Rise and shine everyone.
The big news this morning is Japan. With comments from Governor Ueda, a speech from Deputy Governor Himino, and a poor 30-year bond auction, Japanese rates have been rising, strengthening the Yen and pushing down the USD-JPY pair below 145. Markets are now pricing a change to policy as early as this month’s BoJ meeting on December 19. I don’t think this will happen but, we’re likely teeing up for a policy change earlier than expected next year. (more on BoJ Ueda’s comments below).
European rates however remain muted, and the European equities continue to price in early rate cuts, which is possible but not probable during Q1, 2024. Nevertheless, we believe the Euro Area will likely be the first to lead the cuts next year, albeit gradually.
As for US markets, we continue to chop in a range driven by the same “rate cut-soft landing” narrative. We’ve seen bouts of rotation between momentum and the “catch-up” trade over the last few days without a clear direction. Tomorrow’s labor data may come in stronger and stall this rally even further. The Fed meeting next week is what could give this rally the next leg up. CTAs have largely done their buying for the year (see Chart of the Day below) and yesterday’s close lower seems to suggest the market is running out of momentum.
SPM) - Invesco S&P Momentum ETF