Stubborn

Equity markets are marginally higher in Europe, with the Nikkei outpeforming in Asia on the back of a much weaker yen.  

BoJ stands firm

The Bank of Japan has decided to stand its ground against market forces that have forced it to purchase huge amounts of JGBs in order to defend its yield curve control upper band. Despite mounting speculation that it could be prepared to further tweak the tool or abandon it altogether, the central bank has stubbornly dug in its heals and seemingly prepared itself for another onslaught in the bond markets.  

The surprise decision last month to widen the threshold in which it will allow the 10-year yield to trade has further fueled speculation that it's planning to phase out YCC, so rather than ease the pressure on the central bank as it hoped, it has intensified. In standings its ground today, it's effectively invited the backlash and the yen has been hammered as a result.

Inflation eases but still far too high  

UK inflation eased slightly in December, the second month in which it has fallen, indicating that it has peaked and barring another surge in energy prices, it could now steadily decline. That will come as a relief to households and businesses suffering the cost-of-living squeeze although, with the headline CPI still above 10%, there's still obviously a long way to go.

The Bank of England now finds itself in the uncomfortable position of needing to keep raising interest rates as inflation is still more than five times its target. Even core inflation is above 6% and we haven't really seen much progress on that front. Markets are pricing in another 1% of rate hikes in the coming months but if inflation remains stubbornly high, they may have to do more. Especially if the economy shows the kind of surprising resilience that it appeared to in the fourth quarter.  

Continuing higher

Oil prices are a little higher again on Wednesday trading around the peak we saw earlier this month. The optimism that's driving equity markets higher is filtering through to commodity markets as well, with the prospect of stronger growth in the world's two largest economies boosting demand expectations.  

A move back towards $90 in Brent would take us to levels not seen since early November and suggest traders are feeling much better about the global economic outlook. Of course, that's probably going to be subject to frequent change unless we get a steady stream of good data, while earnings season could put a dampener on sentiment.

Another run at resistance  

Gold is pushing higher once more after stalling just above $1,920. The zone between $1,880 and $1,920 has been a major zone of support and resistance in recent years and it appears to have slowed its ascent on this occasion too. That said, momentum has remained strong with the rally so the pause may only be brief. Should it fail to hold that momentum during this latest move higher, it could trigger further profit-taking and potentially a correction

Steadies after huge surge

It's been a phenomenal week for bitcoin, up around 20% and looking in a far healthier position. The lack of further contagion in the aftermath of the FTX collapse and the surge in risk-appetite has seen a flurry of support for cryptos which have had a rough few months to put it lightly. Well they've made up for lost time and bitcoin is now steadying above $21,000. Whether it can significantly build on this rebound is another thing but the fact that it's trading back in the pre-FTX range will come as a huge relief to the industry that will have feared further plunges or negative headlines.