April 4. BoJ “all in” on 2% inflation target

Staggering announcement by BoJ, vowing to reach 2% inflation target in 2 yrs by massive QE of $75b per month (Rtrs) “To meet its new 2 percent inflation target, the central bank will boost asset purchases to double its holdings of government bonds and exchange-traded funds (ETF) in two years.”  Nikkei +2.2%, USDJPY jumped to 95.50 and JGB yield sank to 42.5 bps!   Dangerous ground…as comparison US is buying $85B per month in an economy 2.5x as large as Japan’s (and US may taper off purchases).  QE pushes up stocks, but the economy doesn’t necessarily benefit. Paper risk assets had been fairly well correlated to the rally in USDJPY (and EURJPY) since last November, but SP’s only up about 7 this a.m. taking back just part of yesterday’s loss… the relationship may be weakening.
–Now the ECB is on tap in the wake of softer data and Cyprus.  Bloomberg reports Draghi is considering ‘plan B’ which may include a rate cut and a new round of bank loans (more LTRO).  However, 54 of 56 economists expect no change in rates today. (Spain and Italy yields continue to press lower).
–Metals made new lows yesterday; gold silver and copper are all approaching bottoms made last year (Gold’s was 1527, GCM now 1546), and further strength in the dollar as we are seeing this morning, could help provide the final push to flush out longs in precious metals.
–Tensions related to N Korea are ratcheting higher, further escalation would provide marginal bid to treasuries.
–Yesterday’s US data, ADP 158k and non-mfg ISM 54.4, were weaker than forecast.  Jobless Claims expected 350k.  US yields fell with tens down 5 bps to 181 and curve flattened as 2/10 made a new recent low of 158.  The five year guy has pretty much cleaned up the short position in 122p (+100k yest) and added to shorts in FVM 124.5 calls, open interest rose yesterday in the calls by 16k, as of yesterday’s close the strike is about 3.5 bps otm.  Total OI in fives was up 18k… underlying bid in 5’s remains strong.

Posted on April 4, 2013 at 9:15 am by alexmanzara · Permalink
In: Eurodollar Options

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