Japanese 10Y Yield Hits Zero For First Time Ever, Yen Strongest Since 2014, Stocks Crash

Good morning,

- Top/worst performers in majors versus USD today: JPY 1.1%, CHF 0.2%, EUR 0.1%. AUD -0.8%, NZD -0.6%, CAD -0.1%.On the other side, $JPY was the best performing major vs $USD on Monday with +0.88% spot-returns while $GBP was the worst performing with -0.49% returns.

- Following earlier comments from yet another Japanese talking head that deflation will be fixed any day now, the Japanese bond curve continues to collapse with yields hitting record lows across the entire spectrum. Most notably, 10Y JGBs - which were trading 24bps before BoJ NIRP - just traded with a 0bp handle for the first time ever, ready to join Switzerland as the only nations with negative rates at 10Y. As bonds rally, and JPY surges to strongest since 2014, so Japanese stocks are crashing (NKY down 1000 points from intraday highs). Bond yields are plunging... *JAPAN 10-YEAR GOVERNMENT BOND YIELD FALLS TO ZERO FOR 1ST TIME. As bonds rally, and JPY surges to strongest since 2014, so Japanese stocks are crashing (NKY down 1000 points from intraday highs).

- Germany exported goods to the value of 1,195.8 billion euros and imported goods to the value of 948.0 billion euros in 2015. Based on provisional data, the Federal Statistical Office (Destatis) also reports that German exports increased by 6.4% and imports by 4.2% in 2015 compared with 2014. In 2015, export and import levels were higher than the previous all-time highs recorded in 2014. That year, Germany exported goods to the value of 1,123.7 billion euros and imported goods to the value of 910.1 billion euros. The foreign trade balance showed a surplus of 247.8 billion euros in 2015, which was the highest value ever recorded.

- The total value of building permits issued by Canadian municipalities rose 11.3% to $6.9 billion in December, following a 19.9% decline the previous month. Higher construction intentions for multi-family dwellings in Quebec, Ontario, British Columbia and Alberta explained the advance. Chart 1 Chart 1: Total value of permits Total value of permits Chart 1: Total value of permits Construction intentions in the residential sector increased 16.3% to $4.7 billion in December, following a 17.9% decline the previous month. Gains were posted in every province except Saskatchewan.

- It’s finally happened, after months of speculating, USDJPY has closed below the 116 handle, confirming a reversal pattern that has been fifteen months in the making. The price structure formed after a massive rally that began in late 2011 catapulted the pair 5,000 pips higher. With this in mind, there’s little arguing the fact that there is plenty of downside potential should the pair continue to unravel. How much potential, exactly? While not the extent of what’s possible, the measured objective for the head and shoulders pattern comes in at 106. This area lines up with former lows from October 2014 and is also the 23.6 Fibonacci. retracement level when measuring from the 2011 low to the 2015 high. From here, traders can watch for a retest of the 116 handle as new resistance. Any rejection from this area could offer a favorable opportunity to get short.

As for support, the first level to keep an eye on is the gap from late 2014 at 112.30. This level is likely to attract a decent bid. After that, the swing high from the same time period at 110 could give sellers a run for their money, but will likely fall short of propping up prices for any extended period of time. Do keep in mind that Janet Yellen is scheduled to testify before the House Financial Services Committee on February 10th and 11th. This event is known to trigger volatility for the US dollar under normal conditions, so there’s little doubt that the greenback will fluctuate with her every word this time around.

-Japan's 5-year government bond yields falls to record -0.205%.

-The volatility through financial markets has been significant in recent weeks. Driven by concerns over the oil price, China and also the speed of rate hikes by the Federal Reserve markets have been thrown around from pillar to post. It is Chinese New Year this week so there could be a slight calming of volatility in the near term, however the uncertainty driven by Friday’s payrolls report should ensure that volatility remains elevated going forward. We look at how markets have been focusing on the US economy with economic data changing expectations. Although the Chinese New Year will take China equities out of the equation this week, the world’s second largest economy will still impact on sentiment this week. However, focus will quickly turn to Janet Yellen and her Congressional testimony to the House Financial Services committee, but how could it impact on market sentiment this week? Also what are the other key drivers of financial markets this week?

Major news for today: Germany IP and Trade Balance, UK Trade Balance, US NFIB small business optimism for Jan, ECB Governing council member Luis Linde speaks.