFP support the aggressive rate cut outlook?

Consensus expects around 185k of job gains in today’s headline figure. While that would be an acceleration from the prior month, it is still below the three- and six-month averages just above 200k. The jobless rate is forecast to remain unchanged at 3.9% while average hourly earnings could tick up a tenth to 0.3%.

Economists say the small pick up in the headline will be down to the impact of the Detroit Three United Auto Workers strike in October, rather than a revival in the labour market. That would be in sync with the Fed’s recent Beige book and other employment indicators which noted an easing in the demand for labour.

 A consensus print probably underpins support for the current rate cuts priced in. This could see a small bid in stock markets and gold, and a turn lower in USD. There is roughly a 60% chance of a March 25bp cut and around 125bps of cuts for 2024.

Chart of the Day – USD/JPY plunges on hopes of BoJ policy change

The yen enjoyed its best day since a year ago when the BoJ widened its YCC target band. The strength was triggered by speculation of a live December meeting after recent commentary by bank officials. The BoJ is the only major central bank to not tighten policy. Bets have increased that there will be an eventual move back into positive rates territory. Markets are assigning around a 20% chance of an exit from NIRP in a few weeks’ time.  

USD/JPY spiked lower to 141.60 before closing at above 144. It was a volatile day which could continue on the NFP data. That said, further comments by any BoJ officials will fuel further speculation about a change to their ultra-easy policies. Of course, we have been here before with markets expecting policy changes at previous meetings.