Kuroda downplays possibility of further weakness in the Yen

The Day So Far

We saw further weakness in the bond markets this morning, with the German 10 year Bund hitting a yield of 1% for the first time since September before retracing. Equities rebounded, following several consecutive down days. Nothing in particular drove this change in sentiment, although the powerful reversal seen in equities in yesterday’s afternoon session reflects the inability of US equities in particular to really selloff,. This has been one of the key themes of the year so far, the lack of direction in US equities following 5 years of stellar annual returns. US economic data continues to be mixed, with the US Wholesale Inventories yesterday coming in slightly weaker, but Friday’s NFP number demonstrated the resilience of the labour market.

In the currency space, BoJ’s Kuroda caused a dramatic surge in the Yen, hitting a two-week high against the dollar just after he made off-the-cuff remarks that the currency’s weakness had gone fall enough and he couldn’t see it falling much further. The euro and the pound also moved higher versus the dollar in sympathy with the Yen strength. Elsewhere, last night’s API release showed a much strong than anticipated drawdown in crude inventories, (6.7million against expectations of a build), causing a sharp move higher in WTI futures, trading up at the $61 handle, having begun yesterday’s session below $59. That, combined with Kuroda’s comments and better than expected UK industrial production, led to broad-based dollar weakness throughout the morning.

The Afternoon View

We are pleasantly bullish equities this afternoon, looking for a continuation of the bullish action seen in equities this morning. Greece remains very much ‘unfixed’, but perhaps a bit of headline fatigue is setting in, and shorts could look to take profits here after several days of bearish sentiment and the Dax hitting the 11,000 handle.

The data calendar is on the light side, with just the Department of Energy inventories, to be released at 15:30 as usual, of note. In other crude-related news, it was revealed that Saudi Arabian oil production hit a fresh record in May, reaching 10.33 million barrels a day, confirmation, if it were needed in the wake of last week’s refusal of OPEC to cut production, that the Saudi’s remain steadfast in their determination to win back market share from less efficient producers.